The focus of the infant formula market is shifting from China to Africa, but Chinese infant formula brands are not yet well-prepared for international expansion
Yicai.com By Luan Li 15 Aug, 2023 11:28
With the continuous decline in the number of newborns, the Chinese infant formula market is no longer attractive.
According to data revealed at the World Dairy Congress held this month, the number of newborns in China is expected to be less than 8 million in 2023, indicating a further contraction of the infant formula market. A recent report by the research team at Rabobank suggests that the global focus of the infant and toddler formula market is shifting from China to Africa.
However, several Chinese infant formula companies, struggling with domestic growth challenges, seem uninterested in venturing into international markets.
The domestic infant formula market has been on a downward trend since 2021, especially in 2022, facing challenges such as market contraction, chaotic pricing, and channel consolidation due to various internal and external factors.
The continuous decline in the birth rate is considered a significant factor affecting the industry. In 2022, the annual number of newborns in China was 9.56 million, marking the sixth consecutive year of decline and a significant drop from 18.83 million in 2016, leading to a rapid decline in market size.
At the World Dairy Congress, Chief Scientist Li Shengli of the National Dairy Industry Technology System revealed that based on current data, the number of newborns in China in 2023 is expected to be less than 8 million, further contributing to the contraction of the infant formula market.
Facing market contraction and increased industry competition, domestic infant formula companies are experiencing financial challenges. Leading domestic company China Feihe recently announced its performance forecast, expecting revenue of RMB 9.58 billion to 9.87 billion in the first half of the year, with a year-on-year decline in comprehensive net profit of 23.2% to 36.4%. Feihe attributes the decline in comprehensive net profit to the decrease in China's newborn population, increased industry competition, and the net loss of Upfield (01431.HK).
Despite the market challenges, most Chinese infant formula brands seem uninterested in going international. A representative from a large state-owned infant formula company stated that while Africa has a market with a large population and less-developed economy, few Chinese companies are considering entering the African market. The domestic market is vast and familiar, making it unnecessary to seek opportunities abroad. Additionally, Chinese infant formula companies lack experience in international operations.
It's worth noting that venturing into international markets poses challenges such as local regulations and cultural integration. Each country has different regulations for infant formula, and products and marketing strategies must comply. Many Chinese marketing tactics may not be applicable in some countries. Achieving cultural alignment and integration to establish a competitive local sales team is a new challenge for domestic infant formula brands.
Some Chinese companies, such as Beingmate and Feihe, have started selling in other countries using overseas factories. However, international sales still constitute a relatively small proportion of total sales. Feihe responded to First Financial, stating that its goat milk powder brand Jiabait in South Africa sold more than 200,000 cans in 2022, gradually expanding its presence in Africa.
However, most domestic infant formula brands seem to have no plans for international expansion. An executive from a major domestic infant formula company mentioned that while Africa has a market, the high population and lower economic development make it less attractive. The high cost of research and development and quality control, combined with the unfamiliarity with international markets, hinder Chinese companies from going abroad.
Notably, due to the complexity of domestic channels and consumers' perception of infant formula, domestic infant formula prices are higher. In contrast, the African infant formula market is relatively less developed.
Frank, who has been doing business in Mozambique for years, revealed that locals typically begin mixed feeding of breastfeeding and formula in the second week. The formula feeding cycle is similar to that in China, lasting around 1 to 1.5 years, but the prices of formula in Africa are relatively cheap. The cost of a 400g can is around 350 MT, equivalent to about RMB 40.
He showed First Financial reporters the infant formula shelf in local supermarkets, mostly dominated by Nestle products. The price of a 400g can of Enfamil Stage 2 from South Africa is 370 MT, while another Lactogen product from Maputo is priced between 310 and 370 MT.
While some Chinese infant formula brands have attempted to enter international markets, the overall sales volume remains small. Analyst Song Liang suggests that although Africa has a high birth rate, purchasing power is low, and market opportunities remain uncertain. In comparison, the Southeast Asian market, which is close to China, may offer more significant opportunities. However, Southeast Asia is also a focus market for major international dairy giants, posing additional challenges for Chinese infant formula brands.
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