Foreign brands eyeing mid-end baby formula market
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Written by: decey
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Date: Wed, 2 Dec 2009 |
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By Sun Zhe
With Chinese parents' confidence in domestic dairy producers still shattered in the wake of the 2008 melamine contaminated milk scandal that killed six children and sickened about 300,000 others, foreign baby formula makers are now moving into the middle tier markets after saturating the high-end sector.
"The melamine scandal has helped the foreign brands get more market share," said Wang Dingmian, a diary industry analyst.
Dumex, the dairy brand under French food company Danone, announced last week a new baby formula called Bebelac to be marketed in central China – a relatively disadvantaged area of the country. A 900-gram can of the no-frills formula costs 138 yuan ($ 20.2) with most other foreign brands selling for more than 200 yuan ($29.3). A 900-gram can of domestic Yili powder sells for about 150 yuan ($22).
Other mega food and drug producers such as Wyeth, Abbot, MeadJohnson have also started marketing cheaper infant milk products, mostly sold in smaller cities.
Helpful scandal
In 2008, the baby formula market was worth about 20 billion yuan ($2.93 billion), with about 70 percent of the high-end market then dominated by the foreign companies, largely – Dumex, MeadJohnson, Wyeth and Abott.
Currently the foreign brands control about 90 percent of the market. Sanlu Group, a major dairy company at the center of the scandal and now bankrupt, was taken over by a State-controlled company. It used to have 18 percent of the baby formula market, but foreign companies divided up a large part of that following the scandal, said Chen Chen, a dairy analyst with Shenzhen-based China Investment Consulting.
After the exit of Sanlu, the chance to fill its market share attracted more than 10 foreign producers and more than 40 domestic producers to enter the milk powder market, according to Nanfang Daily newspaper.
The profit margin of dried milk is about 40 percent, much higher than that of liquid milk, according to Chen. The market for high-end baby formula, usually a product priced above 150 yuan ($22) per can, is worth about 14 billion yuan ($2.05 billion), or more than half of the total milk powder market, said Wang.
Even the rising price of foreign brands – about 30 percent since 2008 – has not stopped parents from going back to foreign milk brands.
About 70 percent of consumers questioned said they are still worried over the quality of domestic dairy products, said a survey in Beijing, Hebei and Shandong, conducted, recently by the consumers' associations of Beijing, Shandong and Hebei.
"I don't dare buy any Chinese (milk) brands," said a new father while choosing from a shelf full of imported powered milk at a Beijing Walmart shopping mall, "None of them are trustworthy enough to feed my baby. The milk scandal costs many parents' faith in domestic dairy products."
Some domestic baby formula brands are trying to respond by using non-domestic milk sources and by re-branding with Western
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