Since the 2008 melamine scandal, the domestic milk market in China has had a hard time gaining the trust of consumers. This scandal hurt all players, including Mengniu Dairy and Yili Group, which are the leaders of the Chinese dairy industry. The crisis has also influenced milk consumers in China to purchase milk and dairy products from foreign brands, putting domestic milk producers at a disadvantage.

Even though the evolving consumer perception of milk in China has facilitated the growth of import and consumption of foreign milk firms, domestic milk firms in China still have dominated the milk market in China. Moreover, according to MarketLine, regarding the overall performance, from 2015 to 2019, the milk market in China has seen steady growth. Thus the market is anticipated to grow in the future.

Analysis of China’s milk market

Size of China’s milk market is gradually expanding

Chinese consumers are turning on to the nutritional benefits of milk products. It is predicted that sales of milk in China will increase from 11.95 billion RMB  (2018) to 12.83 billion RMB (2022), with a 1.7% annual growth rate. Thus the market size of milk in China has been growing steadily.

Data source: MarketLine, China’s milk market value  

Consumption of milk in China has grown four-fold since 2012

Due to the influence of traditional dietary habits and limits of economic development, in 2012, each person consumed only about 6.39 kilograms of milk per year. That was only about 1/3 of the consumption of an average Indian consumer and 1/10 that of a western consumer. Moreover, the consumption of powder milk in China ranks at the top among all countries in the world.

In 2020, the consumption of milk in China has increased remarkably. The consumption of milk per capita is projected to reach 28 kilograms in 2020 and 41 kilograms in 2030.

Data source: Qianzhan, Sales volume of the milk market in China  

Data source: Qianzhan, Sales value of milk in China 

Domestic brands regain trust, imported milk in China faces fierce competition

According to IBISWorld, due to the preference of milk consumers in China and demand for middle and high-end milk, import volume has increased steadily. With rising import volume and average prices, the import value of milk in China reached $5.47 billion in 2019, with a YOY growth of 7.6%.

Since domestic Chinese milk brands have dedicate to enhancing the quality of milk they are replacing some import products, which has led to a declining proportion of imports in the domestic demand of milk market in China. As a result, in 2019, imported milk represented 7.5% of domestic demand for milk in China, which decreased from 10.1% in 2014.

Data source: IBISWorld, Import partners of milk market in China (2019)

The price of milk in China is gradually increasing

Overall, the price of milk in China has a rising trend. The increasing price attributes to the rapid growth of consumption of milk in China and the condition of upstream supply chains.

Data source: ruzhipincy & chyxx, Price evolution of milk in China  

UHT milk is the most popular milk among Chinese consumers

The product segmentation of milk in China is mainly categorized into liquid milk and powdered milk. They are similar in terms of nutrients while different in terms of taste, form and price. Powdered milk consists of the process of dehydration and evaporation, which helps preserve it. Even though it loses its flavor during the dehydration process, it perfectly matches with smoothies, tea and filtered coffee. On the other hand, fresh milk contains more nutrition than powdered milk does and has a better taste.

Liquid milk is the largest segment. According to MarketLine, UHT milk is more popular with milk consumers in China, in contrast to  western consumers who prefer fresh liquid milk. 

The milk powder segment in China targets both adults and infants. According to Nielsen China, online and offline milk powder sales reached 1.8 billion RMB and 1.5 billion respectively in 2018. Specifically, according to IBISWorld, the infant milk powder segment has been experiencing rapid growth and highly profitable. The market size reached 175.5 billion RMB in 2019 and is expected to reach 216.3 billion RMB by 2024. With the implementation of the two-child policy, demand for infant milk powder is increasing rapidly.

Consumption of milk powder for adults, especially for families, has been rising steadily. Online shopping has facilitated the growth of this segment. The milk powder for adults in China is in the early stage of the product lifecycle by considering its market scale and profitability. Hence the market size of this segment remains stable as milk consumers in China lack product awareness.  

The supermarket is the most important distribution channel in China’s milk market

According to IBISWorld, Supermarkets are the largest suppliers of milk and offer the most extensive product range. Regarding food wholesalers, the majority of milk brands in China sell their products in local regions. They often establish wholesalers in the target province and are in charge of recruiting and managing distributors in tier-two or three cities. Regarding food retailers convenience stores, the revenue generated from these channels has experienced continuous growth. Other markets, including online shopping, have been developing rapidly in recent years. Milk consumers in China purchase milk from online shops due to its convenience and low prices.

Data source: IBISWorld, Distribution Channels of Milk Market in China (2019)

‘Safety’ is the number one concern of Chinese milk consumers. Consumers from different regions and segment groups in China consume milk in different ways.

Regarding Chinese consumers’ attributes of milk, consumers from developed areas value “safety first” while consumers from less developed regions value quality and brand. In general, both of the groups value safety certification, shelf life, nutrition, taste, brand organic, etc.

Families are likely to purchase a large amount of milk on the weekends and prefer fresh milk; office workers and students prefer buying liquid milk with paperboard packaging in the morning.

Milk packaging in China

Regarding the packaging of milk in China, paperboard, plastic and glass are common materials. Domestic milk firms in China mainly outsource both paperboard and plastic packaging to foreign firms such as Tetra Pak, PrePack and SIG Combibloc. Paperboard packaging is normally used in preserving both UHT milk and fresh milk. It helps preserve the quality of the milk. Thus the quality is less likely to go bad easily and can preserve more than six months. Plastic and glass are used in preserving fresh milk. The size of the packaging is mainly standardized as 250 ml.

Photo source: Zhihu, Packaging of milk in China

Chinese prefer to purchase milk in smaller packaging than westerners do. Owing to the habit of some milk consumers in China, it is convenient for students and office workers to carry a single serving size of milk with them. Secondly, the established supply chain and logistics in China cannot support the transportation of fresh milk perfectly. Hence milk with paperboard packaging is more prevalent in the milk market in China as it can preserve for an extended period and does not require a sophisticated logistics system to preserve the quality.

Does being lactose intolerant stop Chinese from consuming milk?   

Even though research shows that Asians, including Chinese, are mostly lactose-intolerant, it does not affect the sales of milk in China significantly. According to Zhihu, their consistent milk consumption can be explained by:

1. Consumers perceive that a small amount of milk would not aggravate the discomfort of lactose-intolerance, and this might is another reason why packaging milk in small portions popular in China.
2. Some people do not even realize they suffer from lactose-intolerance since their symptoms are not obvious.
3. Some of them perceive that the ingredients of Chinese milk are adapted to eliminate the effect caused by lactose-intolerance, that is, ingredients such as water and chemicals are added to dilute the lactose.

Brand analysis of China’s milk market

Domestic Chinese milk brands are making a return after being tarnished by scandals

Among the top 10 dairy milk companies, 9 are local brands. Mengniu, Yili, Guangming, Wangzai, Wandashan, Weita Milk and Chenguang are the top seven Chinese domestic brands with two producers originating from Taiwan and Hong Kong. Founded in 1999, Mengniu is the largest dairy milk company in China. It possesses over 20 branches in 15 provinces and exports its products to the US, Canada, Mongolia and South-East Asia. Although it maintains a good reputation, not even Mengniu can escape from the melamine scandal. As a 2008 Olympic Games sponsor, Yili, the second-largest dairy company, has explored a new way to market its product and overcome the scandal.

In 2020, Mengniu and Yili have further consolidated their leading positions in China’s milk market, with more than 30% of market share. Both firms have developed differentiated milk products to capture market share aggressively.

Data source: Euromonitor, Company Shares of Milk in China (2019)

Yili has focused on high-end milk products   

Regarding milk products of Yili, even though the company has developed a variety of milk products, it aims to focus on its high-end segment. Its representative product, Yili and Satine, according to Euromonitor, earned the third (7.4%) and fourth (6.7%) place respectively, in the brand shares of milk product (2019). Satine is positioned as the high-end brand as Yili has significant investment across different business units. Shuhua is a lactose-free product and targets lactose-intolerant consumers. School milk targets students and solely sells to schools in China while QQ Star targets kids in China. Wei Ke Zi is the flavored milk product.   

Photo source: Yili, Milk Products of Yili

Mengniu has adhered to the product differentiation strategy

Likewise, Mengniu has developed various milk products to tailor to different competing with Yili. According to Euromonitor, Mengniu and Deluxe are the pure milk and earned the first (7.9%) and second (7.4%) place respectively, in the brand shares of milk product (2019). Deluxe is the high-end pure milk product. Future Star targets kid consumers in China while Xin Yang Dao targets lactose-intolerant consumers. Mengniu has also developed flavored milk such as Zhen Guo Li and Nai Te. Zhe Zhi Niu Lai (This cow) is the milk product that targets university students in China. Mengniu has also expanded its product lines to fresh milk (i.e. Shiny Meadow and Green House) which Yili has yet to focus on.

Photo source: Mengniu, Milk Products of Mengniu

Influence of COVID-19 and future trends

The outbreak of COVID-19 has affected lots of industries, including China’s milk market. The pandemic has affected each business unit of the milk’s value chain in China.

The value chain of China’s milk market goes through the process of feed manufacturing, milk production, delivery, processing, packaging, distribution, and lastly, retail. Regarding the upstream business, the pandemic has affected the production of

As the situation is gradually recovering in China, so does the milk market. The government in China has implemented particular policies and subsidized the business involved in the milk’s value chain. These actions have sped up the recovery of the milk market in China.

Fresh liquid milk is the future trend

In 2019, the trend of “freshness” has emerged in the milk market. Key industry players such as Yili and Mengniu have started to invest in fresh milk significantly. The outbreak of Covid-19 may foster the growth of this trend since the National Health Commission of China recommends drinking milk. The government sector has suggested that drinking milk is an effective method to strengthen the immune system. Moreover, milk consumers in China have consistently perceived drinking milk as a means of calcium supplement and skincare. Thus it helps to cure osteoporosis and facilitates growing height. As more and more milk consumers in China value nutrition, taste and freshness, nutrition-added fresh liquid milk is likely to be the future trend in China’s milk market.

Photo source: Sohu, Nutritious and fresh liquid milk sold in small cartons in the Chinese market

Creative product packaging can draw consumers’ attention

In comparison with traditional promotion tools such as advertising and direct selling, creative product packaging is a cost-effective tool to promote products and is popular with young consumers. Hence more and more companies have gradually applied this tool.

Photo source: adquan, Creative product packaging of New Hope Group’s milk 

New Hope Group has applied the creative product packaging successfully on its flavored milk. With this co-creation strategy, New Hope Group has collected a list of mottos via social media in China and printed them on the packaging. Meanwhile, the company has designed cute images that are popular among Chinese consumers. These mottos reflect the current Chinese culture and humor of self-depreciating optimism, or passive acceptance of negativity. They are relatable and effectively tease young people’s lifestyles in a lighthearted way.  

In conclusion, China’s milk market is experiencing a steady growth in market size and revenue. Domestic milk brands have occupied the majority of the market share. Currently, the dominant milk product in this market is long-life liquid milk. Nonetheless, with the changing consumers’ perception and improving logistics, fresh liquid milk is projected to be the future trend in this market. Moreover, creative packaging is a useful promotional tool to appeal to milk consumers in China effectively.

Author: Amelia Han

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This article The milk market in China: consumers’ perception of nutrition has sustained the growth of this sector is the first one to appear on Daxue Consulting - Market Research China.

In November 2019, Tencent Ads and Tencent Marketing Insights (TMI) released a report called Tencent Maternal and Baby Industry Consumer Insights 2019 (腾讯2019母婴行业人群洞察, hereinafter called the ‘report’), which revealed information and trends on China’s maternal and baby products market. Moreover, it offered us much insight into the activities and content consumption preferences of new parents in China on social media, such as WeChat. The Data were collected between July 2018 to June 2019, Tencent marketing big data were used. The samples covered tier-1 to tier-6 cities, observing parents with children under three.

The digital ecosystem brings many opportunities for the expansion of China’s maternal and baby products market

As the first generation of internet aborigines, new parents in China are used to using the internet daily, especially social media. Online social platforms such as WeChat have already infiltrated into the various daily parenting situations, from gathering parenting knowledge to spending leisure time with their children, from collecting baby care product information to even purchasing them directly on those platforms. The digital ecosystem definitely brings many opportunities for the expansion of China’s maternal and baby products market.

China’s maternal and baby products market

The total number of 0-3-year-olds in China from 2016 to 2018 is 50 million. The annual birth rate has kept over 10% in the last 3 years. Along with the post-90s and post-85s, post-95s have also joined the Chinese new parent group. According to the big data from Tencent marketing, people born after 1990 account for almost half of the new parents with 0-3-year-old(s) at home.

As these young millennials are becoming consumers in China’s maternal and baby products market, many new opportunities are gradually emerging. From parenting concepts to childcare consumption, new parents in China are showing an attitude that is completely different from their previous generations.

Chinese new parents possess not only affection for their children but also themselves. They want both quality time with the baby and alone time for themselves. New moms care more and more about skincare, body figure management and postpartum repair. Also, new parents in China are more educated and empowered to make their own judgments when it comes to good parenting and good life. As a generation that grew up with material abundance, these new parents have a higher and more diverse demand for maternal and baby products.

China’s new parents on WeChat

As the number one social media platform, WeChat plays a significant role in Chinese new parents’ buying decision process. The following chart shows the channel(s) on WeChat, through which new parents learn about information regarding maternal and baby products. As we can see, more than half learn about product information from chat groups, shares from friends on moments and brands’ official accounts on WeChat. Also, almost half of new parents in China get product information in brands’ own chat groups. In addition, brands’ shares on moments and KOL content are also important maternal/baby products information sources for them.

According to the report, group chats are the most important source for new parents to share and gain information about parenting knowledge as well as maternal/baby products. The report revealed that a new parent is in 3 WeChat parents-chat-groups on average, with new moms in 5 groups. Post 95s are more likely to join the brand’s fan chat groups (36%).

New parents from higher-tier cities like to join parenting lecture groups or online parenting course groups. On the other hand, new parents from lower-tier cities are more into maternal/baby product shopping groups (52%), where products discount information is shared and draw activities are held.  

As we can see from the chart, when it comes to the question: “What kind of  maternal/baby related official account(s) on WeChat do you follow and visit regularly?” More than half of the new parents in China are consuming content about general parenting knowledge; quite a lot of them follow nutrition/baby food related account (45%), medical/well-being knowledge sharing account (44%), education-related account (39%) and brand’s official account (35%).

When they purchase maternal/baby products (or service) using WeChat, which channel(s) do they use? The chard below shows: patents groups (38%), links shared by friends on moments (34%) and links within WeChat official account content (33%) become the most used maternal/baby products purchasing channels for new parents in China on WeChat. Safety and product quality are the most important concerns in all maternal and baby product categories (baby food, baby clothing, toys, etc.).

The report also revealed that, compared to new parents from other age groups, post 95s used the menu bar of WeChat official accounts much more frequently (22% compared to 12%). Post 80s and post 90s are more likely to purchase maternal/baby products recommended by WeChat official accounts. On the contrary, Tencent QQ / Weibo and short video platforms have a stronger influence on post 95s decision-making.

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This article China’s new parents consumption report: Influences of the maternal and children product market in China is the first one to appear on Daxue Consulting - Market Research China.

The size of the baby care industry in China growing with a high speed, with its compound annual growth rate expected to reach 14.5% by 2023, according to Mintel China. Considering China’s recent easing of the One Child Policy in 2016, accompanied by the growing household income of Chinese families, the baby care market has seen consistent growth through both online and offline distribution channels. While foreign brands are still favored, especially when considering baby milk formula, domestic competition in China’s baby care market has tightened in the recent years, including sales of other child care related products such as strollers, bottles, baby seats, cribs, and baby clothing.  Although offline channels such as supermarkets and dedicated baby care stores are still the main distributors, the growing online presence of the industry both in e-commerce and social media seems to point to a promising future for the baby care market in China.

[Source: qianzhan statistics “Market size of the age 0-3 baby care market”]

E-commerce enables more foreign baby care product purchases

Purchases of baby care products through e-commerce are a big source of growth for its market in China. Cross-border baby care related sales online are some of the most popular for Chinese consumers, in addition to beauty and food products. Consumer reports record a higher frequency in the usage of baby products, especially those relating to baby personal care, such as body powder, lotions and creams, baby insect repellent, and shower gels. The preference for baby care is still imported products, and the huge e-commerce platform in China enables consumers to purchase foreign brands through cross-border e-commerce.

Half of the baby-related products are being purchased through e-commerce

Online channels now represent 50% of mother and baby retail market value, increasingly competing with physical stores for consumer attention in the baby care distribution market in China. As of 2017, this half of the market is dominated by Tmall, with 47% of the gross online merchandise volume, followed by JD at 27%. Combined, JD and TMall held 37% of the total online sales of baby-related products.

There is a growing market for baby durables, such as a stroller and baby seats in China. Online sales of strollers have reached 2.6 billion RMB on Taobao/Tmall in 2017. During the same period, China produced 16.41 million safety seats for cars, a 10.97% rise compared to 2016 to meet the increasing demand. In the baby bed, cribs, and basket sectors, the total online sales of baby beds have reached 1.16 billion RMB on Taobao/Tmall in 2017. According to a consumer report study by Mintel, 41% of consumers have purchased baby durables (strollers, car seats, beds) through online websites such as TMall and JD. While the unit price of international brands in the baby safety seat and stroller segment is 2500-4000 RMB, nearly three times the price of domestic brands 800-2000 RMB,  foreign international brands are still favored over domestic, with 47% of consumers preferring imported brands for safety reasons.

Over half of consumers report to using general e-commerce websites for baby clothing, followed closely by malls/department stores, specialized mother and baby stores, and supermarkets. Consumer reports of increased frequency in online shopping indicate the growing potential and competition of online markets versus physical offline stores. Among all kinds of baby care products consumption on e-commerce platforms, baby toys sales lead with 55% bought through online sales, diapers at 52%, clothing at 50%, and durable goods at 41%.

Mother and baby dedicated stores dominate the distribution of baby care products, such as lotions, creams, and shampoos, while in general stores such as supermarkets, consumption mainly consists of baby diapers and other toiletries. Yet the online distribution of all products has steadily increased, especially in the sectors of baby toys and clothing, where they are already taking over physical stores as the main channel of distribution.

Therefore, online channels are essential to foreign brands

“For the baby food processors, foreign brands are still better perceived. For 10 to 20% of the customers, the country of origin is a crucial criterion (especially for offline customers). As a result, many brands label themselves as International brands but are manufactured in China.” – Tim Favre, Daxue consulting project leader

Due to consumer sensitivities regarding the safety of domestic baby products, the baby care industry is a highly competitive category for imported goods. Online distribution through websites like TMall and JD offer convenient access to foreign product brands. An insight into the growing e-commerce market for baby products, Daxue project leader Tim Favre offers that: “For the baby food processors, foreign brands are still better perceived. For 10 to 20% of the customers, the country of origin is a crucial criterion (especially for offline customers). As a result, many brands label themselves as International brands but are manufactured in China.”

On Zhihu, a Chinese community question-and-answer site, the most concerned questions relating to baby care is regarding the brand of baby care products. Two foreign dominate the baby care market competition. Johnson & Johnson is the leading company in the baby personal care market in China with a market share of 12.8% in 2017, followed by Pidgeon with 7.8%. German brand Sanosan is also in competition for market share with domestic brands Frog Prince, Giving, and Yumeijing. Consumers are willing to pay for baby care products to ensure quality and safety, and brand is one of the most important associated keywords in online baby-related item searches. Foreign companies also participate in strategic branding through name translation to portray a warm, protecting presence to the Chinese consumer.  贝亲beiqin（Pigeon）literally translated to “baby affection,” is strategically translated phonetically to create a semantic element.

帮宝适 bangbaoshi (Pampers) uses the same strategy meaning “help baby feel comfortable.” it displays a direct message of their products’ comfortable advantages and effective functions.

With increasing competition among Chinese companies, there is also a promising future for the growth of the domestic baby care market

Due to a history of national scandals relating to China’s baby care industry, most infamously regarding baby formula, the domestic sector of the baby care market is still under backlash. While foreign companies still dominate the Chinese baby care market, Chinese companies have slowly been climbing its way up in sales. New demands from a population of parents with higher income also pose future opportunities for Chinese companies. As more parents are willing to spend their income on pampering their children, there is a higher demand of child-specific products, thus offering one angle for domestic companies to enter the Chinese market.

[Source: Taobao “Frog Prince shower gel”]

Baby-dedicated stores are prominent in China

“Most of the sales hold that offline store is still the dominant channel for baby care products and half of the sales consider it’s still growing.”—Yixiang Zhang, Daxue Consulting project manager

While online penetration is the main source of distribution for foreign brands and other segments of baby goods such as toys and diapers, offline distribution channels are still the dominant channel for the baby care market. Places such as supermarkets and dedicated baby stores are very attractive to consumers as they are able to set into the store and experience products for their children first hand.

[Source: Daxue Consulting]

Online Presence and Social Media Influence facilitates its popularity

Like many brands hoping to win over the Chinese consumer, companies in the baby care industry are using WeChat as a marketing platform. In addition to allowing product selection and e-commerce to be easily accessible, WeChat allows users to establish a sense of intimacy with its users. Leyou, a popular Chinese baby care company, utilizes interesting and humorous blog articles offering knowledge and advice on taking care of your child. In one section of an article, Leyou discusses the  “四要四不要” or “four wants four don’t want” to help your child get through the “可怕的两岁” or “frightening two years of age.” While the style of the article is rather personable and casual, it regardless offers serious advice, such as “Must be calm, don’t be violent.” In another article, Leyou provides an attention-grabbing headline- “child poops in Kindergarten, because we didn’t teach….” The article also utilizes a humorous subheading using colloquial language: “Speaking of baby pull a stink stink.…” Leyou’s entertaining yet informative strategy to attract consumers demonstrates how one company may utilize WeChat as an effective marketing platform for the baby care market.

[Source: Johnson&Johnson WeChat account]

[Source: Johnson & Johnson WeChat]

Baby-dedicated websites, WeChat Official accounts, Weibo KOL’s

Weibo, China’s most popular microblogging website, has also allowed baby care brands to utilize the Twitter-style blog site through blogging on relevant baby care industry related information, and reblogging posts from its followers. Some of the most popular Weibo accounts by baby care influencers include Stokke China and US Baby.

[Source: Weibo, StokkeChina]

[Source: Daxue Consutling]

[Source: mobile application, muyingzhijia]

[Source: homepage, beibei]

Increasing online searches on questions regarding baby care

Baby related questions have also gained attention on Zhihu, with the most inquiries on the brand of product to buy, as well as baby care and safety of baby care products. Community members have also written extensive articles on certain popular topics, such as “Baby Beds, What is the Safest Way to Buy Them?” Other articles include how to choose baby formula, and informative articles on the baby’s development of their senses during their first few years, amongst many others.

[Source: Zhihu “Baby cribs, how to make the safest purchase”]

Author: Julia Qi

Daxue Consulting is can help get your baby care products into the Chinese market

Daxue Consulting has carried out projects in the baby care industry and has experience with product launches and market entry procedures like brand naming and competitor analysis. To know more about the baby care industry in China, do not hesitate to contact our project managers at dx@daxueconsulting.com.

This article China’s baby care market: Why do Chinese parents love foreign products? | Daxue Consulting is the first one to appear on Daxue Consulting - Market Research China.

A Weibo (China’s biggest microblogging platform) post on Oct. 9 has been reposted 13,000 times and got almost 4,000 comments: Someone found Chinese characters written on the bottom of several Enfamil formula packagings in a Canadian Walmart. Why is this seen as a scandal in China? This article explains how this causes Chinese netizens to lose trust in the popular overseas purchasing model Live Daigou (直播代购zhibo Daigou).

Screenshot of Weibo.com

Chinese characters written on formula packaging in Canadian Walmart

Chinese characters written on formula packaging in Canadian Walmart

What is Daigou?

Daigou, the literal translation of “purchasing on behalf of”, refers to a person living outside of China mainland or living in China mainland but travelling often overseas, who set up an unofficial reselling activity aiming at residents of mainland China. Often used platform by Daigou agents is Taobao, but also WeChat and Weibo are used for more social-oriented e-commerce. Daigou has been extremely popular in China over the last 10 years, the figure from Daigou Hunter shows: almost two hundred million CNY (around 28 million USD) of Daigou sales revenue has been made on Taobao.

Daigou Hunter: Daigou sales revenue on Taobao from last month

Why Is Daigou So Popular in China?

The activities scope of Daigou can be roughly divided into 2 parts: luxury and non-luxury products. While the main reason for purchasing luxury products from Daigou is price attractiveness by avoiding Chinese high tariffs and more buying options, non-luxury products from Daigou means authentic foreign products with better quality. Baby food is one of the most popular product categories of Daigou, e.g. according to Daigou Hunter: Aptamil’s Daigou sales revenue of last month on Taobao has reached over 10 million CNY (around 1.5 million USD) Chinese parents have been deeply concerned about baby food safety ever since the Chinese milk scandal in 2008 which was a widespread food safety incident and sickened nearly 300,000 infants according to CNN China.

What Is Live Daigou?

With the huge economic benefits this business model has brought, Daigou market has become a hotbed for fakes in recent years. High internet and smartphone penetration in China, strong awareness of technology among Chinese consumers as well as the large demand for authentic overseas-products have bred a new Daigou model: Live Daigou. Live Daigou refers to Daigou who makes short videos of the purchasing process and posts on social media or sends directly to the buyer, in which he/she marks the ordered products to prove the authenticity.

Screenshots of Taobao: Canadian Enfamil Daigou with free service of making video clips/marking products

However, Live Daigou can no longer prove authenticity, as a lot of fake Live Daigou come onto the market. Faking shared location on social media and/or making set-upped purchasing videos are common scams for fake Live Daigou. In this Weibo post, Chinese netizens believe that the products with Chinese characters on them are from some Live Daigou, who hasn’t really purchased the formulae, but only marked them and made a fake video of the process. Actually, this is not the first time someone overseas discovered Chinese-character marked formula and posted on social media. With time passing, Chinese consumers have lost their faith in Live Daigou either.

Screenshot: WeChat post of Hipp formula with Chinese characters on packaging in a German drugstore

Screenshot of Taobao: results coming out by searching for “altering WeChat shared location”

Opportunity for International Baby Food Brands

This widely-spread post on Weibo reveals the Chinese consumers’ distrust of Daigou / Live Daigou. On the other hand, the Chinese government has strengthened the customs policy and inspection, which directly leads to a much higher cost for Daigou. Although several international brands such as Aptamil have already built their official online shop on Tmall and have a big sales volume, many Chinese consumers are still searching for safe purchase channels for high-quality baby food from overseas, that provides a huge opportunity for many other international baby food companies.

Screenshot of Aptamil official store on Tmall: 100% original from Germany

Daxue Consulting has taken a special interest in researching the baby food market in China

As seen in our previous baby food market analysis, not only is the baby food market is experiencing rapid growth but due to scandals similar to the Canadian Walmart one, Chinese parents have a proven preference for foreign baby food.

To know more about China Baby Food Market in China, please don’t hesitate to contact us.

This article Chinese Characters Found on Formula Packaging in Canadian Walmart Exposes Shopping Scandal is the first one to appear on Daxue Consulting - Market Research China.

Many Chinese parents are unaware of the correct foods to feed their babies, the baby food market in China is evolving rapidly. The World Health Organization (WHO) provides recommendations on how to feed babies. WHO state that it is best to breastfeed babies between 0 and 6 months old. For babies between 6 months and 3 years old, it is recommended to feed them food supplements. However, Chinese babies between 0 and 6 months often consume both breast milk and formula powdered milk, whilst babies between 6 months and 3 years old consume formula powdered milk and homemade baby food supplements. This shows that Chinese babies accept artificial food earlier in comparison to most other Western societies. The majority of Chinese baby foods are homemade as there are not many commercially produced baby foods products in the Chinese market. Therefore, there is significant potential for the market to develop in China, even if it remains a complex market.

The rise of the Baby Food Market in China

Chinese infant formula consumption is much higher than most countries in the world. Indeed, the prices paid for milk inside China, whether fresh milk or powder, are higher than the world average, due to the pressure of a demand that the country can’t satisfy alone. A second cause is the fact that, right after China opened up, brands heavily promoted infant formula, and Chinese mothers tend to think that infant formula was better than breast milk. Which is obviously not the case, and as a consequence, the Chinese government has been restricting the promotion and advertisement of it over the last few years.

China is a huge potential market for commercially produced baby food. Since the relaxation of the “One Child Policy”, families have been growing to have more than one child. In 2014, the birth rate in China raised by 1.237%. There were 16.87 million new births in China in 2014, and there are 40 million babies aged between 6 months and 3 years. According to our Market research on this field, we estimate that if one baby consumes 100g baby food supplements per day, the Chinese baby food market scale would be more than ¥80 billion. The current baby food supplements market, however, is only at ¥7 billion. Our statistics show that the market scale of formula powdered milk is bigger than ¥60 billion, and in 2013 there were already 128 baby powered milk manufacturers producing more than 700,000 tons of products. This year, in October 2015, the “One Child Policy” has just been abandoned, allowing all Chinese couples to have two children for the first time in more than three decades.

A lot of small local manufacturers could sell their products but the Chinese government is now working on this to dismiss those small companies, which usually do not comply with the rules with the sanitary issues etc. In the near future, the aim of the government for the infant formula market is to create top domestic players, which will enhance the competition.

Adoption of Western Baby Food 

Chinese parents prefer foreign formula powdered milk over domestic. As published on our website, the top 10 brands of formula powdered milk in China are all imported from overseas. Young shoppers are willing to pay double for foreign-branded infant formula. When Chinese parents select baby food products, they tend to learn more information through sources such as search engines (60%), store visits (50%), social media (46%), professional websites (43%) and discussion forums (42%). Since the reputation of Chinese powdered milk manufacturers has been severely tarnished, the imported products are more popular. The sales channels have fierce competition, and online sales are higher than offline markets.

The rise of Online sales

Despite the fact that the sales of offline formula powdered milk were still about 11 times the amount of online sales from September 2013 to September 2014. Those figures are rapidly changing. The reasons Chinese parents choose online channels over offline channels include saving time (60%), delivery services (54%), and lower prices (47%). Platforms such as Taobao and Jingdong, as early as in 2013, began focusing on maternal and infant products. The competitions between online sales platforms will become fiercer as technology advances and sales and distribution channels improve.

Perhaps the best way to describe this market in the first half of 2015 is “price war”. A lot of big companies such as Wahaha, Evergrande group, and Bosses, have entered the baby food market, which led to the current actual production capacity to rapidly grow to 1.5 million tons of product. However, the actual consumer demand remains at 600,000 tons, creating a significant excess of inventories. Over the next 2-3 years, small brands will be delisted or acquired, and the competition amongst larger brands will increase.

Increasing Disposable Income in China 

As long as producers make improvements according to actual demand, there will still be many new opportunities in the baby food industry. The government work report in 2015 showed that people’s living standards improved, and the national per capita disposable income grew by 8% in real terms – faster than economic growth. Rural residents’ per capita disposable income grew by 9.2% in real terms, a figure higher than the urban residents’ income growth, and a reduction in rural poverty by 12.32 million people. This suggests that Chinese consumers’ spending power and consumption level is also in constant ascension. Under the positive role of the environment, the infants and young children market’s consumption is bound to rise. Children are one of the most important aspects of the family. In recent years, most Chinese households had a 4-2-1 problem (four grandparents, two parents, and the only child under the One Child Policy), children have become the core focus of a family, occupying the vast majority of ordinary household spending.

According to the Statista’s graphic, Urban families with infants and young children’s consumption in 2013 and 2016 will continue to maintain rapid growth, and has reached 28,844 RMB in 2014. The compound annual growth rate is expected to remain at around 12.7%. The producers should control the quality of the baby food, as the most important thing to Chinese consumers is food safety. Simplifying the enterprises internal processes and reducing the management levels could save costs, and increasing efforts on improving market reaction speed. For the domestic market, discounts seem to have been the most effective marketing tool. But as people’s consumption ability enhances, and food safety awareness increases, irrational discounts and price wars seem to be failures. As long as the manufacturers follow market trends, the Chinese baby food market will continue to grow.

The end of the one-child policy: a better tomorrow for the market?

When the Chinese government ended the one-child policy, it led many to believe that the Chinese population would take advantage of it, and that soon, having two children would be the norm in China. However, due to the heavy costs of raising a child in China, and the development of the contraceptive market, China has not seen its birth rate rise as high as the brands hoped. But China still holds its promises for now, with a population still steadily rising and an increased income, spent on children and their good health.

We hope you enjoyed reading this article, and have gained more of an insight about the baby food market in China. If you would like to learn more about this topic or to get more information on another market in China, we, the Daxue Consulting team, are happy to answer any inquiries.  Contact us at dx@daxueconsulting.com & Click here to to know more about the Chinese demographics.

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This article The Baby Food Market in China: a valuable Industry is the first one to appear on Daxue Consulting - Market Research China.

Main Brands and Products of Baby Food owned by Nestle in China

Nestle has made quite a lot of acquisition of other baby nutrition companies so as to ensure its dominance in the global baby nutrition market. The most well-known ones include Wyeth and Gerber. It is also said by some critics that Nestle’s world food empire is established by acquisition.

Wyeth, one of the global top 500 enterprises, was founded in 1926 and headquartered in Collegeville, Pennsylvania, USA. Wyeth is the world’s largest research-based pharmaceutical and health care products companies, having a leading advantage in prescription pharmaceuticals, non-prescription health care products and nutritional fields. Nestle acquired Wyeth in April, 2012.

Gerber, from America, having over 80 years of professional experience, is a brand who has withstood the test of time and people. Its raw materials are from global high-quality farms whose soil has passed strict safety tests, and ensured no harmful pesticide residues. Gerber was acquired with 5.5 billion U.S. dollars by Nestle in 2007.

Recent trouble in Brand image

Recently, some of Nestle’s milk powder was “downsizing”, with the prices remaining the same. Hence a great number of consumers questioned Nestle milk powder “disguised price rise”.

Nestle China official responded by claiming “Nestle downsized in order to put a spoon in the milk powder box to facilitate the consumers.” To justify the cost, the direction added: “The improved milk powder craft and quality had their corresponding cost.”

However, facing the situation of imported milk powder price rises and regarding to the quality and safety perceived of Nestle’s products, we can expect to not see any true consequence on Nestle’s performance. Finally, in order to compete with other international Brands, Nestle announced willing to slighlty reduce its price.

What is the influence of recent year incident for Nestle in China

Before the event of excessive iodine, the company’s performance was very good, especially the middle and low level products. At that time Nestle was one of the most Cost-effective domestic milk powder brands. This scandal could impact this leading position in China. Therefore, Nestle develop relevant product and communication strategy to gain advantage of this situation in the customer’s mind.

Nestle milk powder technology and R & D technology are of great advantage. Nestle promised to not use any genetically modified ingredients in their products in Europe, not in Asia. Nestle now mainly produces in Heilongjiang. Though the company uses domestic milk source, its production management is very stringent hence many consumers still find it trustworthy.

Amy Wang

http://www.bbc.com/news/business-23176085

http://www.scmp.com/news/china/article/1275122/nestle-danone-cut-chinese-infant-milk-prices-amid-probe

This article How Nestle reacts to the events on Baby food market in China is the first one to appear on Daxue Consulting - Market Research China.

Karicare is a leading infant formula brand of the global maternal and child nutrition experts Nutricia.

Karicare has been founded in 1896, developed by Dr. Truby King with the incentive of “Help fatigued mothers, protect cute babies”. After a hundred years of development, Karicare has now become the market leading brand in New Zealand and Australia, and the most preferred brand for mothers in New Zealand and Australia.

After the scandal on infant formula in China, Australia’s and New Zealand’s milk was quite popular in the Middle Kingdom. However, 2013’s scandale let the brand drop to disapear from China’s market. It is a good example of the difficulty to etablish in China when it comes to baby safety.

Why New Zealand and Australia’s milk was popular in China

New Zealand’s climate is pleasant, with enough sunshine and very lush plantation. The forest area accounts for about 29% of the country’s entire area, and consequently the ecological environment is very satisfying. Under the situation of fertile land and the government supported natural protection, New Zealand is a country emphasizing industries like agriculture, animal husbandry, tourism and education. The New Zealand government strictly controls industry, resulting in very little air pollution.

At present, New Zealand is the only country that produces milk where epidemic of avian influenza, foot-and-mouth disease, and mad cow disease has not yet appeared. Moreover, animal husbandry adopt complete stocking way, unlike the United States and other countries feeding with provender, resulting probable containing of hormones or genetically modified particules in the milk. Therefore the undoubted quality of the New Zealand animal husbandry is world-famous, renowned in Europe, the United States and other countries.

In China, as the safety of food industry’s product, in particular baby food, has become such a sensitive topics, this milk is going to be very attractive. Majority of China’s imports came from New Zealand, which counted for 25% of its exports.

Market Research China on Karicare’s development

Karicare is a sub-brand of NUTRICIA under infant formula company Danone, owning an astounding 72% market share in New Zealand. In August, 2011, Karicare officially entered China market, and set up sales channels on Taobao, u1baby, 360buy and other well-known online shopping websites in China, enjoying an average 80% sales growth per month. It was said that, after entering Guangdong, Karicare will soon open stores in Fujian, Guangxi, with an objective of reaching the scale of over 3000 shops in China.

Troubles of Karicare’s brand strategy

The troubles started with a micro blogger recently broke the news that she had bought fake Karicare milk powder. This blogger claimed that she thought that what she had bought was Karicare milk powder with new packaging after it localized in China. But she found it to be completely different with those Karicare ones she had bought before and realized that she was kind of hoodwinked.

Another blogger on the Internet also warned consumers by uploading relative photos, saying that there was some company in Shanghai claiming to be incorporation with Karicare released “Karicare” infant formula, which turned out to be fake ones called similar pronounced name in Chinese. Karicare’s high quality products has always been it greatest advantage and thus it is more likely to be copied. To treasure its precious reputation and to maintain its brand strategy, Karicare probably should consider seriously its strategy in China for anti-counterfeit mission.

However, in 2013, new Zealand milk powder has been banned from the China’s market as a bacteria which can cause serious disease to baby has been found in imported production. Thus, all the effort done by the brand Karicare for many year to build a relevant and efficient brand strategy and commercial development in China has been wasted.

Amy Wang

http://www.abc.net.au/news/2013-08-04/an-china-bans-nz-milk/4863858

http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=10890692

This article The difficulty of infant formula market in China : the example of Karicare is the first one to appear on Daxue Consulting - Market Research China.

Still the infant formula market has to struggle with many challenges a triggered by a series of food safety scandals. First in 2014 fake milk powder was discovered on the market. The infant formula products of Sanlu had none nutrition; 13 cases of death babies in the province of Anhui were registered. In Sept 2008 the biggest food safety scandal shook the world. Again Sanlu, and several more mostly domestic IF suppliers had produced milk powder where large quantities of melamine were added to give it the appearance of having adequate protein levels. In total 300,000 babies were infected, 104 seriously ill, and 6 cases of death were registered. This food safety scandal caused significant changes in the Chinese as well as in the global IF market.

Due to the several food scandals, Chinese consumers lost their confidence to domestic products, which lead to a relocation of their demands to the global market. The demand on the markets increase rapidly. This in turn to critical bottlenecks for the production for the foreign suppliers. They were unable to overcome the increased demand to deliver all supermarkets. The origin domestic customers were not satisfied and disappointed.

In order to fulfill the domestic customers demand many purchasing limits and fines are ordered. However the problem could not be solved this way, since buyers would just go to the shop more often. Some foreign suppliers as Milupa stopped exporting their products to China.

The consequences are twofold. First the supply cannot meet the demand, hence prices for foreign IF increase. Second a development of an independent third party market started. Relatives and friends first started bringing IF as a souvenir to their families in China. Quickly entrepreneurs and students abroad discovered this market potential and conducts IF business e.g. via the Internet. They would provide foreign IF for a lower price than the legitimate channels in China, since the average prices in the market out of China are much lower. This market could even be compared to the heroin market.

On the long run these third party businesses should disappear from the market. Therefore the Chinese government orders new requirements in different areas to restore consumers’ trust and rebuild the Chinese IF market with domestic suppliers. New investments, higher management and production requirements, stricter environmental settings were planned and implemented. As already today in 2013 China’s dairy industry has been rebuilt with higher-producing cows living on efficient massive factory farms and eating better food. China makes nearly as much milk as the pre-scandal peak in 2007, with 350,000 fewer cows. In 2018, 80% of the IF products should be produced on the Chinese market again.

For further outlook quality certification can be a helpful tool to regain trust of Chinese consumers. Introducing a certification system that allows the full traceability of the ingredients used, possibly verified by independent international agencies, would be an important step in building confidence.

Furthermore new technologies to identify germs in the early stage could gain market potential on the Chinese market.

Tp know more about infant formula

This article Infant Formula and the Chinese market is the first one to appear on Daxue Consulting - Market Research China.