Why are Junlebao and Other Infant Formula Brands Hiking Prices?

Firmus, Junlebao, Biostime and Ausnutria, which are defined as China's New Top Four major infant formula brands have all raised their product prices. Chinese consumers are expecting more from their infant formula products. In response, companies are investing heavily in brand building, new services, channel construction and marketing.

The "New Four" Leading Price Hikes

At the beginning of Jan. 2020, Junlebao announced a price rise for its flagship infant formula product. Under the new pricing structure stage 1-3 infant formula milk powder is 258 yuan per 800g can.

The "New Four" major infant formula brands refer to Firmus, Junlebao, Biostime, Ausnutria.

Starting in 2019, the New Four brands began raising the prices of their products^[1]. For example, the promotions on Xingfeifan (星飞帆, a Firmus product line (700g) has changed from "buy six get one free" to "buy seven get one free". The price of Ausnutria's two product lines has jumped nearly 40 yuan, up as much as 9% to 10%. Although Biostime did not raise its price this year, it completed the upgrade of its formula and packaging in 2018, and increased the price then. Besides, this year, Biostime began selling sheep/goat milk infant formula powder at a premium price.

Are consumers contributing to the price increase?

Chinese consumers are expecting brands to deliver more than just a high-quality product. Chinese consumers are now expecting brands to deliver a range of engaging services such as parent education, online and offline activities, promotions, content etc. According to one source^[2] "in the future, the profits associated with China's infant formula sector may decrease but the profitability of associated services will expand". To cater to increasingly "picky" Chinese consumers, companies are spending more and more on extras, which leads to higher prices.

What is making enterprises raise prices?

Ensure performance/sales plan: China's market has become more competitive in recent years due to decreased birth rates and rising breastfeeding rates.
Supply-side pressures: The best pastures in the world are located in the temperate grasslands between 40° and 50° north and south latitude^[2], such as Ireland and the Netherlands. Demand for raw materials and products from these areas is huge. The limited supply of these raw materials has translated to premium prices which manufacturers are passing on to consumers. Supply of raw materials, such as lactoferrin and goat/sheep whey has been very tight since 2018. At present, these two raw materials are concentrated to a few suppliers in the United States, New Zealand, Australia and other countries. Kabrita, one of Ausnutria’s product, has raised the price of its products because of the increasing scarcity of goat/sheep milk.