Chinese per-capita fluid milk consumption is 1/3 of the U.S.’s
Dairy products mainly include fluid milk, yogurt, cheese, milk powder, and butter, among which fluid milk and milk powder are main dairy products consumed by Chinese.
In recent years, Chinese per-capita fluid milk consumption has increased year by year, growing to 21.4 kg per capita in 2018. However, this figure is still far behind other countries, such as the U.S., and Japan, the eastern Asian country with a similar dietary structure as China, implying the Chinese fluid milk market still has much space to explore.
Difference between pasteurized milk and UHT milk
Fluid milk is also known as pure milk for most Chinese. It can be classified as pasteurized milk, ultra-high temperature milk (commonly known as UHT milk), and modulated milk according to different processing techniques:
Pasteurization: milk sterilized by heating at 70-80°C for 10-15 seconds.
Ultra High Temperature (UHT): milk heated by ultra-high temperature of 135-140°C and kept for 2-4 seconds for sterilization.
Both kinds of milk are without any preservatives, but pasteurized milk has better flavor and is often associated with the impression of “fresh” in consumers’ view. However, pasteurized milk has disadvantages. It must be stored under refrigeration, require full cold chain transportation and has a relatively short shelf life. In contrast, UHT milk can be stored for 3–9 months at ambient temperatures.
People around the world have their preferences due to differences in natural conditions and dairy consumption habits. Countries with a larger pasteurized milk consumption basically meet two requirements: 1) The climate is cold enough to meet the cold chain transportation requirements of pasteurized milk at low cost; 2) Animal agriculture is strong enough to meet the demand for fresh milk. That’s why UHT milk accounts for more than 70% of the fluid milk market in China, while pasteurized milk only accounts for less than 30%. 1
UHT milk market analysis
In the late 1990s, with the introduction of ultra-high temperature sterilization technology and aseptic packaging technology into China, the shelf life of dairy products was extended, UHT milk started to become the main fluid milk product in the Chinese market. Chinese dairy giants, Yili and Mengniu, also rose by seizing the opportunity and promoting UHT milk on a large scale.
After over-20-year development, the UHT milk market has become a big and mature market. Its market size in 2020 reached 94.1 billion yuan as the growth rate dropped by 3.49%. In contrast, pasteurized milk market became the new rising market in China. With market size reaching 34.3 billion yuan, its growth rate in 2020 was 5.25% (see below).
Another trait of the Chinese UHT milk market is its high concentration level. The two Chinese dairy giants, Yili and Mengniu, accounted for 38% and 27% of the total market share. Relying on a diversity of brands and products launched by these two companies and the strong selling channels they have built in the past 20 years, these two companies now have firmly dominated the Chinese UHT milk market. Therefore, for new UHT milk brands that want to compete in this highly competitive and mature market, they must have competitive products, excellent marketing strategies, and new channels. There are successful cases. For example, some overseas UHT milk brands, such as The Land and Anchor, rose in the market by positioning themselves as high-end UHT milk brands and through using the strong e-commerce channel in China.
Compared with the UHT milk market, the pasteurized milk market has a relatively low level of concentration. Even the top1 brand, Guangming, only accounted for 14% market share. With the label of “fresher and tastier”, pasteurized milk now has become the pop star in the dairy market. More and more companies join the competition, including the dairy giants Mengniu and Yili and even the e-commerce giant Alibaba. For example, Mengniu entered the pasteurized milk market in 2018 by launching 17 new pasteurized milk products within one year. In 2019, it got Alibaba’s financial support. In May 2021, the CEO of Mengniu revealed that its pasteurized milk business increased by 100% year-on-year. 2
However, most brands still need to overcome three major challenges:
The first challenge is milk source. The production of low-temperature pasteurized milk requires high standards: 100% raw milk must come from fresh, non-polluting, large-scale, high-quality pastures. In addition, the requirements for the total amount of colonies and protein content are more stringent, and the entire process of raw milk from extrusion to production must be completed within 24 hours.
The second challenge is the product shelf life. Different from the high temperature sterilization, the pasteurization process cannot completely kill all microorganisms, so pasteurized milk is more likely to deteriorate, making its best shelf life only 3-7 days, and even the longest shelf life no more than 15 days.
The third challenge is cold chain transportation. The remaining microorganisms in pasteurized milk will multiply rapidly if not kept in low temperatures. Therefore, every link of the product from production, storage, transportation to sales terminal, and then to the hands of consumers, must maintain in an environment of 2 to 6°C. However, the cost of establishing terminal cold chains is high. Many companies lack the resources to build terminal cold chains on a large scale.
