China is the Key Growth Market for a2

The a2 Milk Company is one of the imported infant milk powder brands that has delivered a very prominent outcome in the Chinese market in recent years.

a2's China Market Revenue from 2016-2019 (million NZ dollars) ^[1]

Its latest financial report for fiscal year 2020 (the full year ended on 30 June 2020) ^[2] shows that, the company achieved total revenue of NZ$1.73 billion, an increase of 32.8% year-on-year, and a net profit of NZ$385.8 million, an increase of 34.1%. 

For product segments, liquid milk sales increased 27.7% year-on-year to NZ$223.4 million, infant nutrition sales increased 33.8% year-on-year to NZ$1.42 billion, and other nutrition products increased 29.6% year-on-year to NZ$85.2 million.

The financial report revealed that the China & Other Asia segment revenue reached NZ$699.4 million, up 65.1%. The China label infant formula brand, a2 至初®, has recorded sales of NZ$337.7 million, up 101.2% in comparison to the prior corresponding period up by 62.7% for the first half of 2020. Distribution has expanded to more than 19,000 mother and baby stores. The 62.7% growth rate in the first half makes a2 the fastest-growing brand in China's infant formula market ^[3]. The a2 Platinum® English label infant nutrition sales increased by 40.3%, reaching NZ$341.1 million.

a2's Secret to Accelerating Growth

On August 19, Li Xiao, CEO of a2 Greater China, shared secrets to a2's tremendous growth and the brand’s future growth strategy at the "2020 Maternal and Child Ecological Conference" held by Nanchang.com (a professional media on the maternal and infant industry) in Shanghai.

In recent years, high-end products that utilize organic ingredients, goat's milk, A2 beta-casein protein, various optional active ingredients like OPO, pre- and probiotics and lactoferrin are all trending. Although an increasing number of enterprises have launched A2 protein infant formula products, the pioneers at The a2 Milk Company have stayed ahead with their ever-increasing growth pace.

According to Li Xiao, there are several factors contributing to a2’s tremendous growth in China:

a2 Greater China has prioritized explaining to the public what kind of protein A2 is and the advantages of it. This has resulted in improved cognitive understanding amongst consumers which has laid a solid foundation for better penetration of A2 type products. The results are a more outspread word of mouth and increased product repurchase rate.

The brand has also leveraged a multichannel approach to ensure its products can cater to consumers’ varied shopping needs. A2 Greater China has also demonstrated significant resilience, flexibility and market reaction ability under COVID-19, which has helped the company offset some disruptions caused by the COVID-19 and has remained focused on strengthening the infant nutrition position in-market.

The brand’s support in branding, trade campaigns, media investment and cooperation with distributors and retailers has also driven its strong sales momentum, especially the China label infant formula brand, a2 至初®, which now accounts for 24% of the total infant formula business. 

The CEO Li Xiao believed that in the future, a strong brand needs to have the following characteristics:

1. The brand can give consumers tangible benefits;

2. The brand can continuously improve its products;

3. The brand can make timely adjustments at critical moments.

a2's Future Strategy

Despite facing a long-term Covid-19 epidemic difficulties, The a2 Milk Company is positive towards the Chinese market and will focus on the following 3 aspects in the future:

1. Doubling down on offline mother and baby store channel. Though a2 has achieved remarkable growth in mother and baby store (MBS) channel, there is greater room for growth, especially when compared with leading players like Wyeth and Firmus.

2. Expand the liquid fresh milk business. It has strengths, not only in infant formula, but also fresh milk. According to its FY2020 report ^[2], the Australian fresh milk business performed well with total revenue of $152.5 million, up 14.1%. As Chinese consumers pursue dairy products of higher quality, the fresh milk market is potentially a lucrative and promising market to focus on.

3. Strengthening the product position of A2 protein, and continue to expand the product portfolio. Milk and powder products that target families are expected to have significant runway for future growth.