From June 14 to 16 this year, ChemLinked attended the Food and Beverage Innovation Forum (FBIF) 2023 conference held in Shenzhen. The event features keynote speeches and seminars by industry experts, providing valuable insights and know-how to attendees. More than 7,000 professionals and industry insiders, along with 900 exhibitors, participated in the forum. At the Dairy Talks, Alex Zhang, Partner and Managing Director for Greater China of Frost & Sullivan, shared his insights on the latest dairy trends in the Chinese market.

Trend 1: Thriving of High-end and Distinctive Products

Chinese consumers are increasingly willing to purchase high-nutrition, high-quality and distinctive dairy products bolstered by the increasing income levels and growing health awareness. According to Frost & Sullivan, the growth rate of high-end fluid milk is three times higher than regular liquid milk, with its market size gradually catching up with regular liquid milk. High-end milk products like organic, A2 milk and dairy products from milk sources other than cow, like buffalo, goat and camel milk, are favoured by consumers.

The organic and A2 diary categories showed robust growth on the JD e-commerce platform. Every year the sales value of organic dairy products exceeds 1 billion yuan on the platform, accounting for 42% of the total organic food category. In 2022, the growth rate of A2 milk on JD was 7 times that of ordinary room-temperature milk. According to JD’s online survey, Chinese consumers are willing to pay 50%-150% extra premium for A2 milk. Currently, a wide range of dairy enterprises, such as traditional dairy giants Yili and Mengniu, emerging brand Adopt A Cow, have launched organic, A2 or organic A2 products. 

Due to the sweet refreshing taste and relatively higher nutrition, buffalo milk is a welcome distinctive milk product in China. In 2022, the sales of buffalo milk in Tmall Supermarket increased by more than 30% year-on-year (YoY). During the 618 shopping festival in 2022, the buffalo milk sales on the JD platform grew by 74.5% YoY. In addition, since its main production regions concentrated in Guangxi, Yunnan, etc. provinces, the current buffalo milk brands are basically regional firms, like Guangxi Zuojiang Dairy Co., Ltd. and Huangshi Dairy Co., Ltd, locating in Guangxi as well. 

Trend 2: Application of More Advanced Technologies

Additionally, not only the dairy products in the Chinese market take on high-end development, but the manufacturing technologies also show a sophisticated trend, for instance, infusion technology (INF) and ultrafiltration technology (UF). INF can achieve ultra-instantaneous sterilization in 0.09 seconds, and low-temperature milk processed through this technology can better preserve the original taste, the natural active substances and the enzyme activity of raw milk, without damaging the trace elements. In 2022, the sales of low-temperature milk applied with INF increased by over 28 times year-on-year. 

Through special filtration, UF can improve protein and calcium, and reduce the fat and lactose content in milk to satisfy consumers’ health needs of high protein and low lactose products. Satine, a brand of Yili, rolled out a dairy product through this technology. The product’s protein content is double that of the regular milk. In addition, every 100ml of the product has 180mg calcium but solely 1.5g fat. 

Trend 3: Demand for Function-added Products

Consumers in China are looking for dairy products that offer more than just basic nutrients, such as added functions like relieving lactose intolerance, helping sleep, improving digestion, etc. For example, the popularity of A2 milk is partly due to its friendliness to consumers of lactose intolerance. Containing only A2β-casein, this type of milk product is easier for consumers to absorb and less likely to result in stomach upsets.

Currently, dairy enterprises are developing more products with specific functions to fit consumers’ needs. Dairy products with the function of helping sleep are welcome in the market, as many consumers are troubled with sleeping problems. Most dairy products achieve this function by containing sleep aid ingredients, like melatonin, GABA, etc. Jizhi, a brand of Sanyuan, rolled out an A2 milk product with relatively high melatonin content. Every box of 250ml has more than 12,500pg melatonin, 10 times that of the same volume of regular milk, to help people with sleep problems. Three Calves, a brand of Modern Farming, owns a dairy product added with GABA ingredient, which can help soothe nerves and reduce nerve excitability, suitable for people who suffer from insomnia because of high mental stress.

Notes: Enterprises are supposed to take care of compliance issues in publicity, for instance, melatonin can not be added to ordinary food, and ordinary food can not be attached with function claims in publicity. 

Trend 4: Competitive Market with Rising Concentration Ratio

The Chinese dairy market has formed a market landscape of two giants, Yili and Mengniu, and multiple competitors, such as Bright Dairy, Sanyuan, New Hope Dairy, etc., with the market share of the two giants continuously expanding. In 2021, the two-firm concentration ratio of the dairy industry was 35%, with Yili and Mengniu accounting for 19.5% and 15.5%, respectively. In April 2022, the CR2 was 45.5%, with Yili and Mengniu taking up 24.2% and 21.3%, respectively. Additionally, in terms of the purchase volume of raw milk, the top 5 dairy companies reached 74%, with the top 1 accounting for 33%.

Major dairy companies are strengthening their control over upstream pastures at an accelerated speed to ensure product quality and enhance market competitiveness. Yili gets a hold of most high-quality pastures in northern China and acquires 40% equity of Youran Dairy, the top 1 raw milk producer supported by its large-scale and high-quality pasture. Mengniu also has a number of large-scale farms and acquires 56% equity of Modern Farming, the top 2 raw milk producer.

Corresponding ChemLinked Service

With over 10 years of experience, ChemLinked has provided market intelligence solutions to help dairy enterprises accelerate decision-making process and improve business performance in the Chinese market. Our market intelligence solutions include market analysis, consumer research, competitive analysis, etc. For more detailed information, please email contact@chemlinked.com.