Yakult Targets China’s Lower-Tier Markets

Since entering China in 2002, Japanese probiotic dairy brand Yakult has given priority to the development of business in first-and-second-tier cities, occupying a 60% market share ^[1] of China’s low-temperature lactobacillus beverage market. Yakult is now expanding its sales network in the Chinese market, with a focus on lower-tier cities.

The expansion will cover both production and sales. In August, Yakult will build its second factory in Wuxi, Jiangsu Province. In 2015, Yakult built its first factory in Wuxi and expanded the production line in 2019. The new factory is expected to be completed in April 2022. Upon completion, the two Wuxi plants will have a daily production capacity of 5.4 million bottles.

Yakult will set up new sales offices in three of China’s third-tier cities: Hengyang in Hunan Province, Wuhu in Anhui Province, and Zhaoqing in Guangdong Province. Total daily sales volume is expected to exceed more than 100,000 bottles.

Data shows that Yakult currently sells more than 7.5 million bottles a day in China, but the market penetration rate is only 1.05% ^[2]. For Yakult, its planned expansion reflects its ambition to further unleash brand potential and fortify its market share in China’s booming low-temperature dairy market.

Yakult experienced rapid development in China. 

In 2002, Yakult built its first Chinese factory in Guangzhou, marking its entry into China. Yakult has factories in Shanghai, Tianjin, Wuxi and Foshan, and 46 branches in first- and second-tier cities such as Shanghai, Beijing, Tianjin, Xiamen, and Fuzhou. Data shows that Yakult has developed rapidly in the Chinese market, with product sales increasing from about 59 thousand bottles per day in 2002 to 5.825 million bottles in 2016, a compound growth rate of 39% in 14 years ^[3]. Mainland China has become the second-largest market for Yakult only after Japan, with a share of over 23% in its overseas market. The excellent performance has led to the brand’s high expectations for the Chinese market.

Competition with China’s local dairy giants

At present, the key market of low-temperature lactobacillus beverages in China is the first-and-second-tier cities, accounting for 51% of sales ^[4]. In the low-temperature lactobacillus beverage market in the first-and-second-tier cities, Yakult’s high-end position has not led to particularly fierce competition with other brands. However, its entry into lower-tier cities means direct competition with Chinese local dairy giants such as Yili and Mengniu.

Challenges faced by Yakult in China

There are already leading brands in the market.

Data shows that in third-and-fourth-tier cities, lactobacillus products are mainly room temperature products. At present, there are more than 100 room temperature lactobacillus brands in the market, and the top three brands by market share are Yili, Junyao, and Hao Caitou, with a combined market share of 46.3% ^[5].

High demand for cold chain capability.

As an active lactobacillus beverage, Yakult needs to be kept at 2-10℃ throughout its transportation and storage cycle. The strong cold chain transport capacity in the eastern region and the provincial capital has supported Yakult’s sales. However, the cold chain transportation system is relatively backward in cities of the third and fourth-tier and below, which means Yakult needs to invest heavily in the construction and improvement of its cold chain transportation system.

Single product configuration.

Yakult has rich product mixes in Japan, but currently, in the Chinese market, Yakult has only two products mixes -- sugar and sugar-free. 

Yakult’s Key Advantage

Yakult has led the trend of mid-to-high-end low-temperature lactobacillus beverage consumption. Its unique selling point is a high-quality probiotic product, which is backed by solid evidence proving its ability to improve intestinal function. Nowadays, many Chinese young people are suffering from intestinal problems due to unhealthy lifestyles. Gut health is a major issue in China and a key concern for consumers. Yakult’s functional products are in line with modern people’s demands, and the introduction of more functional products will help the brand grab more market share.