Aiming at the forefront of the Chinese market, New Zealand milk powder brand A2 has prepared a set of “combination boxing”. In a recent four hour investor meeting with more than a dozen topics, Li Xiao, CEO of A2 milk Greater China, revealed that the company’s goal of Chinese labeled infant milk powder is to enter the first echelon of the Chinese market, but did not mention the realization time.
The snack generation noticed that the relevant content was the longest theme of the speech. Li Xiao and other senior executives spent 40 minutes to introduce in detail the focus of future work, including how to promote growth through market sinking and category expansion. It can be seen that when the purchasing situation once relied on was still uncertain, the company, which made a way by virtue of A2 protein subdivision, tried to turn the tide with overweight localization. This can also be said to be the epitome of the recovery of foreign milk powder in China. Xiaoshidai also noted that at the fourth China International Fair opened after the investor conference, David bortolussi, CEO of A2 milk, stressed that China is the top priority of the company. In the future, it will further expand its investment and scale in China from the perspectives of products, channels, teams and marketing. Let’s have a look.
Share not lost
After the impact of the epidemic on cross-border channels such as purchasing agents, A2 milk has taken a series of measures to promote the recovery, and significantly increased the promotion of Chinese labeled milk powder. In fiscal year 2021 (the year ended June 30 this year), the revenue of the business was NZ $389.9 million, an increase of 15.4% year-on-year. “In the past five fiscal years, the scale of A2 milk Chinese label infant powder (Note: A2 to the beginning) has increased from NZ $25 million to nearly NZ $400 million.” Li Xiaoxiao said at the meeting that although it has grown rapidly, the current share of A2 to the beginning is still small. Among them, the share of mother and baby stores is 2.5%, and the share of domestic online channels is 2%.
“The relatively small share scale means that we still have a lot of room for growth even in the face of a slowdown in market growth.” he mentioned that from the change in the share of mother and baby stores from 2020 to 2021, A2 was one of the few international brands that did not lose share from the beginning.
According to Kaidu data quoted by Eleanor Khor, Chief Strategic Officer of A2 milk, from fy2019 to fy2021, the share of international brands (Note: including Chinese and English labeled milk powder) fell from 71% to 56%. In fy2021, A2 milk’s share was 5%.
“A key change is that a few years ago, consumers preferred international brands, making it difficult for domestic brands to enter their consideration. But now, brands are in a fairer competitive environment. The formula registration system has made China the most trusted infant milk powder Market for Chinese consumers. Among the more than 400 registered brands, consumers will choose the most attractive brand “We believe that ultimately winning the competition does not depend on whether you are an international or domestic brand, but on whether you can resonate with consumers.” the company believes that its high awareness and first mover advantage in the field of A2 protein will become a powerful winning weapon. A2 milk has said that it has more than 60 patents related to A2 protein worldwide. “China’s A2 protein infant milk powder track is very busy. In the past year alone, the number of brands has increased from 5 to 14. Despite the increasingly fierce competition, we are still the pioneer and market leader of A2 protein infant powder, and the only brand that really focuses on A2 protein at present.” Li Xiaoxiao said, “Therefore, the main impact of the new competitors we see now is to promote the expansion of A2 protein infant milk powder, and we happen to have the largest share under this category.”
Five strategic priorities
Now, A2 milk, which has been using one brand to win the world, has pointed to the first echelon of the Chinese market. Towards this rather enterprising goal, it has also set five strategic priorities. The first is to continue to invest and cultivate brands and deepen clear positioning, such as large-scale overweight marketing. “The key to successfully seizing all opportunities is how to effectively carry out brand communication. We already have differentiated brand ideas, high-quality products and brands that can really resonate with consumers. The key task is to ensure that we can effectively improve brand value, cultivate potential consumers, and then realize purchase conversion.” Li Xiaoxiao said that A2 milk will use comprehensive marketing means in broadcast media and offline activities to build popularity, and increase investment in social platforms and digital media to attract consumers.
At the same time, he said that A2 milk also targeted three key groups when formulating communication and marketing strategies, including smart mothers who prefer imported products, smart mothers who pay special attention to product functions, and trendy mothers who are open-minded and willing to try innovative brands. The second is to give full play to the maximum potential of key customers. Specifically, it includes optimizing marketing, strengthening joint business planning, Deploy its “best practices” in more outlets to improve year-on-year sales growth. “Offline channel expansion has been our main growth driver in the past year.” Li Xiao said that among them, national key customers play an important role, and the share of some stores is very high, but the penetration of some stores is still insufficient. Therefore, A2 milk will apply the successful experience of high share stores to more stores to improve the penetration. Li Xiao also revealed that A2 milk has increased the target of offline stores to 30000 ~ 35000. Its 2021 annual report shows that as of June 30, 2021 , the company has 22800 active offline distribution outlets in China.
The third is to accelerate the growth of online channels. Li Xiao pointed out that with reference to other international brands, the proportion of domestic online platform sales of A2 milk still has great room for improvement. According to the conference data, in the retail business of A2 milk, the sales of domestic online platforms accounted for 19%, while the proportion of multiple international brands in the comparison accounted for 30% ~ 50%. “We have invested in building additional capabilities to further develop our online business, and have made some achievements before, especially in tmall and Jingdong,” Li said with a smile. According to the information of the conference, from A2 to the beginning of fiscal year 2021, the sales volume of domestic online platforms increased by 18% year-on-year.
The fourth is to seize the sinking market opportunity. Li Xiao said that the current business growth of A2 milk mainly comes from online cities. “In the mother infant channel, our online cities share reached 5.8% in fiscal year 2021, but only 1.8% in offline cities. This gap makes us full of confidence in the accessible (sinking) market.” he said that in order to promote the sinking, A2 milk’s current priorities include further developing the dealer network, continuing to expand the number of outlets Apply the experience of national key customers to areas with high priority in developing regional key customers and selectively increasing investment.
The last is the expansion of baby matching products. Li Xiao revealed that in terms of product portfolio, the company’s direction includes launching more ultra-high-end series and entering high-end price belt categories to help the market sink. In addition, A2 milk will also consider the possibility of entering other infant powder without A1 protein, such as plant-based products, goat milk or sheep milk.
Matora plant planning
If you want to supplement the “ammunition” for infants with Chinese labels, A2 milk undoubtedly needs to be approved for more formulas. In this regard, its joint venture with China animal husbandry group is expected to play a key role. In the second half of this year, A2 milk completed the acquisition of 75% equity of Matola dairy, and China animal husbandry group retained 25% of the shares. This also means that A2 milk, which has been producing infant milk powder in the OEM mode, owns a milk powder factory with itself as the largest shareholder for the first time. Xiaoshidai introduced that the A2 to Chu milk powder currently sold in China is produced by xinlaite under Guangming dairy, and A2 milk is the second largest shareholder of the latter. In 2012, the two sides have signed a long-term agreement on exclusive supply. In 2019, A2 milk announced to extend the time limit of the cooperation agreement with xinlaite and increase the procurement volume. According to the revised agreement, the five-year agreement on A2 to early childhood infant formula and other products announced by both parties in July 2018 will be extended for another two years, which can be maintained until at least July 31, 2025.
After the matora factory was incorporated into A2 milk, the outside world had made many guesses about the production planning of A2 milk’s Chinese label milk powder and the cooperation with xinlaite. At the above investor meeting, A2 milk finally gave a clear answer. According to the information of the meeting, A2 milk has formulated a “three-step” preliminary plan for matoura factory to gradually improve its capacity utilization.
The first step is to start producing A2 full fat instant milk powder in fiscal year 2022. The second step is to help the implementation of innovation. “As we continue to expand our product portfolio in the future, matoura factory will play a key role in the production process, especially in the innovation of nutritional products”. The third step involves the most concerned infant powder. “A2 milk is evaluating the way in which infant powder products (including Chinese and English labels) are jointly produced by matora factory and xinlaite. Matora factory intends to invest in mixing and canning equipment and make Chinese label products registered with the State Administration of market supervision of China,” the information wrote. “As the ‘national team’ of China’s animal husbandry industry, China Animal Husbandry Group has great potential for cooperation with A2 milk company in the dairy industry chain,” Li Xiaoxiao once mentioned at this Expo, “Through the complementary advantages and resource integration of both sides, accelerate the R & D process of innovative products, and open a new stage of local strategic cooperation and development of A2 milk company while benefiting the majority of Chinese consumers.”
The company pointed out that the two sides will jointly carry out strategic cooperation with matora dairy, hoping to build it into a world-class production and operation platform for the production of “high-quality A2 protein dairy products”, so as to become a large-scale consumer retail packaging nutrition manufacturer that can provide products to China and other regional markets.