On December 14, Abbott China announced adjustments to its nutrition business, planning to gradually quit the operation and sales of infant and child nutritional products in the Chinese mainland market. Instead, it will mainly focus on developing the medical nutrition business. According to Abbott China, Chinese consumers' demands for infant and children's nutrition products have been changing. Meanwhile, there is an increasing awareness of scientific nutrition among adults, which makes them concentrate on growing medical nutrition business in the Chinese mainland market.
Abbott's Infant and Child Nutritional Products in the Chinese Mainland Market
Abbott China indicated that, within the next year, they would work with partners to gradually quit the infant and child nutrition business and ensure a smooth transition. Consumers can still purchase related products through online and offline channels and seek customer service. In addition, cross-border e-commerce channels in the Chinese mainland market will not be affected. Abbott's other businesses in China, including diagnostics, medical devices and pharmaceuticals, will operate as normal.
Abbott used to be one of the leading players in China's infant formula market and led the high-end organic infant formula trend with its brand Eleva. However, in recent years, the market share of Abbott infant formula decreased year by year in the highly competitive Chinese infant formula market. According to Euromonitor, based on retail sales, Abbott's market share declined from 4.9% in 2019 to 3.6% in 2021 and further dropped to 3.1% in 2022, falling behind Feihe (20.4%), Yili (14.4%), Danone (12%), Nestle (10%), Junlebao (7.5%), and Biostime (3.5%). The professional dairy analyst Liang Song indicated that competitors snatched Abbott's shares in the first- and second-tier markets. Meanwhile, Abbott underperformed in penetrating the third- and fourth-tier markets. As a result, Abbott gradually lost its position in the Chinese infant formula market. According to Abbott's financial results of Q3 20221, the total pediatric nutrition sales decreased by 24.8% on a reported basis. Pediatric nutrition sales in the international market was negatively impacted by challenging market conditions in China, with a decline of 8.6% on a reported basis.
In addition to the stress from competitors, frequent food safety issues have eroded Chinese consumers' confidence in Abbott's infant formula products. In Feb 2022, Abbott recalled Similac, Alimentum and Elecare infant formula produced in its Sturgis, Mich., facility because of cronobacter infections. The recall also involved the food for special medical purposes (FSMP) products Similac HMFortifi which had been exported to China. After the incident, the General Administration of Customs of PRC issued an announcement, reminding consumers not to purchase implicated products of Abbott through any channels. Worse still, Abbott was previously trapped in a series of negative news in China, such as the detection of vanillin in stage 1 infant formula and illegal livestream marketing, which severely injured its reputation.
Abbott Similac HMFortifi (FSMP)
It is also speculated that the yet-to-be-approved formula registration under China's new national standards probably pushed Abbott China’s decision to quit infant and child nutrition business. Eleva, which contributes half of Abbott's infant formula business in China, has yet to receive the registration approval.
In recent years, international infant formula enterprises have been facing increasing challenges in the Chinese market, as a result of COVID-19 restriction, low birth rate, registration requirements, and intense competition with Chinese domestic counterparts who have regained consumers' trust with over 60% market share. In the future, as high-end formulas and diversified needs are still the trends in the Chinese market, international infant formula enterprises should leverage their advantages to upgrade formulas and gradually develop the precision nutrition business with solutions specific to different needs.