Coca-Cola Teams up with Mengniu to Establish Low-Temperature Milk Company

According to available information on the Internet, the newly approved joint venture will produce and sell low-temperature milk products in China. Coca-Cola said that the newly established joint venture would take advantage of the strengths of both parties in dairy product research and development, dairy processing technology, brand influence, and distribution channels to bring a new brand of low-temperature milk to Chinese consumers and promote dairy consumption in China ^[1].

This cooperation is expected to accelerate the transformation of Coca-Cola China into a “full-category beverage company." At the same time, this is another move of Coca-Cola's further exploration and expansion in the Chinese market.

Pasteurized milk is a good prospect in China

Low-temperature fresh milk (pasteurized milk) and low-temperature yogurt are experiencing a period of rapid growth in China. According to Syntun data, in 2019, online sales of low-temperature yogurt and pasteurized milk increased by 42.8% and 60.8% year-on-year, respectively. The "2020 Dairy Innovation Trends White Paper" released by market research agency Ipsos shows that the consumer groups pay more attention to high-end UHT milk, low-temperature fresh milk, yogurt, and plant-based beverages. The sudden outbreak of COVID-19 in early 2020 has heightened health awareness amongst Chinese consumers and occasioned a spike in interest and consumption fortified foods that enhance the immune system. Dairy is considered a healthy, immune-boosting food amongst Chinese consumers.

Actually, With the popularization of e-commerce and the improvement of cold chain logistics technology, a number of dairy enterprises have rolled out low-temperature milk products. Bright Dairy and New Hope, which are two established dairy brands in the fresh milk sector, have both accelerated the launch of a variety of new fresh milk and yogurt products. China’s NO.1 dairy company Yili launched pasteurized milk products Besgreat, Satine, Morning Pasture, and Yili fresh milk. In 2019, Chinese dairy company Junlebao, which initially built its brand and reputation in the dairy sector through yogurt products, introduced a new fresh milk product line called “Yuexianhuo."

In addition to domestic brands, foreign dairy brands have also invested heavily in China’s low-temperature milk market. In 2019, Fonterra’s Anchor announced the launch of its first own-brand fresh milk product in China. Before that, Anchor cooperated with Fresh Hema to offer fresh milk, which has always been the top-selling fresh milk product in Hema stores. In last month, Japan’s biggest dairy company Meiji announced the purchase of a 25% stake in AustAsia, a Singapore-based dairy company that operates pastures in China to further expand its investment in China’s fresh milk and yogurt market.

Performance of Coca-Cola and Mengniu in the low-temperature milk sector

Coca-Cola:

Currently, Coca-Cola is not involved in low-temperature milk products sales in the Chinese mainland market. However, in January this year, Coca-Cola announced that it had completed the acquisition of the high-end milk brand Fairlife. According to Fairlife's official website, its product portfolio includes many types of dairy products. One of its products is an ultra-filtered low-temperature liquid milk, which is lactose-free, higher in protein, and lower in sugar compared to its competitors. Fairlife's sales in 2019 exceeded $500 million ^[2].

Mengniu:

The low-temperature dairy products sector is one of Mengniu's key businesses in recent years. At present, Mengniu's low-temperature dairy products segment includes low-temperature yogurt, low-temperature milk beverages, and fresh milk. In the fresh milk sector, Mengniu launched three new fresh milk brands, Freshness Best Choice (household delivery), GREENHOUSE(mid-to-high-end product), and SHINY MEADOW(high-end product) in 2018. In the yogurt sector, Mengniu already has a joint venture with Danone to bring yogurt brand Activia to the Chinese market. 

According to Mengniu’s 2019 financial report, the company's low-temperature yogurt business maintained high single-digit growth, with the largest market share for 15 consecutive years. Sales of its high-end low-temperature fresh milk brand SHINY MEADOW increased by 500% year-on-year.

Cooperation:

About 95% of Mengniu's milk comes from local sources ^[3]. Mengniu also owns three pasture companies (Modern Farming, Shengmu Hi-Tech, and Fuyuan). Through the joint venture with Mengniu, Coca-Cola will gain access to a local milk source, and make it possible for a massive launch of its low-temperature milk in China.

For Mengniu, which continues to pursue product premiumization and internationalization, cooperation with Coca-Cola will help the company enrich its high-end product portfolio and help it expand into overseas markets.

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