Yili Group Confronts Industry Headwinds Amid Declining Sales
Source: The DairyNews
The dairy sector is experiencing significant challenges as domestic demand for dairy products weakens and costs for raw milk production rise sharply, resulting in over 60% of breeding operations facing losses.
This shift has disrupted the supply-demand equilibrium for raw milk, deeply affecting the industry's economic landscape, chinese media reported.
Yili Group, for the first time in two decades, the company reported a consecutive two-quarter revenue decline in early 2024, signaling potential issues within its 80 billion yuan foundational business segment. The first quarter of 2024 alone saw a 2.58% drop in total operating revenue year-over-year, despite a notable 63.84% increase in net profit attributable to the parent company due to non-recurring items.
A closer look at Yili’s financials reveals a downturn primarily driven by a 6.8% decrease in liquid milk sales, which traditionally contributes 67.78% to the company's revenue. Other segments like milk powder and cold beverages also showed varied performance, with only the latter posting growth.
This revenue contraction is partly attributed to broader industry trends noted by Nielsen IQ, which reported a 1.6% decrease in per capita dairy consumption in China for 2023, and a more pronounced 3.7% drop in liquid milk consumption. Post-Spring Festival sales have been sluggish, leading to increased promotional activity as distributors manage excess stock nearing expiration.
Yili's strategic response includes a planned reorganization of its liquid milk channels in the first half of the year to stabilize and then grow this segment in the latter half. However, with the liquid milk sector nearing saturation, significant growth may be challenging without breakthrough products. Yili has previously seen substantial success with blockbuster products like Ambrosial, which significantly contributed to revenue growth from 2014 to 2019.
Looking forward, Yili aims to diversify, focusing less on the highly penetrated ambient milk market and more on potentially lucrative sectors like chilled milk, which has shown promising growth rates but remains underpenetrated compared to other categories.
Yili’s strategy is to capture more market share in a more mature market. According to Euromonitor International, in 2021, milk powder accounted for 30.72% of the dairy market, while low-temperature pasteurized fresh milk only made up about 15%.
On one hand, Yili is cultivating its own milk powder brands, and on the other hand, it is acquiring other milk powder brands. For example, in 2022, it acquired Beingmate, a company primarily focused on infant formula milk powder.
According to Guolian Securities' calculations, Yili's market share in infant milk powder reached about 15% after acquiring Beingmate, nearly equal to the industry leader, Feihe.
However, Yili does not intend to simply match Feihe but aims to be the leader. As early as 2021, Yili explicitly stated its ambition to become the leader in the milk powder market, planning to make its milk powder business number one in the industry by 2025.
As of 2023, Yili's revenue from milk powder and dairy products was 27.598 billion yuan, up 5.09% year-over-year, accounting for 21.87% of total revenue, second only to the liquid milk business. In terms of sales volume, Yili is already number one.
Currently, Yili also has a ten-billion yuan brand in its milk powder business. According to Nielsen data, Yili’s Jin Ling Guan exceeded ten billion yuan in sales revenue in 2021.
However, considering the continuous decline in China's birth rate and the highly competitive nature of the infant milk powder sector, the future of the milk powder business remains highly uncertain. In the first quarter of 2024, Yili’s milk powder business already experienced a decline.
The financial reports from Beingmate also reveal some issues. From 2021 to 2023, Beingmate’s revenue was 8.575 billion yuan, 7.796 billion yuan, and 7.382 billion yuan respectively, with net profits of 764 million yuan, 217 million yuan, and 174 million yuan.
According to Nielsen data, Yili’s own brands hold a market share of about 23.8% in adult milk powder, leading the market. However, the adult milk powder market is relatively small, with a size of just under 23 billion yuan and an annual compound growth rate of 5%, meaning it has limited short-term impact on Yili’s performance.
Going forward, Yili's growth will require continuous introduction of new ten-billion yuan products. Currently, it appears challenging for Yili to create another ten-billion yuan product in the milk powder sector.
In conclusion, while Yili faces immediate industry headwinds and a pressing need for innovation in product offerings, its strategic maneuvers and market adaptability will be crucial in overcoming current obstacles and driving future growth.
Yili Group, for the first time in two decades, the company reported a consecutive two-quarter revenue decline in early 2024, signaling potential issues within its 80 billion yuan foundational business segment. The first quarter of 2024 alone saw a 2.58% drop in total operating revenue year-over-year, despite a notable 63.84% increase in net profit attributable to the parent company due to non-recurring items.
A closer look at Yili’s financials reveals a downturn primarily driven by a 6.8% decrease in liquid milk sales, which traditionally contributes 67.78% to the company's revenue. Other segments like milk powder and cold beverages also showed varied performance, with only the latter posting growth.
This revenue contraction is partly attributed to broader industry trends noted by Nielsen IQ, which reported a 1.6% decrease in per capita dairy consumption in China for 2023, and a more pronounced 3.7% drop in liquid milk consumption. Post-Spring Festival sales have been sluggish, leading to increased promotional activity as distributors manage excess stock nearing expiration.
Yili's strategic response includes a planned reorganization of its liquid milk channels in the first half of the year to stabilize and then grow this segment in the latter half. However, with the liquid milk sector nearing saturation, significant growth may be challenging without breakthrough products. Yili has previously seen substantial success with blockbuster products like Ambrosial, which significantly contributed to revenue growth from 2014 to 2019.
Looking forward, Yili aims to diversify, focusing less on the highly penetrated ambient milk market and more on potentially lucrative sectors like chilled milk, which has shown promising growth rates but remains underpenetrated compared to other categories.
Yili’s strategy is to capture more market share in a more mature market. According to Euromonitor International, in 2021, milk powder accounted for 30.72% of the dairy market, while low-temperature pasteurized fresh milk only made up about 15%.
On one hand, Yili is cultivating its own milk powder brands, and on the other hand, it is acquiring other milk powder brands. For example, in 2022, it acquired Beingmate, a company primarily focused on infant formula milk powder.
According to Guolian Securities' calculations, Yili's market share in infant milk powder reached about 15% after acquiring Beingmate, nearly equal to the industry leader, Feihe.
However, Yili does not intend to simply match Feihe but aims to be the leader. As early as 2021, Yili explicitly stated its ambition to become the leader in the milk powder market, planning to make its milk powder business number one in the industry by 2025.
As of 2023, Yili's revenue from milk powder and dairy products was 27.598 billion yuan, up 5.09% year-over-year, accounting for 21.87% of total revenue, second only to the liquid milk business. In terms of sales volume, Yili is already number one.
Currently, Yili also has a ten-billion yuan brand in its milk powder business. According to Nielsen data, Yili’s Jin Ling Guan exceeded ten billion yuan in sales revenue in 2021.
However, considering the continuous decline in China's birth rate and the highly competitive nature of the infant milk powder sector, the future of the milk powder business remains highly uncertain. In the first quarter of 2024, Yili’s milk powder business already experienced a decline.
The financial reports from Beingmate also reveal some issues. From 2021 to 2023, Beingmate’s revenue was 8.575 billion yuan, 7.796 billion yuan, and 7.382 billion yuan respectively, with net profits of 764 million yuan, 217 million yuan, and 174 million yuan.
According to Nielsen data, Yili’s own brands hold a market share of about 23.8% in adult milk powder, leading the market. However, the adult milk powder market is relatively small, with a size of just under 23 billion yuan and an annual compound growth rate of 5%, meaning it has limited short-term impact on Yili’s performance.
Going forward, Yili's growth will require continuous introduction of new ten-billion yuan products. Currently, it appears challenging for Yili to create another ten-billion yuan product in the milk powder sector.
In conclusion, while Yili faces immediate industry headwinds and a pressing need for innovation in product offerings, its strategic maneuvers and market adaptability will be crucial in overcoming current obstacles and driving future growth.
