Beating the market: a2 milk reports 1.5% growth in China’s shrinking infant formula sector
![The bulk of The a2 Milk Company's revenue comes from its infant formula business, although it also runs a liquid milk and other nutritionals business. © Getty Images](jpg/a2-milk-reports-1.5-growth-in-china-s-shrinking-infant-formula-sector-3.jpg)
The company also achieved record market share, becoming one of the top five brands in China’s mother and baby stores and domestic online retail channels.
Aside from infant formula, the company will be investing more into its adults and seniors nutritional products portfolio, with two new adult milk powder products to be launched in the second half of FY2024.
The company announced the above during its financial results presentation for the first half of FY2024 on February 19.
Total revenue was up 3.7 per cent to NZD$812.1 million (US$499.4m). Net profit after tax attributable to owners of the company also increased 15.6 per cent to $85.3 million (US$52.5m).
The bulk of its revenue came from its infant formula business, where sales was up 1.5 per cent to $564.3 million (US$347m). The rest of its business include liquid milk and other nutritionals.
About 90 per cent of the infant formula sales came from China and other Asia, about 9.5 per cent were from Australia and New Zealand, while the remaining came from the US.
China, being its largest market, saw sales of infant formula increased by 1.5 per cent, despite total market sales declining by 13.6 per cent and volume down by 10.7 per cent.
“Delivered total IMF sales growth of 1.5 per cent in a challenging China IMF market that continues to be impacted by the cumulative decrease in newborns over the past few years, market-wide transition to products formulated under the new GB (Guo Biao) standards, and macroeconomic conditions, with total market sales down 13.6 per cent,” said the company.
The company’s infant formula products are available in both China and English labels. Its China label product sales were up 10.4 per cent to NZD$299 million (US$183.9m), while that of its English labels were down 6.9 per cent, with actual sales figures undisclosed.
The growth of its infant formula business was attributed to record levels of marketing.
Marketing investment up by 1.2 per cent and was 16.9 per cent of net sales revenue to support the launch and transition of its new GB registered China label IMF product.
The company has launched its upgraded China label IMF product a2 至初® range in line with China’s new GB standard. The product is said to be a “high purity” lactoferrin formula containing human milk oligosaccharides (HMO), osteopontin (OPN), and 1,3-dioleolyl-2-palmitate (OPO).
The launch was supported by new point of sales materials rolled out in more than 23,000 stores and advertising in tier B,C,D cities.
Record market share
This also helped the brand hit record market share and pushed it into the top five position in terms of market share in both mother-and-baby stores and domestic online retail channels.
In the mother and baby stores, market share had increased to 3.5 per cent from 3.4 per cent previously reported in end June 2023.
Its market value share in the domestic online retail channels also went up from 3.3 per cent to 3.6 per cent.
This was against the backdrop of a declining mother and baby stores sales, the company said, citing data from Kantar Worldpanel.
“China label IMF market value declined 15.2 per cent in 1H24. The mother and baby stores channel was down 18.1 per cent in 1H24 and domestic online was down 21.6 per cent.
“Across China label channels, there was significant pricing pressure impacted by the combination of volume pressure resulting from fewer newborns, market-wide transition to new GB registered products with clearance of old GB registered products, and macroeconomic conditions. The China label market value decline also led to a significant number of MBS store closures,” the company said.
Managing Director and CEO, David Bortolussi, said that the company would focus on capturing the full potential of the China market.
This includes expanding in lower tier cities and further accelerating online growth, investing in brand strength and leveraging across its China and English label products and the wider portfolio.
“We continued to execute against our growth strategy, primarily focused on the China market which now represents approximately 80 per cent of our total branded sales.
“We grew our IMF sales in a market that was down double-digits with China label sales up significantly, and launched our new GB registered China label IMF product which is progressing well,” he said.
Last year, the number of newborns in China declined by 5.6 per cent to 9.02 million.
However, the company is expecting a higher number of newborns in this year, due to factors such as delayed births due to COVID-19, recent marriage rates, pregnancy indicators, government initiatives and historical birth rates in prior ‘Year of the Dragon’.
Still, longer-term birth rate remains uncertain.
Upcoming launches
In the second half of 2024, the company is expected to launch three new infant formulas and two new adult milk powder.
One of the new infant formulas is known as a2 Gentle Gold. The English label product is said to support immune system, cognitive function, and growth and development.
It is said to be made with New Zealand a2 milk, formulated to Food Standards Australia New Zealand (FSANZ) standards, and contains the prebiotic GOS and omega-3 DHA.
It is positioned in the premium segment. Currently, the company’s English label product a2 Platinum is positioned in the super premium segment.
It will be launched in Australia, emerging markets in South East Asia, and selected channels in China.
“Beyond IMF, we are investing in growth in other nutritional products for kids, adults and seniors, and we are also pursuing growth in new markets,” said Bortolussi.
As such, the company is planning to launch two fortified English label adult milk powder products known as a2 Immune and a2 Move.
The new products come in tubs and is designed for the adults and senior consumers.
![a2 immune and a2 move](png/a2-immune-and-a2-move-2.png)
a2 Immune, for example, contains 100mg of lactoferrin per 100g of milk powder, and claims to support immunity with vitamins A, B6, C, D, and zinc.
a2 Move, on the other hand, contains Fortigel – a collagen peptide clinically proven to support bone, joint, and muscle health. It is also said to be high in calcium and vitamin D to support normal bone structure.