---
title: "Yili and Mengniu Battle Rages On, Other Players Sneak Attack on King's Landing?"
description: "China's dairy industry is seeing renewed competition. Since 2022, over a dozen dairy companies have announced IPO plans to accelerate financing, expand scale, and break through. This reflects the accelerating capitalization of China's dairy sector. On October 10, Miaokeland announced that Mengniu Dairy plans a partial tender offer, following Mengniu's earlier moves to become its controlling shareholder. Beyond Mengniu, giants like Yili, Junlebao, Bright Dairy, and China Feihe are all accelerating M&A, covering upstream milk sources, downstream channels, and niche categories."
author: "BT财经"
publisher: "New Distribution"
email: "zhaobo258@gmail.com"
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published: "2022-10-28"
language: "en"
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---

# Yili and Mengniu Battle Rages On, Other Players Sneak Attack on King's Landing?

> China's dairy industry is seeing renewed competition. Since 2022, over a dozen dairy companies have announced IPO plans to accelerate financing, expand scale, and break through. This reflects the accelerating capitalization of China's dairy sector. On October 10, Miaokeland announced that Mengniu Dairy plans a partial tender offer, following Mengniu's earlier moves to become its controlling shareholder. Beyond Mengniu, giants like Yili, Junlebao, Bright Dairy, and China Feihe are all accelerating M&A, covering upstream milk sources, downstream channels, and niche categories.

China's dairy industry is seeing renewed competition. Since 2022, over a dozen dairy companies have announced IPO plans to accelerate financing, expand scale, and break through. This reflects the accelerating capitalization of China's dairy sector. On October 10, Miaokeland announced that Mengniu Dairy plans a partial tender offer. Mengniu had previously become the controlling shareholder through private placement and stake increases, and now the tender offer signals a clear intent to intensify M&A. Besides Mengniu, giants like Yili, Junlebao, Bright Dairy, and China Feihe are all accelerating M&A, covering everything from upstream milk source control to downstream channel expansion and niche category innovation. Recently, over 30 listed dairy companies in China have disclosed their interim results. Overall, in the first half of 2022, industry concentration continued to rise, with Mengniu and Yili maintaining a huge advantage as the top tier, but also showing signs of crisis; meanwhile, small and mid-sized dairy companies face significant pressure on performance and profits, still struggling to break through. Can small and mid-sized dairy companies overtake the giants? Will the competitive landscape of China's dairy industry change?

**01**
**Liquid Milk Giants See Slowing Growth**

Yili and Mengniu have long been recognized as the two oligarchs of China's dairy industry. According to the National Bureau of Statistics, in 2021, Yili and Mengniu held market shares of 23% and 20%, respectively, totaling 43%, nearly half of the market. In contrast, the third, fourth, and fifth players—Bright, Junlebao, and Feihe—combined for only 13%. However, the duopoly is gradually changing. In the first half of 2022, Yili achieved total revenue of 63.463 billion yuan, while Mengniu reported 47.7223 billion yuan, a gap of 15.741 billion yuan, widening from 25% in 2021 to 33%. In terms of growth, Yili's revenue increased 12.31% year-on-year in H1, while Mengniu's grew only 4%. In capacity, as of June 30, 2022, Yili had an annual capacity of 14.78 million tons, compared to Mengniu's 12.74 million tons. In market value, as of the close on September 30, Yili's total market value was 211.05 billion yuan, while Mengniu's was 111.524 billion yuan, making Yili nearly double Mengniu, with a lead of over 100 billion yuan. If growth rates do not improve, the gap between Mengniu and Yili may widen further, making the 'one superpower, multiple strong players' pattern more evident.

Breaking down the revenue of the two giants, their main business segments include liquid milk (milk + yogurt), milk powder and dairy products, cold drinks, and others. Liquid milk is the largest revenue source for both: Yili's liquid milk business accounts for nearly 70% of its revenue, while Mengniu's accounts for over 80%. According to interim reports, Yili's liquid milk business generated 42.892 billion yuan in revenue, up 1.14% year-on-year, with market share up 0.1 percentage points from the same period last year. Mengniu's liquid milk revenue was 39.67 billion yuan, up only 0.6% year-on-year. It is clear that both companies' liquid milk businesses remain firmly in the top two positions, but their growth rates are relatively slow.

Yili holds star products like Jindian, Ambrosial (Anmuxi), and Yili Pure Milk, each generating over 20 billion yuan in sales, as well as 10-billion-yuan products like Yousuanru, and 1-billion-yuan products like Shuhua Milk, Guliduo, and QQ Star. Among them, Ambrosial holds a 65% share of the yogurt market, ranking first in its category; Jindian, as the top brand in organic white milk, also maintains the industry's leading market share. Surrounded by strong products, Yili seems confident, but analysis of historical financial reports shows that the gross margin of Yili's liquid milk business has been the lowest among its three major segments, hovering around 35% in recent years, but dropping below 30% in 2021 to just 28.33%.

For Mengniu, it competes with Yili through star products like Telunsu, Chunzhen, Zhen Guoli, and Youyi C, with Telunsu being the world's largest dairy product, contributing the most sales and holding the top market share among Mengniu's products. Although Mengniu does not disclose the gross margin for its liquid milk business, given that it accounts for over 80% of revenue, it can be inferred that the overall gross margin is largely determined by the liquid milk segment. Financial data shows that Mengniu's gross margin also declined in 2021, indicating that its liquid milk business has encountered development bottlenecks.

Yili has stated that it expects to achieve its strategic goal of 'top three globally by 2025 and number one globally by 2030' ahead of schedule, possibly by 2025-2026. However, with both total revenue and net profit growth slowing, if Yili succeeds, it may owe more to the mediocre performance of its competitors.

Figure: Yili's revenue and net profit year-on-year growth

**02**
**Yili and Mengniu Battle on Multiple Fronts**

For a company, over-reliance on one revenue stream often implies significant market risk; once the pillar business loses momentum, it can cause huge fluctuations in performance. Mengniu is a case in point, overly dependent on the single liquid milk business. In contrast, Yili has performed much better in other segments beyond liquid milk in recent years. Data shows that in H1 2022, Yili's milk powder and dairy products business achieved revenue of 12.071 billion yuan, up 58.28% year-on-year. Among them, infant formula milk powder grew at the fastest rate in the industry, with retail value share up 3.5 percentage points from the same period last year; adult milk powder maintained the top position in its segment, with retail value share up 1.3 percentage points. Additionally, Yili is accelerating its maternal and child channel layout, with growth of over 30% in that channel during the reporting period, ranking first in the industry.

However, it is worth noting that from 2018 to 2021, the gross margin of Yili's milk powder and dairy products business also declined year by year, falling below 40% in 2021. Will it recover in 2022? In March this year, Yili acquired Ausnutria, which owns two flagship products, Kabrita and Hyproca, but several brokerages, including Southwest Securities, believe that consolidating Ausnutria will increase sales and management expenses, thereby lowering Yili's profitability in its 2022 financial report.

Mengniu, on the other hand, has performed poorly in the milk powder business. It does not have its own milk powder production line, relying mainly on its approximately 51% stake in Hong Kong-listed Yashili International and the acquisition of Australian milk powder brand Bellamy's. Yashili International recorded only 1.89 billion yuan in revenue in H1 2022, and with Bellamy's contribution, Mengniu's total milk powder revenue was 1.894 billion yuan, down 25.88% from 2.547 billion yuan in the same period last year, accounting for only 4% of total revenue, the lowest among all business lines. As a result, Mengniu has considered privatizing Yashili International. However, Yashili's performance in 2022 has been poor, with revenue down 12.53% year-on-year and a net loss attributable to shareholders of 159 million yuan, an increase of 460.29%. For Mengniu, Yashili is a loss-making entity that needs to be filled; whether it can turn around under Mengniu and become a new growth driver remains to be seen.

However, in the cheese business, Mengniu has somewhat regained ground—in other businesses primarily focused on cheese, Mengniu achieved revenue of 2.26 billion yuan through its cheese leader Miaokeland, a surge of 148.4% from 910 million yuan in the same period last year, ranking first in national market share for cheese and children's cheese sticks. In contrast, Yili's cheese business growth of 40% is less impressive.

Finally, in cold drinks, Yili continues to outperform Mengniu. It has ranked first in China's cold drink sales for 28 consecutive years, and in H1 2022, it had already achieved its annual target, with revenue of 7.295 billion yuan, up 31.71% year-on-year, the fastest growth in the industry. Among them, the Qiaolezi series saw sales growth of 33.31%, becoming the top ice cream brand. Mengniu's brands such as Suibian, Lvse Xinqing, Bing+, and Dilan Shengxue have maintained steady growth, but revenue was only 3.904 billion yuan, about half of Yili's, with year-on-year growth of 29.9%.

**03**
**The Predicament of Regional Dairy Companies**

On the battlefield where Yili and Mengniu clash, it is hard to find other players because they are not in the same league. A media summary of the total market value rankings of listed dairy companies in the first three quarters of 2022 shows that Yili and Mengniu are both at the 100-billion-yuan level, while China Feihe, ranked third, drops to 40-60 billion yuan, Miaokeland and Bright Dairy are at the 10-billion-yuan level, and New Hope Dairy and Ausnutria fell out of the 10-billion-yuan tier in Q3 2022. These regional dairy companies either have too single a business to support a larger scale, such as Feihe focusing on milk powder and Miaokeland on cheese, or are confined to their regions, lacking the national reach of Yili and Mengniu.

One notable company is Sanyuan, ranked eighth by market value. As the leading dairy company in Beijing, it produced China's first industrially produced yogurt, first cheese, and first breakfast milk, and was once on par with Yili and Mengniu, but has now fallen significantly behind. In H1 2022, Sanyuan's total revenue was 4.262 billion yuan, not only less than Yili's smallest business line (cold drinks), but also down 6.64% from 4.565 billion yuan in the same period last year. Its net profit attributable to shareholders, excluding non-recurring items, fell below 100 million yuan to 90.08 million yuan, down 56.05% from 205 million yuan in the same period last year. Compared to its target of '150 billion yuan in revenue and 420 million yuan in net profit excluding non-recurring items by 2025,' this is indeed far off. Net cash flow from operating activities was 100 million yuan, down 77.44% from 444 million yuan in the same period last year. Gross margin for the reporting period was 26.85%, down 2.7 percentage points from 29.55% in the same period last year. Additionally, the company's actual production capacity is only 320,000 tons, incomparable to Yili and Mengniu's tens of millions of tons.

Among its segments, liquid milk, Sanyuan's main business, has long been sluggish, with gross margins of 29.72%, 29.02%, 16.84%, and 20.13% over the past four fiscal years, showing a declining trend. In H1 2022, liquid milk contributed 2.37 billion yuan in revenue, up only 3.5% year-on-year. For Sanyuan, the lackluster revenue and profit growth stems from its inability to expand beyond the Beijing region. Financial reports show that from 2019 to 2021, Sanyuan's revenue from the Beijing region accounted for 49.15%, 51.81%, and 56.83% of its total revenue, respectively, showing a steady upward trend. In H1 2022, contract revenue from Beijing reached 2.571 billion yuan, while other regions contributed 1.69 billion yuan, accounting for 60.3% and 39.7%, respectively. It is clear that the proportion of revenue from Beijing is still increasing.

In online channels, Sanyuan's performance has also been less than satisfactory. From 2019 to 2021, e-commerce contributed main business revenue of 512 million yuan, 819 million yuan, and 1.005 billion yuan, accounting for 6.3%, 11.2%, and 13.2% of total revenue, respectively, showing steady growth. However, in H1 2022, e-commerce segment revenue was 441 million yuan, dropping to 10.4% of total revenue. Sanyuan's lukewarm development has failed to attract capital market attention. After its 2021 interim report, no brokerage has issued research reports on Sanyuan. Since hitting a historical high of 15.45 yuan per share in 2015, Sanyuan's stock has been on a continuous decline. As of the close on October 11, Sanyuan was trading at only 4.48 yuan, with a total market value of 6.7 billion yuan.

To change this situation, Sanyuan has also tried to emulate Yili and Mengniu by expanding through acquisitions, successively acquiring Hunan Taizinai, Ailaifax, French companies Brassica Holdings and St Hubert. In November 2021, Sanyuan acquired a 46.3675% stake in Shounong Animal Husbandry, becoming the controlling shareholder with a 51% stake. Unfortunately, these acquisitions have not brought about a qualitative leap for Sanyuan; some have even become burdens. Taizinai was once a well-known domestic brand, but after joining Sanyuan, its performance has deteriorated. In H1 2022, it generated revenue of 7.9878 million yuan, accounting for only 0.19% of total revenue, down 18% from 9.7403 million yuan in the same period last year. St Hubert not only brought Sanyuan 1.663 billion yuan in goodwill but also huge liabilities, and the profits it contributed are insufficient to cover even the interest on borrowings. Shounong Animal Husbandry was first consolidated in Q1 2022, but due to a sharp rise in feed prices, its costs increased, causing Sanyuan's Q1 profit to decline by 42.72% year-on-year. Excluding this, Sanyuan's original business revenue grew 5.94% year-on-year, and net profit attributable to shareholders grew 5.86%.

Currently, only Ailaifax is relatively promising, as its ice cream business has gradually become a pillar of Sanyuan's net profit, becoming its second-largest business. Financial reports show that in 2021, the ice cream business generated a net profit of 115 million yuan, accounting for 46.90% of Sanyuan's overall net profit, up 185.62% year-on-year. In H1 2022, it achieved revenue of 917 million yuan, up 10.3% year-on-year, accounting for 21.7% of total revenue. However, compared to Yili and Mengniu's cold drink businesses, the gap is nearly eightfold, making it an insurmountable chasm and uncompetitive in the market.

**04**
**Product Encirclement and Counter-Encirclement**

Sanyuan's disappointment reflects, to some extent, the awkward situation of small and mid-sized dairy companies: lacking core star products, they gradually lose market influence and struggle to make significant progress in their own territories. Yili and Mengniu have star products in every business line, and some super single products can outperform entire small and mid-sized dairy companies. It is not easy for small and mid-sized companies to break through.

Bright Dairy once fought a brilliant battle—it pioneered the room-temperature yogurt category with the Mosilian brand, temporarily breaking through the blockade of Yili and Mengniu, and captured an 11.7% market share in the yogurt market in 2014. However, in the face of Yili and Mengniu, the fruits of victory did not last long. The latter two, leveraging their strong brand marketing and channel scale, launched Ambrosial and Chunzhen, respectively, squeezing out Mosilian. By 2020, Mosilian's market share had fallen to just 3.6%.

Although Bright failed, more and more small and mid-sized dairy companies are following suit, trying to innovate in niche segments. Whether it's niche milk categories like goat milk, buffalo milk, or camel milk, or concept innovations like additive-free, organic nutrition, A2 milk, or Jersey cows, they are all attempting to encircle the giants. Emerging brands like Jane, Lechun, and One Cow Raised by One Person have gained significant market attention. For example, One Cow Raised by One Person, established only a few years ago, is already preparing for an IPO, with 2021 revenue reaching 2.5 billion yuan, approaching that of long-established Sanyuan.

However, playing new concepts and pursuing high-end routes are nothing new to Yili and Mengniu. Earlier, brands like Sanyuan, Huishan, Bright, and Asahi Weipin had already put Jersey milk on shelves, but it was Yili that truly brought 'Jersey milk' into consumer awareness with its launch in May this year. Through heavy marketing, sponsoring popular shows like 'Talk Show Conference 5' and 'Sisters Who Make Waves 3', Yili made its 'Jindian Jersey A2 Organic Pure Milk' quickly go viral.

Moreover, in tracks targeted by giants, small and mid-sized dairy companies inevitably face two fates: being eliminated or being swallowed. Take the cheese market, a hot niche in recent years. According to Kantar Consumer Index, in 2021, Miaokeland ranked first in China's cheese brand sales with a 30.8% market share; in H1 2022, Miaokeland's cheese market share reached 35.5%, and its cheese stick market share exceeded 40%. Despite such impressive results, its real boss is Mengniu. Mengniu fully participated in Miaokeland's 3 billion yuan private placement in 2021, becoming its single largest shareholder, and recently announced a partial tender offer; if completed, Mengniu's stake in Miaokeland will increase to 35%.

Currently, under the high pressure of Yili and Mengniu, the only segment with breathing room is the low-temperature milk market. Low-temperature milk requires extremely high standards at every stage from milk source, transportation, processing, to sales, and is highly regional, giving local dairy companies an advantage. For example, Sanyuan, which focuses on low-temperature milk, has seen its Beijing revenue rise steadily despite overall sluggish performance.

If you can't win, you still have to survive. As consumer health awareness increases and demand becomes more refined, more small and mid-sized dairy companies will continue to participate in the encirclement battle against the giants, and Yili and Mengniu will strive to counter-encircle to consolidate their market positions. This war may never end, but the continuously activated Chinese dairy market will be the biggest winner.

Header image source: Chuangketie
Text source: BT Finance (ID: btcjv1)
Author: Qingqiu

_**-END-**_


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