In 2013, China’s dairy cumulative production was about 27 million tonnes, a year-on-year increase of 5.2%, while consumption rose by 6.7% to more than 28 million tonnes. In particular, liquid milk consumption was about 23 million tonnes, an increase of 6.4%, maintaining growth momentum.
As the world’s second largest milk producing country, China is also one of the largest dairy consumers. However, the consumption per person of dairy products is less than one third of the world’s average, reflecting that China’s dairy industry has broad scope for development.
With the continued enhancement of China’s per capita disposable income and the accelerated pace of urbanisation, consumers are increasingly in pursuit of higher quality and healthier products, a trend that has benefited the dairy industry.
Dairy consumption of China’s urban residents is mainly liquid milk, making up a major part of the total consumption, followed by yogurt and milk formula. The development of the domestic liquid milk market is relatively mature. Meanwhile, along with the rapid growth of the yogurt market in previous years, its current consumption accounts for 20% of the dairy market. Yogurt represents an important direction in the development of the market and without doubt will become a new growth point of the dairy industry.
To restore the community’s confidence in local dairy products, the PRC government introduced a number of significant measures in 2013, with a view to create a better environment for the domestic dairy industry. During the year under review, nine ministries, including the China Food and Drug Administration (CFDA) and the Ministry of Industry and Information Technology (MIIT), initiated measures to raise the industry’s entry barriers with the intention to phase out original equipment manufacturers (OEM) and rationalise the market.
Infant milk formula companies are required by MIIT to comply with Good Manufacturing Practice certification in international pharmaceutical production. Also, MIIT encourages infant milk formula companies to conduct mergers and acquisitions, so that within two years, 10 famous dairy giants with over RMB 2bn of annual sales income and intellectual property rights that are internationally competitive, can be formed.
The degree of concentration within the milk industry will then be raised to more than 70%, strengthening the competitiveness of local brands, which will in turn benefit the long-term positive development of the industry and bring enormous opportunities for leading players such as Mengniu. The acquisition of Yashili by Mengniu represents the largest M&A in the history of China’s dairy industry to date.
In addition, the National Development and Reform Commission has conducted an anti-monopoly investigation into imported milk formula products, leading to a fall in the prices of imported milk formula and the divestment of some foreign dairy companies. This bodes well for domestic dairy companies.
Another measure of far-reaching significance in the milk industry during the past year was the relaxation of the one-child policy. Now, if either the wife or husband of a couple is an only child, they are allowed to have two children, thus expanding prospects for the infant milk formula industry.
Moreover, at the end of the year, the CFDA issued a notice prohibiting the production of infant milk formula by way of commission, OEM, sub-packaging etc, so further reinforcing the quality and safety supervision on infant milk formula.
In terms of revenue of different sectors for 2013:
In which:
Mengniu’s products have been selling to the majority of the nation’s provinces, autonomous regions and mega cities. They are geographically divided into 20 mega sales regions that include:
Two Mengniu holding companies – Youzhiyou (Hubei) and Junlebao (Hebei) – have their own product outreach and market share.
Mengniu has built an online communication mechanism – Your Question, Our Responsibility – as well as platforms such as Weibo, CS Weibo and WeChat for consumers to ask questions at any time. Alongside that, Mengniu has opened its plants to visitors across the country. For instance, through its nationwide promotion, Enjoyable Visits to Green Mengniu, consumers can witness Mengniu’s strict supervision of milk sources, quality management, inspection etc. These initiatives have helped them better understand how Mengniu has fulfilled its promise, so increasing their confidence in the company.
In utilising the media for its branding campaigns, in addition to traditional channels including TV, newspapers and magazines, Mengniu has increased the use of digital media, which has effectively increased the return on investment. Mengniu has more than two million followers for its WeChat and Weibo accounts. On top of tapping into new social media and mobile network and platforms, Mengniu has also used creative videos for promotion with the aim of increasing its branding exposure and reach.
Mengniu Suan Suan Ru has become the title sponsor of a popular music reality show – The X Factor – on Hunan Satellite TV in a focused effort to demonstrate its young and energetic branding image. The TV programme has enjoyed a high rating during the same time slot in China and every episode has ranked first among the age 12-19 audience segment, thereby effectively and precisely targeting the youth market.
The Group has captured a 41% share of voice as a result of its 25% share of spending on the title sponsorship, a highly satisfactory return. This marketing campaign has boosted brand awareness, enabling Suan Suan Ru to win three accolades at the China Advertising Great-wall Awards hosted by China Advertising Association, namely the ‘2013 Advertising Marketing Communications Award] – Gold’, the ‘Interactive Creative Award – Silver’ and ‘Media and Marketing Award – Silver’.
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