Monthly Digest: China Food Sector in August 2020

Data browse

1. 2020H1 financial results of dairy and infant formula companies:

Company	Revenue	YOY	Notes
Ausnutria	3.859 billion yuan	↑ 22.6%	Overall sales of self-branded formula milk powder was 3.411 billion yuan, a year-on-year increase of 25.0%.
Mengniu	37.534 billion yuan	↓ 5.8%	Fresh milk business sales increased by nearly 100% compared to the same period in 2019.
Yili	47.528 billion yuan	↑ 5.45%	The market retail share of infant formula milk powder decreased by 0.2% year-on-year.
Firmus	8.707 billion yuan	↑ 47.8%	The revenue growth was mainly due to the revenue growth of the high-end infant formula milk powder product line.
Beingmate	1.487 billion yuan	↑ 14.78%	Beingmate has achieved positive growth in net profits for four consecutive quarters.
Bright Dairy	12.146 billion yuan	↑ 9.52%	Its New Zealand milk powder manufacturer Synlait achieved sales revenue of 3.174 billion yuan, a year-on-year increase of 32.64%.
a2	NZ$1.73 billion (2020 financial results, for the 12 months ending December 31) (about 8.40 billion yuan)	↑ 32.8%	Revenue from China and other Asian businesses increased by 65.1% to NZ$699.4 million (about 3.45 billion yuan).
Nestlé	CHF 41.2 billion (about 282.58 billion yuan)	↓ 9.5%	Great China region: CHF 2.718 billion (about 18.64 billion yuan), down about 20%.
Danone	12.2 billion euros (about 101.3 billion yuan)	↓ 1.1%	In China, the total sales were broadly flat, with good performance of adult nutrition business and sales in infant nutrition still being negatively affected.
H & H Group	5.167 billion yuan	↑ 1.4%	Revenue from the Chinese mainland market was 4.269 billion yuan, a year-on-year increase of 12.8%. Infant milk powder revenue was 2.282 billion yuan from the Chinese mainland market.

2. Pinduoduo held the "10 Billion Subsidy Festival" on August 6-8. On the first day of the campaign, the turnover of milk powder category increased by 180% year-on-year. During the campaign, a2 sales increased by 136% year-on-year, and Junlebao sales increased by 400% year-on-year.

3. On August 4, Shaanxi Meiling Dairy Co., Ltd., a goat milk powder manufacturer, issued an announcement stating that the price of a single can of its infant milk powder "Fuyangyang" decreased in price by 140 yuan, a reduction of 43%. In addition, a variety of children's milk powders and adult milk powders under Meiling are on sale, with discounts up to 50%.

4. Lawson announced that they would open more than 60 new convenience stores in the Beijing-Tianjin-Hebei region in the second half of 2020. By the end of the year, the total number of stores in the Beijing-Tianjin-Hebei region could exceed 200. At present, Lawson has more than 2,700 convenience stores in China.

Company Dynamics

1. On August 2, Yili announced that its wholly owned subsidiary, Hong Kong Jingang Trading Holdings Co., Ltd., intended to subscribe for about 433 million shares of China Zhongdi Dairy Holdings Co., Ltd. at a price of about HK$203 million (about 180 million yuan). Yili said that this investment would help the company further stabilize the supply of raw milk and enhance market competitiveness.

2. On August 4, Coca-Cola and Mengniu Group co-held the signing ceremony of the joint venture high-end low-temperature milk project in Hefei, Anhui. The project records a total fixed asset investment of 2.1 billion yuan, and is divided into four phases, of which the first phase investment is 500 million yuan. It plans to officially put into production and begins selling in the third quarter of 2021, and will bring a new low-temperature milk brand to Chinese consumers.

3. PFAS (per- and polyfluoroalkyl substances), a type of cancerogenic chemical has been detected in some food packages at fast food giants such as McDonald's and Burger King in the United States. McDonald’s China responded via its official Weibo: “The food packaging materials used by McDonald’s in China do not contain PFAS, which are in full compliance with relevant national standards.”

4. On August 21, the a2 company confirmed that it was engaged in discussions with Mataura Valley Milk, a New Zealand dairy nutrition business, to explore options for a2 to participate in manufacturing at MVM’s facility in Southland, New Zealand. China Animal Husbandry Industry Group Co.,Ltd, a large Chinese state-owned enterprise, invested and built this facility. The a2 Milk is paving the way for continued high-speed expansion in China market.

5. On August 23, Chinese Cheese Company Milkground disclosed an announcement stating that it has terminated the non-public stock offering plan signed with Mengniu, and the company with actual control would purchase all of its shares. Despite the termination of the subscription plan, Mengniu still holds a 5% stake in Milkground.

6. On August 25, Mengniu announced to terminate the acquisition of Lion Dairy & Drinks because it has not received official approval from the Treasurer of Australia, Josh Frydenberg. The termination of acquisition will not cause material adverse effect to Mengniu, however, it does show instability of investing in Australia.

7. On August 25th, Nongfu Spring, the Chinese packaged drinking water giant, officially launched a public stock offering on the Hong Kong Stock Exchange. The company expects to be listed in Hong Kong on September 8 with the stock code 9633.

8. On August 28, Nestlé announced that it had agreed to sell its water business in Chinese mainland to Tsingtao Brewery Group. Nestlé will transfer all the shares of Nestlé’s Shanghai Nestlé Drinking Water Co., Ltd., Tianjin Nestlé Natural Mineral Water Co., Ltd. and Yunnan Dashan Beverage Co., Ltd. to Tsingtao Brewery Group. Tsingtao Brewery Group will also produce and sell the "Nestlé Pure Life" brand in China. In the future, Nestlé will only retain high-end water businesses such as Perrier, S.Pellegrino and Acqua Panna.

9. Australian goat milk infant formula manufacturer Bubs Australia has reached a memorandum of understanding with its Chinese partner Beingmate. Bubs will have the opportunity to obtain ownership of one of Beingmate's infant formula production facilities in Beihai, China. In addition, Beingmate will support Bubs to obtain China market supervision license.

Products Launched

Dairy

Yili

Weikezi milk drink launched three limited fruit flavors of white peach, grape and grapefruit. This collection features zero sugar and low fat, and adds edible sequins to give girls shiny lips.

Changyi lactobacillus drink launched the sparkling water, with each bottle containing 7.5 grams of dietary fiber, low sugar and zero fat. The price is 460ml*15 bottles/75 yuan.

Yili Yogurt Drink launched a new milk sparkling drink “BOOOOM炸”, featuring zero sugar and zero fat.

The Ambrosial yogurt announced to launch novel-flavored yogurt series, including leek-flavored, garlic-flavored, durian-flavored, and tomato-flavored, etc.

Milk powder
Wondersun	Wondersun Dairy launched organic A2 product series and bovine colostrum functional products. The organic A2 series include family nutrition milk powder, maternal milk powder, child-growth formula milk powder, and fresh milk.
Friso Prestige	Royal Friesl and Campina launched an ultra-high-end organic version of Friso Prestige baby formula in Hong Kong.
Yili	Yili announced to upgrade its Jinlingguan Ruihu by tapping into the grass-feeding segment. Its milk comes from rare grass-fed pastures in the South Island of New Zealand.
Danone	Danone Nutricia launched Neocate Junior Hypoallergenic amino acid based formula for older than 1 year old children through cross-border e-commerce.
Bellamy’s	Bellamy's launched its Chinese label organic milk powder Bellamy's Jingyue.
Junlebao	Junlebao launched the first full-dimensional nutritional milk powder Little Luban AII & All-round Care for #children aged 3-7. The new product has two versions of A2 protein milk source and organic milk source.

Meal replacement
Bestore	Bestore launched the protein meal-replacement milkshake, available in 6 flavors. Each bottle contains 2200mg of collagen peptide with no sugar added. It also added with white kidney bean extract and L-arabinose. Price is 60g *6 bottles /99 yuan.
Quaker	Quaker rolled out a number of new products including the black cereals, collagen-peptide granola and oat bran. Black cereals are made of five black ingredients: black wheat, black beans, rye, black rice, and black sesame. It is suitable for people who work overtime, stay up late and overuse their brains. The price is 518g2 bags/69.9 yuan. Collagen-peptide granola contains 1000mg of collagen peptide, and adds papaya chips and dragon fruit cubes. Price is 375g2 bags/99.8 yuan. Oat bran is rich in dietary fiber and is good for intestinal health. Mixing oat brans with water or other drinks is also possible. The price is 10g*24 packs / 59.9 yuan.
Smeal	Smeal launched the probiotic meal replacement milkshakes. Each bottle contains 30 billion probiotics and 8 imported probiotic strains. The price is 139 yuan / 6 bottles.

Regulatory Updates

1. On August 5, the Chinese Ministry of Finance, the General Administration of Customs, and the State Administration of Taxation jointly issued an announcement on the suspension of tax reduction and exemption for 20 commodities. Meal products (referring to condiments, meat, poultry, eggs, vegetables, aquatic products, fruits, beverages, wine, and dairy products) were included.

2. On August 12th, China SAMR opened the draft of Technical Requirements of Filing Health Food Products Using Coenzyme Q10, Broken Ganoderma Lucidum Spores, Spirulina, Fish Oil, and Melatonin as Raw Material for public feedback.

3. On August 17, Hong Kong Consumer Council revealed that 15 infant formula products sold in Hong Kong were inspected and 9 of them were tested positive for cancerogen glycidyl esters (GE), including products from Wyeth, Nestle, a2, Mead Johnson, etc. In response to the inspection, the a2 company, Bellamy’s and Nestle officially claimed that their products were absolutely safe for consumers.

4. On August 18, 2020, China’s Ministry of Commerce (MOFCOM) released the No. 34 Notice revealing an anti-dumping investigation into the imported wine from Australia in containers holding 2 liters or less (HS code: 22042100). Certain wine products imported from January 1, 2019, to December 31, 2019, are subject to the anti-dumping investigation.

5. The National Health Commission released the "Core Information on Infant and Young Child Feeding Health Education". Infant and young child feeding mainly includes breastfeeding, food supplementation, reasonable diet and eating behavior training for children from birth to 3 years old.

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