The A2 Milk Company has revised its revenue forecast for the remainder of the year, on the back of ‘soaring demand’ for its infant formula products in China.
The company, which produces milk made only from the A2 beta-casein protein, now expects turnover in 2017 of NZD 525 million ($361.5 million).
In its first-half update in February, the New Zealand business had warned of lower infant formula sales during the second half of the year, reflecting both the timing of major selling events in China and the company’s prudent approach to inventory management.
But demand for a2 Platinum infant formula has exceeded expectations, driven by the cross-border e-commerce channel into China.
Demand has also been strong in Australia; for the nine months to the end of March, group revenue was NZD 388.5 million ($267.52 million).
A2 Milk has been working closely with its infant formula manufacturing partner, Synlait Milk, to uplift the production schedule for the remainder of the year.
The news is another endorsement for China’s infant formula market, after infant nutrition company Mead Johnson has agreed to a $17.9 billion takeover from consumer goods giant Reckitt Benckiser in February. That deal was largely motivated by Mead Johnson’s position in Asia.
Analysis: Why is China so big for infant formula?
The opportunities for foreign dairy brands to perform well in Asia – particularly China – are well- documented. Ever since the country’s melamine crisis in 2008, consumer confidence in domestically produced dairy has been insurmountably low. Chinese companies like Yashili and Yili have sought to reduce their losses by investing in Australian and New Zealand-made infant formula, while overseas companies like Danone and A2 have capitalised on favourable perceptions of brand quality.
Reckitt Benckiser’s products are household names in the UK and Europe, but its $16 billion takeover of Mead Johnson – reported by FoodBev in February – will allow it to expand its business into Asia. The region accounted for exactly half of Mead Johnson’s sales in the year to December, and is clearly proving to be a more important and robust market for A2 Milk than the company first thought. That’s why it has now increased its forecast revenue for the rest of the year.
Australia remains strong too, but China is a sizeable market for infant formula, driven by product innovation and a preference towards imported premium products. Food safety remains a key motivator for Chinese consumers, especially when it comes to their children.
The appeal of A2 Milk will have been dealt a favourable hand when a clinical trial found that milk with only the A2 protein can double the body’s concentration of an essential antioxidant.
In March, the company capitalised on this by launching a chocolate 2% reduced-fat milk.
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