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Analysis On Status Quo And Sales Channels Of Milk Powder Market In China

Market size of infant milk powder was CNY 28.3 billion in 2009 and reached CNY 80 billion in 2015 at an annual growth rate of 19%. Sales volume of milk powder declined in 2016 for population born in 2015 decreased by 370,000 YOY. It is estimated that market size of milk powder will be CNY 86.4 billion, up by 8% YOY.

Foreign-funded brands cover large market share, and the concentration rate grows. In recent years, many foreign-funded brands have entered in China, sales value of which far exceeds that of domestic brands. For instance, in 2015, sales value achieved by the top 5 foreign-funded brands added up to CNY 37.4 billion, accounting for 47% of the market while that achieved by domestic brands added up to CNY 25.1, accounting for 31% of the market. The market was dispersed, as the sales value of the largest brand Wyeth was CNY 11 billion, only accounting for 14%, and that of the top 3 brands accounted for 36% and that of the top 5 accounted for 51%. In contrast, market size of liquid milk was about CNY 243.6 billion in 2015, and that of the top 3 brands accounted for 43%.

Distributors are the core of traditional sales channels, the number and quality of which are the most important factors. Besides, building distributor teams is the main part in sales management of enterprises. Great revolution of sales channels is underway in recent years: various new channels including online shopping, purchasing services and maternal and infant stores are emerging. Producers are actively transforming sales channels and focusing on layout of new channels so as to adapt to the new situation.

In the past sales channel modes which center on shops, supermarkets and shopping malls, generally the first wholesaler will raise the price by 20%-25%, the second wholesaler by 10% and shops and supermarkets by 10%-15% with the markup rate reaching 40%-50%. Markup rate of imported milk powder is higher after  costs including transportation expenses and tariff are added to the price, causing the high market prices of milk powder.

The emerging e-commerce channel solves the problem of high market price of milk powder for it decreases levels of wholesalers and saves the price raised by the intermediate channels. Taking the imported milk powder as an example, over 70% of its market prices is raised by those intermediate channels. If producers can sell products through the e-commerce channel, the milk powder prices can be only around 30% of that in shops and supermarkets.

Generally there are two types of maternal and infant stores, one is large chain stores and the other one is exclusive store. The former adopts the franchise model and enjoys higher reputation, but it charges hundreds of thousands of initial fee. The latter is of smaller size and has obvious regional characteristics.

Reference:

China Infant Milk Powder Industry Overview, 2017-2021

China imports large quantities of infant milk powder each year due to unstable quality control over domestic milk powder and its high prices.

Research Report on China Dairy Industry, 2017-2021

According to CRI, China's per capita consumption of dairy products in 2015 was only about one third of the world average level, and there was still room for growth.