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China Mengniu Dairy Invests in Domestic Cheese Enterprise Milkground

  •   8 Jan 2020
  •    Chris Wang
  •   262  Views
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    On January 6, 2020, China’s number 1 homegrown cheese enterprise Milkground (妙可蓝多) disclosed that China Mengniu dairy had purchased a $108 million stake in the company [1].

    Mengniu Confident On Future of Chinese Cheese Market

    According to Euromonitor, the retail sales value of China's cheese industry reached $840 million in 2018, up 16.8% year-on-year compared with 2017, and the market size is expected to reach $1.52 billion by 2023.

    The overall sales of Milkground in 2019 were about $220 million, and children's cheese accounted for $140 million. The Milkground brand accounted for 30% of the whole children’s cheese market in China in 2019.


    Song Liang, an independent dairy analyst, said the investment in Milkground shows Mengniu's strong ambition to penetrate into the cheese market, which is booming in China.

    Previous investment

    In 2013, Mengniu dairy acquired Yashili for $1.4 billion and invested over $150 million to build a factory in New Zealand in 2015.

    In March 2018, it purchased a 51% share of 2 liquid milk manufacturing facilities owned by China Modern Dairy. Later in May 2019, Mengniu purchased a 51% share of Shengmu High Tech (an organic dairy producer). Both China Modern Dairy and Shengmu High Tech recorded deficits in 2018[2].

    Mengniu has also expanded its reach in global markets, particularly in Australia. First, its subsidiary Fuyuan Dairy acquired Burra Foods for $200 million in 2016. Then in 2019, Mengniu directly acquired Australian infant formula producer Bellamy for $1 billion and is planning to buy another dairy company, Lion-Dairy Drinks, for $400 million in 2020.

    According to Mengniu, the collaboration between Burra Foods, Bellamy's, and LDD will generate more significant synergies and can help enhance its presence in key sectors in the Asia Pacific region.

    In July 2019, Mengniu agreed to sell all of its 51% holding ($580 million) in baby formula and yoghurt maker Shijiazhuang Junlebao Dairy Co Ltd. In 2018, Junlebao contributed 13.6% of Mengniu's revenue and 9.58% of its profits. Its revenue has grown steadily from $1.8 billion in 2018 and is forecasted to exceed $2.9 billion in 2020.

    Exceeding the RMB100 billion mark

    Mengniu and its biggest competitor Yili - the largest dairy producers in China and Asia, are aiming to exceed RMB100 billion in revenue, a feat Mengniu expects to accomplish in 2020. In the fiscal year 2018, Yili recorded total revenue of RMB79.5bn ($11bn), while Mengniu lagged just behind at RMB68.9bn ($10.2bn). In 2019 H1, Mengniu’s revenue was RMB40bn ($5.7bn), while Yili was ahead at RMB45bn ($6.5bn).

    According to Zhu Danpeng, a China food industry analyst, Mengniu’s investment in Milkground is a good strategy. This investment will help it hit the RMB100 billion mark in 2020. It will also help Mengniu expand its product portfolio, build a more complete industrial chain, and meet the ever-evolving demands of Chinese consumers.
     

    Reference Links

    [1] Sina finance report on Mengniu dairy’s investment on Milkground
    [2] Dairy 123 report on Mengniu dairy’s investments

     

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    ABOUT THE AUTHOR

    Senior research analyst at ChemLinked, focuses on market and regulatory intelligence in China, especially for imported goods: dairy products, health foods, pet foods, cosmetics, etc.

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