Increased health consciousness and more marketing have seen double-digit sales growth in milk products, according to a report by global market researcher Euromonitor.
Demand for milk is rising in both urban and rural areas as a result of efforts to promote dairy products as healthy by the government and manufacturers.
Affordable prices of products like ultra-high temperature (UHT) and fresh/pasteurized milk are also encouraging more consumers to drink milk on a daily basis.
Meanwhile, manufacturers have been developing different types of milk to satisfy flavor and health demands. In 2007, milk product sales increased 14 percent to 108 billion yuan.
Flavored milk drinks registered the highest growth of 21 percent in value terms, according to the report. After the successful launch of Mengniu Suan Suan Ru, a UHT milk product with a sour flavor, more players have entered the sub-sector with similar products, such as Yili's You Suan Ru and Sanlu's Suan Suan Ru.
Sales of milk drinks flavored with fruit juice have also seen rapid growth, with Wahaha's Nutrition Express a strong performer. According to industry definitions, milk drinks flavored with fruit juice are referred to as "milk beverages". Milk beverages are usually packaged with trendy designs to attract children and teenagers.
More health and wellness products are available on the market like high-calcium, low-fat or non-fat milk. The report noted these products appeal to those concerned about their health, particularly female consumers in big cities.
Although milk is regarded as inherently nutritious with high calcium content, consumers are increasingly likely to prefer milk fortified with healthy ingredients.
In 2007, the market was mainly controlled by domestic players like Mengniu and Yili, both from the Inner Mongolia autonomous region, the report said.
Yili Industrial Group Co Ltd was unable to defend its No 1 position against Mengniu, but nevertheless saw sales growth of 27 percent in 2006, accounting for 18 percent of value sales. Although the bulk of the company's value sales stem from long-life/UHT milk, Yili has paid more attention recently to milk beverages, which offer higher profit margins.
In 2006, the company launched a milk product for children: Yili QQ Star Milk. Yili is expected to launch more new products, enlarge its production base and broaden its distribution channels to compete with Mengniu.
Mengniu's Deluxe, which retails at around 20 yuan per liter, has established a premium segment in the milk market. In 2007, Yili also launched its high-end Classic Organic Milk at 28 yuan per liter.
Well-off consumers in the larger cities tend to choose products based on quality and nutritional content, the report said. In most areas of China, however, consumers can only afford low-priced UHT products, at around 7 yuan per liter.
High calcium and low fat content are the major features emphasized by manufacturers, especially when targeting women and children.
Manufacturers are expected to increasingly offer added ingredients like vitamins and fiber to attract consumers.
Flavor is another key area for manufacturers. More improvements in milk flavor are expected so that products appeal to the local palate.
The report said fruit-flavored milk drinks are expected to post the strongest growth over the next five years, of 18 percent.
Consumption is expected to increase, as milk drinks flavored with fruit juice are still an underdeveloped segment in China. The mixture of milk and fruit juice is believed to offer health benefits due to the combination of high calcium and vitamin C content.
More international players are expected to enter the local dairy market as it develops. Asahi is planning to set up a plant in Shandong province, the second Japanese company to enter the milk products sector in China after Meiji. These Japanese dairy companies are expected to bring premium products to the Chinese market, the report said.
(China Daily January 18, 2008)