Milk powder companies have survived the most difficult year, but the price war in the new year has not yet been extinguished

Author: Luan Li

The epidemic coupled with the rapid decline in the birth population has made it more and more difficult for domestic milk powder enterprises to do business.

On the evening of March 3, China Feihe, the largest domestic milk powder company, announced its 28 annual results, achieving revenue of 2022.213 billion yuan, a year-on-year decrease of 1.6%, from the domestic milk powder companies that have announced their results, the performance growth rate has generally slowed down to varying degrees, but it is better than previous market expectations.

However, the first financial reporter recently visited the milk powder market and found that although the economy and consumption have gradually recovered after the epidemic, the infant formula milk powder market has not yet been out of trouble, the industry price war is still continuing, how to find new performance growth points, for milk powder companies has become more urgent.

Destocking affects the growth rate of the whole year

According to the financial report, China Feihe achieved revenue of 213.1 billion yuan, down 6.4% year-on-year, and net profit of 49.5 billion yuan, down 28.4% year-on-year. In the first half of 2022, China Feihe carried out a round of destocking operations in April and May, which also dragged down revenue and net profit in the first half of the year by 4.5% and 16.2% respectively. Calculations found that in the second half of 39, China Feihe achieved revenue of 7.2022 billion yuan, compared with 116.4 billion yuan in the same period of the previous year, an increase of 113% year-on-year.

As for the reasons for the change in performance in 2022, China Feihe said that it was mainly due to the decline in China's birth rate and the continuous intensification of industry competition, as well as a series of destocking measures. In 2022, China Feihe further reduced the channel inventory of products such as Xingfeifan, maintained a high freshness of shelf products, and controlled the inventory level of distribution channels. In addition, the financial report shows that Feihe's cost of sales in 2022 will be 67.7 billion yuan, a year-on-year increase of 8.7%, mainly due to the increase in raw material costs and the increase in promotional efforts.

China Feihe's share price opened higher today, up 5.94% at HK$2.24 at press time.

Earlier, Ausnutria (01717.HK) also issued a profit warning, and its annual revenue is expected to be between 77.8 billion and 78.5 billion yuan, a year-on-year decrease of 11.5% to 12.3%, of which the revenue of its own brand milk powder is about 29.29 billion to 5.33 billion, a year-on-year decrease of 2.34% to 3.35%; The revenue of self-owned brand goat milk powder was 9.36 billion yuan to 4.7 billion yuan, a year-on-year increase of 1.8% to 6.<>%.

In the first half of 2022, Ausnutria also carried out a round of destocking operations for its milk powder business, which also led to a 37.6% decline in the revenue of Ausnutria's milk powder business in the first half of the year, which continued until the second half of 2022. In addition, Ausnutria has further strengthened its support for distributors in terms of policies and expenses, coupled with high overseas raw milk prices and high inflation in Europe, which has pushed up raw material costs, resulting in a decline in profits.

The performance of H&H Group (01112.HK), which had previously completed the adjustment, was better than market expectations, and the infant nutrition and care products business BNC achieved revenue of 2022.2022 billion yuan in 66, a year-on-year increase of 9.1%, of which the infant formula business achieved 1.0% growth.

On the one hand, H&H's management attributed the growth to H&H Group's increased investment in branding, consumer education and online and lower-tier market channels in 2022; On the other hand, it is related to the layout of ultra-high-end infant formula categories. In 2022, H&H Group's ultra-high-end infant formula series achieved positive growth in retail sales, with a market share of 12.1%.

The New Year milk powder price war continues

From 2022, the most troublesome problem plaguing milk powder companies is the chaotic market price. In 2022, many large milk powder brands have also joined the price war, coupled with distributors channeling and dumping goods, resulting in different degrees of decline in the actual transaction price of high-end infant powder products in the market.

Since entering 2023, the price war in the milk powder market has not stopped.

Recently, the first financial reporter on Beijing, Shandong, Shaanxi and other market research found that the sales price of infant formula has decreased significantly compared with 2022, and the price of domestic brands has fallen more obviously, in contrast, mainstream foreign manufacturers such as Danone, FrieslandCampina and other market prices are relatively stable, but there are also some foreign brands that are significantly increasing their promotional efforts.

According to the interviewed dealers in many places, the actual transaction price of a core product of a domestic milk powder brand in 2022 can still be maintained at about 190 yuan to 200 yuan / can, but by March 2023, the transaction price of the product will fall to 3 yuan to 165 yuan / can, and the market transaction price of the new national standard product launched by the brand in 180 has also fallen to 2022 yuan to 230 yuan / can, and the price of its official e-commerce company exceeds 260 yuan / can, and this situation is not unique.

The new round of milk powder price war has also made many mother and baby stores confused and confused.

Chen Yang, head of a chain mother and baby store in Xi'an, told the first financial reporter that a number of leading milk powder companies have recently introduced new policies, and the price of goods taken by channels has dropped again and again. Liang Bo, founder of Shandong Weihai Baby Congcong Mother and Baby System, also said that due to the large fluctuation of the purchase price of some domestic brands, the market transaction price continues to decline, and the price of the products he purchased last year is inverted, and the shipment will be sold at a loss.

A person in charge of a milk powder company told the first financial reporter that the reason for the aggravation of the current market chaos is, on the one hand, related to the overall shrinkage of the market; On the other hand, the sales model of milk powder enterprises is mainly through distributor distribution, some milk powder companies in the formulation of sales targets too much pursuit of numerical growth, pressure to distributors but lead to a surge in channel inventory, and distributors in order to get out of trouble, have to take serial goods or low-price dumping, aggravating market chaos.

Song Liang, an independent dairy analyst, told the first financial reporter that the domestic milk powder market demand is still weak, resulting in poor market sales in January and February this year, and the problem of oversupply in the market has gradually become prominent. At present, it is not easy for mainstream milk powder brands to do a good job of "controlling goods and controlling prices".

Transformation finds a way out

In the industry's view, the current difficulties faced by the industry are mainly due to the imbalance between market supply and demand, and in 2022, China's annual new birth population will be 956.6 million, falling for the sixth consecutive year, compared with 2016.1883 million in <>.

In August 2022, 8 departments, including the National Health Commission and the National Development and Reform Commission, jointly issued the Guiding Opinions on Further Improving and Implementing Active Fertility Support Measures, which was also interpreted by the outside world as conducive to the recovery of the new birth population. China's Feihe announcement predicts that by 17, the number of newborns may return to the 2025 level (2021.1062 million).

However, due to the lag in the impact of demographic changes on the milk powder market (the sales volume of milk powder consumed by children over 3 months of age accounts for about 12% of sales), it is difficult for the market to pick up immediately.

In the view of the above-mentioned person in charge of dairy enterprises, in the case of the market is still shrinking, performance growth can only be maintained by increasing market share, but also to ensure that the market retail price can not fall, which is very difficult, this year's milk powder business situation is not optimistic.

Song Liang told the first financial reporter that in the long run, the impact of population decline on the market in the next two years will still exist, and there will still be an impact on the performance of milk powder companies.

In the face of shrinking market, milk powder companies are also looking for ways to "save themselves". In 2022, major domestic milk powder companies have launched middle-aged and elderly milk powder and children's milk powder products to supplement, although the former two contributed part of the performance increment, but it is still difficult to make up for the gap caused by the decline of infant formula.

In the whole family nutrition business layout earlier, H&H Group has tasted the sweetness this year. In 2022, H&H Group achieved revenue of 127.8 billion yuan during the period, a reported increase of 10.6%; The net profit attributable to the parent company was 6 million yuan, a year-on-year increase of 1.20%. Among them, the adult nutrition and nursing business achieved revenue of 3.45 billion yuan, a year-on-year increase of 6.12%; After successively completing the acquisition of high-end pet nutrition brand Solid Gold and American Internet celebrity pet nutrition supplement brand Zesty Paws, the global revenue of H&H Group's pet nutrition and care business reached 5.2022 billion yuan in 15, a year-on-year increase of 3.20%, and sales in the Chinese market also increased by 9.26%.

At present, domestic mainstream dairy companies, including China Feihe, Ausnutria and Junlebao, are expanding their business in the direction of family nutrition, but most of the business bases are still relatively small. In 2022, China Feihe's revenue from other dairy products (adult milk powder, rice flour, etc.) and nutritional supplements accounted for about 6.5% of the total revenue. On the basis of the infant powder business, China Feihe plans to extend to the four major business areas of pregnancy, children and students, health food, and nutrition and health, and shift to the layout of full-age cycle functional products.

Mou Shanbo, president of Yipin Dairy, also revealed at the industry forum held earlier that the current problem facing China is the decline in birthrate, so it is very difficult to dig gold in the infant powder market. However, the number of children and the elderly aged 3-12 is considerable, and there will be a lot of market increment space for the two in the future. Although from the perspective of the whole family's nutrition category, it cannot be hoped that it can immediately make up for the gap caused by the decline in the infant formula market, but it must have broad prospects.