China’s leading infant formula enterprise Feihe has completed the acquisition of 100% equity of Shaanxi Xiaoyang Miaoke Dairy Co., Ltd., a domestic goat milk powder company, and has established a new executive team to manage the company directly.
The background of Xiaoyang Miaoke
Shaanxi Xiaoyang Miaoke Dairy Co., Ltd., established in 2014, owns three sub-brands of Xiaoyang Miaoke, Jiarui Miaoke, and Jiaai. It is the first goat milk powder enterprise passing formula registration in Shaanxi Province.
Xiaoyang Miaoke's product lines
Xiaoyang Miaoke sits in Longxian County, Shaanxi Province, with a superior geographical location. Longxian County is recognized as the best suitable area for dairy goat breeding, therefore becomes one of the centers of goat milk production. It enjoys great reputations such as "World Famous Ecological City of Goat Milk," "World Famous Dairy Goat Intensive Breeding Model Farm," and "World Famous Goat Milk Processing Model Factory."
Xiaoyang Miaoke also possesses a complete industrial chain, which covers all steps and aspects of production, including forage grass planting, dairy goat feeding, production and processing, logistics and warehousing, channel control, and after-sales service.
Feihe’s intention
The 2008 melamine scandal was a devastating blow to the Chinese domestic infant formula industry. Since then, consumers' trust in domestic milk powder has collapsed, and imports almost monopolized the market. Local milk powder brands’ market share dropped from 65% to less than 30%, and even fell to 15% in the first-tier cities1.
However, domestic brands headed by Feihe have slowly regained their lost ground. From 2014 to 2020, Feihe’s market share surged from 4% to 17.2%2, topping the market share list and of course surmounting all foreign brands. With 19% of the market in April 20211, the latest data, the company's leading position is firm and looks set to continue growing.
Feihe focuses on the high-end market. Its flagship high-end products Astrobaby and Zhenzhi Organic, account for nearly 60% of Feihe's revenue. Goat milk powder has a high-end positioning in the Chinese market, which coincides with Feihe’s product positioning. However, goat milk powder is currently not among Feihe’s product portfolios, which means acquiring a goat milk powder company would help it tap into new growth incentives and continuously strengthen its leading market position.
Foreseeable intensified market competition
In recent years, goat milk powder has shined in the infant formula market and won the favor of the young generation of mothers with characteristics of easy digestion, easy absorption, and lower allergenicity. As China's declining birth rates depresses the infant formula market, developing high-end and differentiated market segments, such as goat milk powder, has become a coping strategy for many relevant stakeholders.
According to online data3, since 2014, the size of China’s goat milk powder market has increased rapidly with a compound annual growth rate of nearly 30%. Goat milk powder has become the fastest-growing segment of the dairy industry. The 2021 FBIF4 also revealed that China’s goat milk powder market has reached 1.48 billion yuan and accounted for 15% of the milk powder market.
However, bucking the overall market growth trend is a decline in the revenue of related companies. Ausnutria, which holds the top 1 spot in the goat milk powder market, reported a year-on-year decrease in the revenue from its goat milk powder business in the first quarter of this year. Other companies with goat milk powder as their main product are also experiencing slower growth and lower revenue.
Goat milk powder is a relatively niche product compared with cow milk powder. Although it may be high-end in quality, it is far lower than cow milk powder in scale. Besides, the market concentration in China’s goat milk powder sector is relatively high, with Ausnutria’s Kabrita occupying about 40%5. Feihe will inevitably face up to the competition with Ausnutria. As Feihe boasts high brand recognition and high channel penetration, let’s wait and see whether it will successfully challenge Ausnutria’ front-runner position.
