- Beingmate, one of China’s most important dairy and infant formula manufacturers, has faced significant challenges over the last several years evidenced by a worrying downward trajectory in its share price and the dismal performance of high profile JV’s with foreign enterprise. However, internal reforms implemented over the last couple of years are going a long way to remedying it flagging fortunes, but will it be enough to quell investors’ fears and avoid delisting?
|1992||Xie Hong established Beingmate. After inception its core offering was instant rice flour for babies. Within 2 or 3 years, it had overtaken Heinz to become China’s dominant force in the infant rice flour market.|
|2001||Beingmate launched its first infant milk powder product with the slogan “international brand, Chinese formulation”.|
|2004||Adulterated infant formula was discovered in Anhui Province, China. The adulterated powder was implicated as the causal agent in an excessively high incidence of neurological problems among neonates and infants. In the fallout from this scandal Beingmate gained significant market traction due to its reputation as a high quality and safe brand.|
|2008||The notorious melamine scandal swept China, national consumer confidence in domestic infant formula was badly damaged. Beingmate was one of the few brands that did not test positive for melamine. Once again Beingmate gained considerable traction and was able to consolidate further market share.|
|2008||The decline in the fortunes of China’s domestic infant formula sector was accompanied by a concomitant surge in demand and consumption of internationally manufactured infant formula.|
|Around 2009||Domestic infant formula companies initiated a price war. Beingmate soon joined the war and ended up as one of the victors and realized a significant increase in overall sales. When the dust had settled Beingmate had become the “#1 Domestic Infant Milk Powder Brand”.|
|Mar. 2011||Beingmate launched its IPO at 42CNY per share. From 2011 to 2013, its revenue and profit both grew.|
|Jul. 2011||Xie Hong stepped down as chairman for “personal health issues”.|
|2013||Government carried out price supervision and inspection on enterprise and on products with an emphasis on foreign invested brands. In the weeks that ensued China was once again witness to a fierce campaign of industry product price slashing. Beingmate also lowered its price. This price reduction was primarily absorbed by distributors affecting their bottom line. This impact was eventually referred upstream in the supply chain where it impacted manufacturers.|
|2014||Beingmate had gained 7.4% of China’s infant formula market, surpassing Yili, Feihe to become one of China’s leading domestic milk powder companies.|
|2015||Fonterra entered into a JV with Beingmate purchasing 18.8% equity in the company. As part of the JV, the Sino-NZ collaboration purchased “Darnum” (a dairy factory located in Australia).|
|2016||In 2016 Beingmate was the victim of a major counterfeiting operation with large volumes of fake products being sold in China’s supply chains. This major blow to its reputation was further compounded by regulatory compliance issues particurly China’s newly promulgated infant formula registration policy,. In response Beingmate launched a special offer “buy one get two” to stimulate its sales.|
|2017||Beingmate’s sales fell from 5.06b CNY in 2014 to 2.6b.|
|Apr. 2018||Beingmate’s stock was renamed as “*ST因美”, indicating a special delisting risk.|
In Oct. 2018, Beingmate released its financial report for the first three quarters which showed around 28m profit, up 107.3%. By the end of 2018, its profit topped 40.92 million, which will go a long way to shaking of its unwanted delisting risk.
|1st ~3rd quarters||YoY growth rate||3rd quarter||YoY growth rate|
Analysts offer different explanations on the etiology of Beingmate’s downturn. In Xie’s own words “The reasons are complicated and “Internal and external factors are entwined”. Despite new regulations many of Beingmate’s domestic competitors have thrived facing similar external hurdles particularly the new market access regulations. So what other factors can we consider?
Several important factors have contributed to Beingmate’s current situation including Chinese parent’s preference for overseas milk powder, development of cross-border commerce and daigou and the dominant market position occupied by imported infant formula brands.
China’s infant formula registration policy was promulgated in Oct. 2016 to regulate the market and to reenergize China’s domestic infant milk powder sector. Interestingly Beingmate arose as a significant benefactor in the post formula registration era. The first nine registration numbers (YP20170001~YP20170009) were granted to Beingmate by the former CFDA. Currently, a total of 51 infant formula products from 6 Beingmate factories have been registered, significantly more than Beingmate’s major rivals (Firmus 36, Junlebao 18, Yili 24).
Beingmate initially began its foray into China’s infant formula market by targeting two- and three-tier cities, running its business on a “rural-to-urban-market” approach. It was comprehensively represented throughout the market by exclusive distributors, agents, mom-and-pop stores and supermarkets.
Things changed in 2014, beginning with retailers selling Beingmate’s products at a lower price to minimize losses caused by overstocking. In addition, Beingmate offered different quotes to distributors from different regions, resulting in regional distributors reselling their products to other distributors in higher priced areas. The relationship between manufacturer and retailers was severely disrupted by these 2 key events. During this period, sales of Beingmate were healthy but overall profit was low.
After Xie Hong’s resigned in 2011, former vice chairman Zhu Deyu and Huang Xiaoqiang took over the reins at Beingmate before leaving at the end of 2013. In Jan. 2014, former general manager Wang Zhentai became the successor and held the position until March 2018 when the founder of Beingmate Xie Hong came back amid rising fears of the company going under.
Even after his apparent retirement Xie, according to some public media, remained the general director, pulling the strings in the background and attending important meetings.
Another important blow was dealt to Beingmate in 2015, when several high ranking and influential members of its management (several capable regional sales managers) left the company. The reason was not disclosed. New managers that came after were often mistrusted or not valued according to some experts and their decisions were undermined.
At one stage Beingmate aimed to expand its business to all goods for infants and young children, including toy, children’s wear, groceries etc. The plan was apparently put aside when in Nov. 2012 Beingmate announced its decision to sell its groceries division and later exited the steel business. It gradually made its goal clear: to focus on the infant formula sector and also cover diaper and family food (including adult milk powder, foods for the elderly, complementary infant foods, children’s drinks).
Beingmate was beloved in the past because it used to be cautious about product quality and safety, however, this core brand image was damaged in 2012. Beingmate was discovered to have forged a fake profile designating it as a “national hi-tech enterprise” and was asked to pay back about 28m CNY in taxes in May, 2012. Later on in July, Beingmate’s rice flour was found to be illegally adulterated with porcine bone powder and was sued by a consumer because porcine bone powder was not permitted as a nutritional fortification substance in food for special dietary uses.
In Feb. 2014, excessive nitrite was detected in its black sesame noodle. In the same year Beingmate imported whey protein was discovered by AQSIQ to contain the pathogen Enterobacter sakazakii. Currently Beingmate conducts double inspections on all its infant formula to avoid E. sakazakii.
In addition to these self-inflicted wounds, there was also huge consumer concerns over the presence of counterfeit Beingmate’s products, which were implicated in several adverse events around the country. Even if Beingmate now boasts the most advanced manufacturing equipment and stringent risk control systems, many consumers are still skeptical.
In May 2018, Beingmate’s founder Xie Hong was once again elected the company CEO. During interviews he revealed his key goal was to avoid stock exchange delisting and reshape the company’s distribution approaches, systems, team, brand, culture and credibility. In the past ten months, actions taken by Beingmate include:
- Rebuild distribution channels by implementing a new distributor stockholding program, involving increasing the proportion of direct supply business (different from B2C), and by deploying products online and offline, in maternal stores, supermarkets, new retail and boundless retail stores. Beingmate has also created a tracing system to secure its price, market, etc., which will help avoid the disrupted distribution chain which was a major problem for it in the past.
- A major strategy of Beingmate is to strengthen its direct supply business by authorizing stores to sell their products directly and thus bypass middle men and offer a more attractive profit margin to retailer.
- Stabilize its management team by hiring Bao Xiufei as general manager who has experience in Wahaha, Pepsi, Weyth, FrieslandCampina China.
- Sign ads contract with Chinese Olympic and world-record-holding swimmer Sun Yang in Nov. 11, 2018.
- Beingmate broke up with Fonterra and transferred its 51% shares of Darnum.
- Partner with Great Wall Guorong Investment Company (capital investment firm) by selling 5.09% of Beingmate’s equity to it in Dec. 2018.
- On March 2019, Beingmate established a strategic partnership with Bubs Australia Limited and promised to form a JV.
One of the highlights of these changes is the sale of 5% equity to Great Wall Guorong. The move is widely viewed as extremely savvy with dairy expert Wang Dingmian stating “State-owned capital background helps fundraising and brand credibility and recognition”. Great Wall Guorong Investment Company has considerable experience in saving poorly managed companies and is good at asset management, acquisition and reorganization, equity investment, etc.
Another highlight is its cooperation with Bubs with the stated goal of “improve business layout, cultivate growth point and reinforce company position in baby food sector.” At present, Beingmate is still trying to position itself as a premium milk powder purveyor and the association with Bubs will likely help it claw back some much needed appeal.
Based on Beingmate’s annual report 2018 unveiled in February (as stated in the first part), the reform has already had a positive influence on Beingmate’s market performance by delivering 41 million CNY net profit in 2018, up 103.87 % compared with 2017.
Firmus, “more suitable for Chinese babies” slogan
Firmus knows how to distinguish itself from other brands, especially from overseas products. It never engages in price wars, and it relies on high quality. Despite its premium price, many parents choose Firmus because of a deep trust in the product.
|Year||Sales of high-end milk powder||% of gross revenue|
Yili is a dairy giant that is well known in China. Its infant formula tends to be trusted because of its brand profile and the company’s financial and technical capability. It also engages consumers by providing free products for children in remote rural areas.
Started in Shijiazhuang, Hebei Province where the melamine scandal was first discovered, Junlebao is a precocious upstart that has made significant inroads into the market in a very short space of time. It relies on innovative marketing, competitive price point and good quality.
Apart from its own brands, Ausnutria also runs imported Kabrita branded goat milk, which accounts for 37.7% of its gross sales.
ChemLinked also looked at the online performance of above Chinese brands on Tmall and JD (two e-commerce giants in China), and found that Beingmate outperformed its peers on Tmall and delivered an average performance on JD.