Sanlu, a major player before it became embroiled in the scandal, has declared bankruptcy, and others have suffered massive drops in sales.
According to Shaun Rein, MD of China Market Research (CMR) Group, the scandal did not come as a surprise to upper middle class Chinese, who tended to look overseas for milk brands. “The hardest hit are those with lower incomes. Many thought formula might be better than breastfeeding because formula had more vitamins. Now they are the ones who are scared.”
Prior to the melamine fiasco, sales of infant formula were growing fast, as were nearly all milk foods, as an urban workforce looked for ways to feed their children while allowing mothers to work. An ambitious Chinese dairy industry was battling to meet demand. Chinese firms had begun to launch value-added products at prices comparable to imported products and double those of Chinese economy brands.
Between 2003 and last year, infant formula sales grew 23.9 per year on average to Rmb $25 billion (US$3.5 billion), according Euromonitor, and will continue to grow at a forecasted, post-crisis 18.7 per cent through to 2013. That growth comes despite a low and stable birth rate. However, sales volume fell 16 per cent year-on- year to 22 million kilograms for the 12-week period ending November. The decline was more pronounced in tier-two and three cities (20 per cent) than in tier-one (10 per cent).
A TNS urban panel saw retail sales value increase by 11.7 per cent to Rmb 3.3 billion, as consumers shifted to more expensive imported brands. Infant formula prices climbed 27 per cent in tier one cities, and 36 per cent in smaller cities, where imported brands were less prevalent before the crisis.
Now Chinese parents scrutinise the fine print on formula packaging and use websites such as redbaby.com.cn. Increasingly, they favour Carrefour, Lotus and other retail outlets perceived to have superior supply chain security.
“The next couple of years will be good for brands such as Simulac and Enfamil,” says CMR’s Rein. “They have trust, and the better hospitals use them. When your baby is born, the hospitals often push these brands.”
Yet not all foreign brands are perceived as ‘foreign’. “A lot of people are concerned about Nestlé because it produces in Northeast China, an area known for heavy industry,” Rein adds. TNS panel data confirms this. Of the top 10 foreign brands, Nestlé saw share slide in tier-one to three cities, while its foreign rivals - Mead Johnson, Abbott, Wyeth and especially Dumex - mostly benefited.
For a handful of regional brands, the crisis has been an opportunity. Sales of Feihe formula, registered in the US, tripled, while Weichuan, a Taiwan food conglomerate, began promoting its baby formula in China. Jason Yu, GM of TNS Worldpanel China, notes another winner was Ausnutria, a Chinese brand that sources its milk powder from Australia. It saw its share quadruple from one to four per cent in smaller cities. “It brands itself as foreign. Many Chinese firms are using this marketing tactic.”
In response to the melamine scare, infant formula companies upped adspend from a combined Rmb 1 billion for September, October and November of 2007 to Rmb 1.4 billion for the same three months last year, according to CTR. Most local brands cut adspend. “Media tactics have changed,” says Yu. “I suspect local brands are using money for PR or crisis management, rather than spend huge amounts on TV because they know that won’t work.”
The ad focus has moved from product benefits such as vitamins or nutrients to straightforward claims of product safety.
“If you look at international brands, their advertising is based around their imported milk powder,” says Kelvin Gin, director of Synovate in Shanghai. “Local brands say their product is natural, and they have government certification. Consumers are looking for reassurance.”
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According to Shaun Rein, MD of China Market Research (CMR) Group, the scandal did not come as a surprise to upper middle class Chinese, who tended to look overseas for milk brands. “The hardest hit are those with lower incomes. Many thought formula might be better than breastfeeding because formula had more vitamins. Now they are the ones who are scared.”
Prior to the melamine fiasco, sales of infant formula were growing fast, as were nearly all milk foods, as an urban workforce looked for ways to feed their children while allowing mothers to work. An ambitious Chinese dairy industry was battling to meet demand. Chinese firms had begun to launch value-added products at prices comparable to imported products and double those of Chinese economy brands.
Between 2003 and last year, infant formula sales grew 23.9 per year on average to Rmb $25 billion (US$3.5 billion), according Euromonitor, and will continue to grow at a forecasted, post-crisis 18.7 per cent through to 2013. That growth comes despite a low and stable birth rate. However, sales volume fell 16 per cent year-on- year to 22 million kilograms for the 12-week period ending November. The decline was more pronounced in tier-two and three cities (20 per cent) than in tier-one (10 per cent).
A TNS urban panel saw retail sales value increase by 11.7 per cent to Rmb 3.3 billion, as consumers shifted to more expensive imported brands. Infant formula prices climbed 27 per cent in tier one cities, and 36 per cent in smaller cities, where imported brands were less prevalent before the crisis.
Now Chinese parents scrutinise the fine print on formula packaging and use websites such as redbaby.com.cn. Increasingly, they favour Carrefour, Lotus and other retail outlets perceived to have superior supply chain security.
“The next couple of years will be good for brands such as Simulac and Enfamil,” says CMR’s Rein. “They have trust, and the better hospitals use them. When your baby is born, the hospitals often push these brands.”
Yet not all foreign brands are perceived as ‘foreign’. “A lot of people are concerned about Nestlé because it produces in Northeast China, an area known for heavy industry,” Rein adds. TNS panel data confirms this. Of the top 10 foreign brands, Nestlé saw share slide in tier-one to three cities, while its foreign rivals - Mead Johnson, Abbott, Wyeth and especially Dumex - mostly benefited.
For a handful of regional brands, the crisis has been an opportunity. Sales of Feihe formula, registered in the US, tripled, while Weichuan, a Taiwan food conglomerate, began promoting its baby formula in China. Jason Yu, GM of TNS Worldpanel China, notes another winner was Ausnutria, a Chinese brand that sources its milk powder from Australia. It saw its share quadruple from one to four per cent in smaller cities. “It brands itself as foreign. Many Chinese firms are using this marketing tactic.”
In response to the melamine scare, infant formula companies upped adspend from a combined Rmb 1 billion for September, October and November of 2007 to Rmb 1.4 billion for the same three months last year, according to CTR. Most local brands cut adspend. “Media tactics have changed,” says Yu. “I suspect local brands are using money for PR or crisis management, rather than spend huge amounts on TV because they know that won’t work.”
The ad focus has moved from product benefits such as vitamins or nutrients to straightforward claims of product safety.
“If you look at international brands, their advertising is based around their imported milk powder,” says Kelvin Gin, director of Synovate in Shanghai. “Local brands say their product is natural, and they have government certification. Consumers are looking for reassurance.”
Got a view?
E-mail [email protected]
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