Concentration of milk powder industry continues to increase

On May 31, Premier Li Keqiang presided over the executive meeting of the State Council to study and deploy the work to further strengthen the quality and safety of infant formula. The meeting proposed to encourage and support the merger and reorganization of infant milk powder enterprises to increase industrial concentration; strengthen source supervision, strictly control entry barriers, and comprehensively clean up and standardize infant milk powder raw material suppliers and production and operation enterprises.

The industry believes that with the encouragement and promotion of national policies, the concentration of the domestic milk powder industry is expected to increase significantly. The concentration of the top ten companies in the industry in the next five years is expected to increase to more than 80%; at the same time, the leading companies in products, brands, The advantages of channels and capital will be more prominent, and the national policy will also be tilted to domestic leading brands of milk powder companies with certain advantages.

Industry concentration continues to increase

In 2008, the melamine incident once hit the domestic milk powder industry. In recent years, the overall level of infant milk powder quality and safety has been continuously improved due to the increase in regulation and supervision. However, the executive meeting of the State Council pointed out that the factors that affect product quality and safety still exist, and consumers’ confidence in domestic milk powder needs to be enhanced.

In fact, in the subdivided industries of dairy products, the demand for infant milk powder industry is more rigid, and its development prospects are also more optimistic. In the future, with the increase of urbanization in China and the extension of the feeding time for children's milk powder, the market demand for infant formula will continue to increase substantially.

UBS Securities Wang Peng believes that the nation's infant milk powder industry sales are expected to grow from 77.9 billion yuan in 2012 to 182.6 billion yuan in 2017, and the compound annual growth rate for five years will reach 18%. Among them, the compound annual growth rate of sales volume and average price was 13% and 6% respectively. The channel penetration rate and product structure upgrade will be the main driving force for future industry growth.

While the industry is growing rapidly, the degree of concentration will also increase rapidly. A person in charge of a large-scale milk powder company once told a reporter from the China Securities News that prior to the melamine incident in 2008, there were approximately 175 infant formula milk powder manufacturers registered by the AQSIQ. Since then, some small and medium-sized enterprises continued to withdraw. The General Administration of Quality Supervision, Inspection and Quarantine (2011) The re-review of production licenses for infant formula enterprises was carried out. The number of milk powder companies is about 120. In the past two years, with the increasing emphasis on the quality of milk powder, the industry concentration has been further improved. However, it is conservatively estimated that there are still domestic Nearly 100 infant milk powder production enterprises.

The executive meeting of the State Council proposed that relevant policies be formulated to promote standardized breeding of dairy cows, encourage support for the merger and reorganization of infant milk powder companies, increase industrial concentration, and promote industrial standardization, scale, and modernization.

Industry sources said that from the development history of infant milk powder industry in foreign countries, the increase in industry concentration is a major trend, and the market concentration of most of the top six companies in developed and developing countries is generally above 85%.

UBS Securities Wang Peng pointed out that in 2012, China's top ten milk powder companies had a market share of only 75.9%, and there was room for further improvement. The share of the top ten companies was expected to increase to 83.4% in 2017. The channels of leading enterprises continue to sink and subdivide, among which domestic leading companies increase market share by virtue of their channel advantages in the second, third and fourth tier cities, especially the advantages of mother-infant channels, and the improvement of quality trust in the minds of consumers.

Leading domestic share will rise

Before the melamine incident, domestic milk powder accounted for a major market share in China. However, after the incident in 2008, the market share of foreign milk powder rose rapidly. In particular, in the high-end milk powder market, foreign brands have been in an absolute leading position with a market share of more than 80%. It is precisely because of the right to speak in the high-end milk powder market, foreign milk powder continues to spread price news.

An industry source stated that with the maturity of technology, technology, quality, brand building and marketing, local brands have also launched high-end infant formula milk powder products, actively participating in the competition in the high-end market, and also giving foreign brands high-end The leading position of the market has brought challenges. “The biggest problem facing domestically produced milk powder is actually consumer confidence.”

A domestic brand company believes that consumers have a high cost-performance ratio after a number of rounds of price increases in foreign brands in 2012 and in the past few years, various countries at home and abroad, and the continued emergence of foreign brands. Local brands will gradually accept and recognize.

Currently in the first-tier cities, the advantages of imported milk powder are obvious, but in the third-tier cities, the market share of local milk powder is relatively high. The industry also believes that the market share of domestic leading domestic companies is expected to rise significantly in the future.

Wang Peng pointed out that domestic leading enterprises will obviously benefit from changes in the industry trend: benefiting from urbanization, the growth rate of infant formula milk powder in the second, third and fourth tier cities will be faster, while the channels of domestic leading enterprises in the offline cities will have obvious advantages; Local leaders are paying more attention to maternal and child channels, and are expected to rely on faster maternity and baby channels to achieve a curve; overtaking will be closer to the domestic market with new products from domestic brands. New products mean further improvement in the profit margin of manufacturers and channels; through cooperation or The self-built way to control foreign milk sources, domestically-dominated enterprises will continue to seize the market share of small businesses or fake foreign milk powder; in addition, in the long run, the policy will be tilted towards domestic milk powder mixers.