China Dairy: Local Brands Gain Prominence, International Players Adjust Their Strategy

摘要

1. The Chinese dairy market is as attractive as ever, amid strong prospects for both volume and value growth across an increasingnumber of products. It is also increasingly competitive as local players have ambitious expansion plans that risk eatinginto international brands' businesses. Central authorities are also aiming at boostinglocal brands and reducing import dependency for some products as part of their Five-Year Plan, including for infant formula.2. Chinese dairy companies are focusing on three strategies, in our view. These include producing rising quantities of qualitymilk and control over milk supply, via both M&A and investment in new capacity; expanding their product offerings, especiallytowards more value-added products; and building trusted brands.3. With the help of government incentives and Chinese companies' investment, the milk production sector will consolidateand domestic milk production will accelerate in the coming years. In spite of this, China will still see increases in dairy imports.4. Amid this more challenging operating environment for foreign players, international dairy brands are adjusting their strategies inChina, focusing on premium products, moving into broader baby nutrition, expanding their reach to tier 2 and 3cities, and even in some instances, developing their local manufacturing facilities.