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China’s A2 Infant Formula Market Welcomes New Entrants

In China’s infant formula market, demand for premium and ultra-premium products is driving product development towards greater segmentation. Products that utilize A2 beta-casein protein are trending strongly in recent years, with several players announcing their entry into this segment in 2020, including Bellamy’s, Danone’s Aptamil, and Yili.

Despite the declining birth rate and the global spread of the COVID-19 epidemic, the demand for infant milk powder in China is growing rapidly. In the first quarter of this year, several enterprises with infant powder as their core business recorded excellent sales [1]

  • Mead Johnson - The revenue of the health department to which its milk powder business belongs to was 19.31 billion yuan, a year-on-year increase of 13.6%

  • Danone - The overall sales revenue of the infant nutrition business achieved mid-to-high single-digit growth).

  • H&H Group - Infant formula business revenue was 1.18 billion yuan, a year-on-year increase of 9.9%).

  • Ausnutria -Infant formula goat milk powder sales revenue increased by 36.1% to 37.4% year-on-year etc.

Currently, China’s infant milk market features greater category differentiation, accelerated product innovation, and trends towards segmentation, all driven by higher demands for premium and ultra-premium products. Under this backdrop, the A2 protein category has achieved a relatively high growth rate. Although the overall market capacity of A2 milk powder is not large in China, (only 6-7 billion RMB at present), accounting for less than 1/10 of the total infant milk powder market [2], the development of this niche segment is promising, best showcased by the remarkable performance of a2 Milk Company in China.

a2 Milk records unprecedented growth in China

The a2 Milk Company continues to dominate the A2 niche in China. According to the a2 Milk 2020 Interim report (ended December 31, 2019) released on February 26, 2020, a2 Milk recorded 32% revenue growth globally. Its infant nutrition business grew by 33%. Its a2 Platinum® China label (NZ$146.7m) & English label (NZ$158.7m) recorded stellar growth, up 100% and 57.8% year on year, respectively.

In JD.com, a2 Platinum® Stage 3 was the top-selling infant nutrition product, and a2 was the second best-selling brand overall. In Tmall, it was the NO.3 infant nutrition brand overall (English and China label combined). The brand also had the most successful infant formula CBEC flagship store.

In addition to driving online growth, a2 Milk has also expanded its offline footprint and is now available in 18,300 stores, up from 16,400 stores at the end of 2H19. Furthermore, a2 Milk achieved the highest market value share in the MBS (mother and baby stores) during the period.

Domestic A2 infant milk powder rolled out

Chinese domestic dairy company Junlebao launched Zhizhen AII, an end-to-end managed A2 milk powder in December 2019. Junlebao owns and controls the whole industrial chain and has its own A2 cows, pastures, milking parlors, processing facilities, etc. The product sales have already exceeded 100 million RMB($14.3 million) in the first month of trial sales. Junlebao plans to use a low pricing strategy to break the monopoly of the a2 Milk Company in China’s A2 milk market.

New entrants come one after another

A number of domestic and foreign players are looking to align with this trend due to increasingly diversified demands of Chinese consumers and in consideration of expanding product portfolios to align with these demands. Danone and Mead Johnson have introduced their A2 protein milk powder products into the Chinese market through cross-border e-commerce channels in 2019. ChemLinked has written an article about the A2 market situation in 2019.

This year, China’s A2 milk market welcomed some new entrants. 

Australian organic baby food brand Bellamy’s will introduce its ultra-high-end platinum organic baby formula Beta Genica-8 through cross-border e-commerce channels to the China market. This is the brand’s first organic A2 milk powder. Coincidentally, Danone will also launch its first A2-type beta-casein organic Milk powder-Aptamil Essensis 3 on the Chinese market by cross-border e-commerce next month. Both these two brands will attempt to tap into two major drivers of consumer preference simultaneously. Their new products will be made from both A2 beta-casein and organic milk sources. Smart path online MS report Q1 2020 data shows that Bellamy’s has remained its No.1 title among online cross-border organic milk powder brands, and its market share has increased from 50% in 2018 to 55% in 2020 Q1, reaching a new high.

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Yili’s infant milk brand Jinlingguan is also planning to roll out the A2 series after launching organic and goat milk powder. Yili Jinlingguan recently announced it would begin to upgrade the formulations of many of its sub-brands, including Zhenhu, Jinghu, and Ruihu. The upgraded products will be rolled out in the second half of this year. As part of the upgrade, Yili's brand Jinghu be reformulated to be based on A2 Milk.

**Disclaimer: All images used in this article are from the internet.
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