The
demand for infant formula in China, especially high quality one, is on a
seamless growth. As a growing middle class is demanding more health care
products, manufacturers, domestic and abroad, are enjoying boosts in their
sales, even overseas companies are still facing challenges in China’s market.
Source: Pixabay
China’s
market is becoming one of the main focus for many infant formula producers
worldwide. The odds are standing beneficial for a huge growth in the next
years. The abandoned one-child policy of the government, a growing
urbanisation, the focus on e-commerce and the busier lifestyle of China’s young
mothers have created a huge market for infant formula producers, international
and domestic. Some experts believe the market can reach up to 133 billion Yuan
till 2020.
The
booming infant formula market in China is especially beneficial for domestic
manufacturers, which are slowly earning the trust of Chinese consumers in
domestic products. In the case of health care products and infant formula,
foreign brands have always been the first address to go for Chinese consumers,
as low quality and scandals had set back the demand for Chinese commodities of
this kind.
However,
according to market intelligence firm CCM, China’s manufacturers are facing
boosting sales nowadays, especially in the premium infant formula section.
Some
examples of successful companies in China are Feihe Dairy, Junlebao, and
Sanyuan. These companies reported sales increases of premium infant formula
products up to 191%, 237%, and 260% respectively in the first quarter of 2017,
compared to last year.
Foreign
global players see the same trends in their sales in China. New Zealand-based
company A2 milk for example, has recently adjusted its sales
expectations in China, based on the huge success of its platinum infant
formula. Were the expectation for the first half of 2017 lower than done
before, the company now announces that they expect an even larger sales volume
in H1 2017. The main sales channel, according to the company, is hereby found
in e-commerce, which represents the most convenient way for young parents in
China to ensure a healthy nutrition for their babies, even their life is getting
busier due to work.
However,
especially foreign manufacturers are still facing challenges in China’s market,
which benefits domestic manufacturers. First of all, the uncertainty in China’s
new regulations has let global players like Murray Goulbourn be very cautious
about the business and hold expansion plans until more security is shown.
Changing landscapes of markets in China have been a challenge for many foreign
companies in previous years.
Danone
has revealed decreased sales volume of infant formula in China, too, based on
the switching from wholesalers’ distribution to a direct selling model.
Arla
is investing about 12 million euros in a high-quality infant formula producing
plant, to meet the growing demand worldwide and especially the one in China,
which is Arla’s strongest market.
The
main driver for high demand of premium infant formula in China is the growing
income in its population. According to the National Bureau of Statistics, the
average annual per capita disposal income in 2016 increased by 8.4%. Hereby,
the income for rural households increased even more than the one of urban households.
Especially 3 and 4 tier cities in China are getting surging attention by many
companies, as the markets in 1 and 2 tier cities are slowly getting saturated.
In
combination with the growing income and China’s one-child policy resulted in a
situation, which boosts demand for high-quality infant formula even more. Most
of the today young mothers are the only child of their parents, which allows
paying more attention to premium products for children regardless the price.
In
addition to the improvement in the economy, the Provisions for formula
registration released by the China Food and Drug Administration in June 2016
also drove up sales of premium infant formula in Q1 2017.
These
limit manufacturers to no more than 3 formulations. Because it is difficult to
register 3 formulations in a single application, many manufacturers have been
registering formulations in batches, leading with premium infant formula, their
most important products. These, in turn, are the priorities for distributors,
who are more willing to purchase these than products whose registration
approval is unclear, creating another clear market driver.
As
a small notice, China’s demand for high quality and trusted health care
products like infant formula has even created a new job opportunity for many
Chinese students abroad. These students improve their financial situation by
buying cheap but trustworthy products in the countries they are studying, like
Australia, and send them back to China for a small commission. The practice of the
so-called Daigou is disputed because authorities are not sure if
taxes are paid properly. Nevertheless, this new business model shows the
potential in China’s middle-class market for products like infant
formula.
The
first companies have already discovered this potential and even work directly
with the Daigou together, in order to promote their products and rely
on the endorsement.
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 children.
About CCM
CCM
is the leading market intelligence provider for China’s agriculture, chemicals,
food & ingredients and life science markets.
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