China Infant Formula: Domestic Supplier to Significantly Undercut Competitors

On 1 Apr 2015, China’s New Hope Dairy Group in collaboration with the ecommerce platform JD.com announced the launch of a new infant formula brand named Akarola. With a retail price of just 99 RMB, Akarola is undercutting the vast majority of existing brands circulating on the Chinese market.

The move flies in the face of conventional marketing and pricing strategies in China where the retail prices of infant formula products are significantly higher compared with average international rates. New Hope has decided to cut all intermediate links in its distribution chain by selling products exclusively online. Partnering with JD.com, New Hope’s Akarola products which are manufactured and imported from New Zealand will be offered at a comparatively fair price.

In China traditional retail channels such as supermarkets and stores have experienced slowing sales over the last several years. The slack created has been taken up by the ecommerce sector which has shown impressive growth primarily due to the reduction in overheads, an inherently more efficient model and significant savings for customers. According to dairy professionals, the average price of infant formula products in China is bound to equilibrate with global prices. Therefore New Hope’s preemptive move maybe designed to tap into a trend before the rest of the dairy industry catch on.