In recent years, Yakult's performance has shown a slight slowdown, but its subsidiary Yakult (China) Investment Co., Ltd. continues to expand production capacity, aiming to maintain its leading position in the industry by tapping into lower-tier markets. Recently, Yakult's new factory in Foshan was completed, officially becoming its third factory in Guangdong. Not long ago, the second plant of Yakult's Wuxi factory was also completed. According to our analysis, if both new plants go into operation, Yakult will have six production bases in five Chinese cities including Guangzhou, Shanghai, Tianjin, Wuxi, and Foshan, with a maximum production capacity of 14.2 million bottles per production day, more than double the average daily sales of 7.526 million bottles in 2018. In the increasingly competitive lactic acid bacteria beverage market, is Yakult's capacity expansion an opportunity for transformation and upgrading or an unpredictable adventure? Sales growth rate drops to 7.5%, below industry level From a market share perspective, Yakult's capacity expansion has an absolute advantage. Especially in South China, Yakult holds nearly 60% of the refrigerated lactic acid bacteria beverage market in mainland China. According to Yili Duo (Yakult is called "Yili Duo" in South China), from October 2018 to March 2019, Yili Duo's monthly market share was 59.8%, 62.9%, 62.6%, 62.8%, 63.2%, and 63.1% respectively. Although the market share is growing steadily and slowly, in the broader probiotic ecosystem, even slight growth means sales volume increases by more than a few tenths of a percentage point, and market demand is expected to expand further. According to BBC Research, the market value of probiotic-containing products is expected to reach $50 billion (over RMB 300 billion) by 2020. To keep pace with industry development, Yakult is actively expanding its production capacity in China. The Foshan Yili Duo factory under Guangzhou Yili Duo was officially completed, covering an area of approximately 44,000 square meters, with an expected production capacity of 1.6 million bottles per day. Meanwhile, a reporter from the Yangtze River Business Daily saw on its official website that just over twenty days ago, Yakult's Wuxi factory also held a completion ceremony for its second plant, scheduled to start production in April 2022, further strengthening the production system and raising Yakult's capacity to a new high. However, from its market growth perspective, although Yakult's overall performance remains upward, it seems to have hit a bottleneck, with growth rates significantly lower than before and below industry levels. Yakult's sales in China grew from about 59,000 bottles per day in 2002 to 5.825 million bottles in 2016, with a compound annual growth rate of 39% over 14 years. By 2018, Yakult sold 7.526 million bottles per day in China, with a year-on-year growth rate dropping to 7.5%. Compared to data from industry analysis company GIA, since 2005, the global market growth rate for probiotic products has been about 10%-15%, and the compound annual growth rate in China is nearly 20%. Yakult seems to be falling behind. Regarding the slowdown in sales growth, Yakult stated that production capacity constraints led to supply shortages, resulting in reduced promotional efforts and slower sales. An analysis of Yakult's production capacity reveals that it currently has 46 branch (subsidiary) companies in mainland China. With the completion of the two new plants, the six production bases can reach a maximum production scale of 14.2 million bottles per production day, meaning if all factories operate at full capacity, production capacity would be roughly double the market sales demand in 2018. Lower-tier markets have lower acceptance What worries the market is whether Yakult will face oversupply. Looking at sales performance changes in recent years, this is indeed one of the issues Yakult needs to address. From 2002 to 2018, Guangzhou Yili Duo's sales showed triple-digit growth, but the growth rate began to slow slightly from 2015. At the same time, major companies have entered the field, intensifying market competition. Besides the old rival Wei Chuan, dairy companies such as Yili, Mengniu, Guangming, and Junlebao have aggressively entered this segment, and traditional food companies like Qiaqia and Wahaha have also built their own teams to compete in the room-temperature lactic acid bacteria beverage market. Although Yakult's leading position in the industry seems stable, it faces significant challenges. Looking at Yakult's response strategies in recent years, it has mainly focused on deepening penetration into third- and fourth-tier markets and expanding production capacity to maintain performance growth. Additionally, it may change its single-product strategy in China and plans to introduce new categories. Hirai Susumu, Executive Managing Director of Yakult Honsha Co., Ltd. and Chairman of Yakult (China) Investment Co., Ltd., said in a media interview that Yili Duo (Yakult) is continuously expanding and deepening its presence in mainland China, mainly by setting up branch companies and building factories. Among these, branch companies are mainly concentrated in third- and fourth-tier cities. One of the reasons for opening the new Foshan factory is to reserve production capacity for the development of third- and fourth-tier markets. From a market positioning perspective, compared to other probiotic beverages that focus on low-price promotions and channel sinking, Yakult is positioned at a mid-to-high price point. A reporter from the Yangtze River Business Daily visited retail outlets and found that the best-selling Yakult series products are mainly in 100ml bottles, with five bottles packaged as a set selling for around 12 yuan. Similar-sized lactic acid bacteria beverages from Wei Chuan, Mengniu, Yili, Wahaha, Panpan, and Weidongli are all priced lower than Yakult, mostly at three-fifths to four-fifths of Yakult's price. This may pose a significant challenge given consumers' current preference for cost-effective products. "Yakult sells better in first- and second-tier cities, but its acceptance in third- and fourth-tier cities is relatively lower. Especially under the competition of full-line brands like Wei Chuan and Yili, which often run joint promotions, Yakult's product penetration appears relatively limited," said an industry observer in the FMCG sector. Currently, there are many lactic acid bacteria beverage brands in the lower-tier markets of third- and fourth-tier cities, with varying quality and prices, and the industry is chaotic. Industry experts believe this chaotic market structure is mainly due to the low entry barriers, numerous suppliers, and relatively easy independent R&D in the lactic acid bacteria beverage industry. This indirectly highlights the intensity of industry competition. Moreover, with the rapid development of e-commerce, whether the home delivery model that once helped Yakult "conquer the market" still has a competitive advantage remains to be tested. Meanwhile, most local Chinese brands rely on advertising and dealer networks to distribute products to supermarkets, convenience stores, or community kiosks, making products widely available to consumers. If Yakult aggressively enters third- and fourth-tier markets, it will face many challenges. On one hand, there is "ready-to-go" production capacity; on the other, there is the "fierce competition" in third- and fourth-tier markets. With the pressure of slowing sales growth in recent years, the time for Yakult to expand is becoming increasingly tight. Source: Yangtze River Business Daily Tips will be paid 400-2000 yuan once adopted. China FMCG + Internet Professional New Media Committed to FMCG manufacturer transformation and upgrading and channel digital solutions Copyright issues | Business cooperation | Project consultation | Reader submissions