FY 2021 Review: International Infant Formula Brands Faced A More Challenged Market

Birth population, total production, and total import quantity of infant formula continued to decline in 2021

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According to data from the National Bureau of Statistics, the birth population in China was 10.62 million in 2021, a decrease of 1.4 million from 2020. ¹ Despite implementing “two-child” and “three-child” policies, this figure has been decreasing since 2016. The decline in birth population will constantly affect infant formula sales in the next 1-2 years because Stage 3 infant formula accounted for half of the total sales in China, and Stage 3 is generally consumed by toddlers between 12 and 36 months.

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The total production of infant formula in China also decreased slightly. The output of infant powder in 2020 was 1,012,300 tons, a year-on-year decrease of 3.77%, and the figure in 2021 was 979,400 tons, a year-on-year decline of 3.25%. ²

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Compared with the slight drop in infant formula production, the decrease in the total import quantity of infant formula was much larger. In 2021, China imported 261,700 tons of infant formula, dropping by 21.88% YoY, much higher than 3% in 2020. ³ The downward trend in birth population started before 2016. As a result, the infant formula production started to drop immediately, but international brands did not suffer much because customers’ preference in choosing import infant formula. The drop in total import quantity of infant formula started in 2020 because of the disrupt of global trade and supply chain caused by COVID-19. In the meantime, Chinese domestic infant formula brands grabbed the opportunity to win the market back, putting pressure on their international counterparts.

International players’ financial data in 2021

Company	2021 Total Sales	YoY Growth Rate
a2⁴	NZ$658.8 million (RMB 2.888 billion) 6 months ended on 31 December 2021	-2.6%
Nestlé⁵	CHF 87.1 billion (RMB 591.9 billion)	3.3%
Danone⁶	€24.281 billion (RMB 170.95 billion)	3.4%
Reckitt Benckise⁷	£13.234 billion (RMB 110.644 billion)	3.5%
FrieslandCampina⁸	€11.501 billion (RMB 80.973 billion)	3.2%
Abbott⁹	$43.1 billion (RMB 274.1 billion)	22.9%

Most international companies’ total sales grew in 2021. Abbott even recorded over 20% growth rate. a2 was the only one who witnessed a negative growth rate, mainly because of its inventory rebalancing action in China.

Company	Infant formula business performance in China in 2021
a2	The infant milk formula (IMF) business in China & Other Asia in 1H22 reached NZ$ 291.1 million sales, dropping by 8.1% YoY, impacted by lower birth rate and rapidly changing market dynamics in China, as well as reflecting actions taken in 1H22 to continue rebalancing channel inventory for China label IMF and reduced promotional activity in English label IMF, offset by the inclusion of MVM revenue. However, the ultra-premium segment in China remained in growth, with the A2 protein segment performing significantly above market Despite the challenging China IMF market dynamics, a2MC performance in 1H22 in China label IMF was encouraging and performance in English label IMF was stabilizing.
Nestlé	China saw low single-digit growth. Strong sales developments in most categories were partly offset by the sales decline in Infant Nutrition where turnaround initiatives continued.
Danone	Specialized Nutrition sales increased by +1.0% in 2021 on a like-for-like basis. Infant Nutrition posted very strong growth in 2021Q4, driven by China and the Rest of the World. China delivered growth in the mid-teens, with resilient market shares. Domestic labels and International Labels sold through cross-border platforms maintained their growth and competitiveness momentum, with notably an outstanding performance for the Aptamil brand at 11.11, an online sales event in China. Sales of International Labels sold through indirect cross-border platforms (daigous, friends, and family) were slightly negative on a low base, with travel to and trade with mainland China still very limited.
Reckitt Benckise	The disposal of Infant Formula and Child Nutrition (IFCN) China completed on 9 September 2021. The business contributed a net revenue of £383m and an adjusted operating loss of £67m in 2021 to the date of sale, with a challenging and competitive trading environment throughout the year.
FrieslandCampina	Revenue on the Chinese mainland showed significant growth in spite of increased (local) competition, primarily due to the expansion of distribution to smaller cities in China and the growth of Friso Prestige. Profit and market share remained stable. Friso Prestige improved considerably in terms of revenue and market share in the growing ultra-premium segment, while Friso Gold in the premium segment decreased significantly. The new market approach initiated at the end of 2020 in China and Hong Kong SAR with a greater focus on e-commerce resulted in an absolute improvement of margins in China.
Abbott	In International Pediatric Nutrition (including infant formula business), sales were unfavorably impacted primarily by challenging market conditions in China.

Danone and FrieslandCampina recorded positive growth in their Chinese infant formula business while a2, Nestlé, and Abbott’s infant formula business in China were sluggish. Reckitt Benckise sold its IFCN China in 2021 because of its huge loss. This transaction was structured as a sale of the entirety of IFCN China (including the mainland of China, Hong Kong SAR, and Taiwan China), including the manufacturing plants in Nijmegen, the Netherlands, and Guangzhou, China. The disposal included a royalty-free perpetual and exclusive license of the Mead Johnson and Enfa family of brands in China. Reckitt continues to own the Mead Johnson and Enfa family of brands globally and operates these brands in the rest of the world.

Chinese players took action to win the market

Yili, Feihe, Junlebao, and Ausnutria are four Chinese infant formula giants.

On 3 March 2021, Yili announced to buy 52.07% of Ausnutria’s market share ¹⁰, becoming its single biggest shareholder and achieving the acquisition of Ausnutria. After this acquisition, Yili owns a powerful brand matrix of infant formula brands and takes up more market share. Also, Ausnutria has a leading goat milk brand, Kabrita, implying Yili’s ambition to expand the goat milk market.

Feihe’s share of the Chinese infant formula market reached 19.7% in 2021Q3 according to its official website¹¹, ranking Top1 in China. Its comprehensive industrial cluster, including the forage and feed planting and feed processing, guarantees its products’ quality and safety, helping this brand win consumers back.

Junlebao’s infant formula production exceeded 100,000 tons, becoming a leading brand in China. ¹²

As early as 2019, seven ministries issued the "Action Plan for the Promotion of Domestic Infant Formula Milk Powder", which stated, "Strive to stabilize the self-sufficiency level of infant formula milk powder at more than 60%." In 2021, China achieved this goal. The market share of domestic infant formula milk powder has increased from about 30% in 2016 to more than 60% currently. 13

What’s next

In 2021, three new national food safety standards for infants formula (IF) were published by China’s authority, which will be effective starting from 22 February 2023, implying a new round of industry reshuffle has begun. Brands that get government registration approval sooner can get an edge in the market competition. As revealed by the notice released on 2 March 2022, six infant formula products produced under new GB standards had been granted formula registration approvals. Among the six products, three are from Junlebao, and the rest are from Yili Group. It seems that Chinese domestic players act quickly in the new competition.

In the meantime, product safety remains the top1 concern among consumers. However, Abbott’s product safety scandal at the beginning of 2022 did great harm to its reputation, which may also affect the reputation of all imported brands. This kind of scandal is what every brand wants to avoid in the future.

However, even though Chinese authorities tend to support the development of domestic brands, international players can still find ways to overcome obstacles and thrive in this market. Guaranteeing the product quality and safety is always the base of the infant formula business. Also, localizing the business is a good strategy. For example, imported brands can consider acquiring/building local factories to expand product lines and get registration approval sooner, as Danone did in 2021.

Related links

FY 2019 Review

FY 2020 Review