Babyfood Market Analysis_V3

8/22/2019 Babyfood Market Analysis_V3

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PuJunJuly 8, 2007

Babyfood Market Analysis


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Pu Jun | YGPBabyfood Market Analysis.- PPT

2007 Capgemini - All rights reserved 1

Contents

Babyfood Market Overview

Market Size and Trends

Manufacturer Analysis

Consumer Analysis

Analysis across Supply Chain


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Executive Summary

The potential Babyfood market space in China is very large

There are about 70 million of 0-3 year-old babies in China

The statistics of newborns in China is about 17.5 million per year, representing 13% of the world

newborns

High-End Babyfood market is the focus of competition

Multinational companies have advantages in market share

Multinational Babyfood take up more than 50% of the whole market share especially in the high-

end market

After the Inferior Milk Powder Incident, market is becoming more regulated

Babyfood companies are seeking cooperation for better marketing performance

Parents are willing to pay more money on the babyfood

Parents are more concerned about the quality and nutrition combination


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Manufacturers have categorized their products into different age group

0-6 Months 6-12 Months 1-3 Years

ProductCategory

Milk Powder Milk Powder

Baby Cereal

Vegetable Powder Vegetable Puree

Baby Cereal

Meat Puree

Baby has different nutritionrequirement in different age

group

Manufacturers have

designed different products

according to the various

market demand

Mothers milk and babymilk powder are main

nutrition resources for

infants at 0-6 months

With the increasing of the

age, milk powder is not

sufficient enough to meet

babies nutritionrequirements

supplementary baby food

is mainly designed for

baby above 6 months


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The potential Babyfood market space in China is very large

Birthrate

Market

Demand

There are about 70 million of 0-3year-old babies in China among

which 10.7 million are urban

ones.

With the steady development of

economy and population, China

has become the second largest

Babyfood consumption country

next to USA and will be number

one by 2010.

The statistics of newborns in

China is about 17.5 million per

year, representing 13% of the

world newborns

The annual demand of baby milkpowder is about 300 thousand

tons but the producing capacity

is only about 100 thousand tons

in China per year. The potential

market space is thus quite large.

Econom ic grow th and populat ion increase is the main reason for market demand expansion

87%

13%

Source: National Bureau of Statistics of China


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With the rising of the domestic living

standard, the demand for high-quality

babyfood is expanding rapidly

Parents are not very knowledgeable, but

they tend to believe the recommendation

of experts

China is one of the largest babyfood

consumption countries. The annual

market growth rate is about 20%. Last

year the total sale figures of baby milk

powder is about 5 billion RMB

High-End Babyfood market is the focus of competition

Economic & Social Background Industry Background

The profit margin of high-end market can

reach 20-30%

Developing of the high-end market can

help promote the upgrading of the

products, improve the industrial structure

and segment the market to meet thecustomers needs

Can help enterprises optimize the layout

of the brand and bolster the corporateimage

The potential High-end market attracts a large number of enterprises


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-64.50%

-19.50%

2.30%

23%

46.10%

2.40%

-80.00%

-60.00%

-40.00%

-20.00%

0.00%

20.00%

40.00%

60.00%

80.00%

100 Total(RMB)

Growth Rate of Sale Volumn Growth Rate of Sale Figures

The demand of

High-End marketis quite large

High-End products is the main growth point in the future market

Market TrendThe Market Growth of Different Grades Products

in Price Level in China

Consumers have higher demand

on products quality

High-end products have the

highest level of technology, the

most advanced formula, and the

most balanced nutrition

combination, represented thedeveloping trends of the market

Quality

Nutrition

Taste

Package

Formula

Source: ACNielsen Market Analysis Statistics


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Contents




Key Players of the Market

Market Share

Competition and Cooperation

Consumer Analysis

Analysis across Supply Chain


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Economically advanced regions are main markets

Shanghai

Hohhot

Tsingtao

Shuangcheng

Guangzhou

Harbin


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8.35%

6.22%

5.53%

14.55%

Abbott10.85%

1.75%

2.16%

2.46%

2.88%

3.93%

MeadJohnson15.95%

Dumex13.05%

Wyeth12.32%

MeadJohnson Dumex WyethAbbott Synutra YiliNestle Sanlu YashiliBeingmate Scient MorinagaOthers

Multinational companies have advantages in market share

2006 Babyfood Market Share Multinational Babyfood take up more

than 50% of the whole market shareespecially in the high-end market

High quality products

High level services, including presale and

after-sale services

High brand influence

Domestic brands have theiradvantages in cost control and prices

Play a more important role in the low-end

market

Raw material supply is a merit for domestic

babyfood companies

Can reuse the current dairy distribution

network

Source: 2006 Dairy Market Analysis Report


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After the Inferior Milk Powder Incident, market is becoming more regulated

After the Inferior Milk Powder Incident, Government strengthened the supervision

and control of the market and enacted a series of laws to prevent a similar incident

from happening again

Supervision in the entire production process from raw material to finished products

Market is becoming more and more regulated

Enterprises relying on low-price penetration and unreal propaganda are gradually disappearing

Enterprises are improving quality through the introduction of new technology

The self-discipline of companies and transparency of the market has greatly improved

China's Babyfood industry has entered a new competition stage

After the market reshuffle, there is a gap in the

rural market

Due to the strengthening of market regulation, some

inferior-product producers have been eliminated

Due to the low consumption standard in rural areas, it

is more suitable for the development of domesticbrands

Under the supervis ion of th e government, market compet i t ion wil l becom e more and mo re regulated


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Babyfood companies are seeking cooperation for better marketing performance

Cooperation between enterprises can help further optimize the Allocation of

Resources and make up for their deficiencies

Cooperation between domestic enterprises and multinational enterprises can bring domestic raw

material and channel advantages into full play.

Meanwhile, domestic enterprises can use foreign companies technology and service edge

Sanlu has cooperated with New Zealand

dairy company Fonterra and set up a large

modern dairy plant in Tangshan

Mengniu has collaborated with Denmark

famous dairy company ArlaFoods for further

development

Taiwan dairy company UNI-PRESIDENT has

subscribed 15% stake of Wandashan and

total subscription amount is 300 million RMB

Cooperat ion between enterpr ises is a good way for market entrance


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Contents




Consumer Analysis

Consumer Attitude

Analysis Across Supply Chain


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Parents are willing to pay more money on the Babyfood

37.10%

43.30%

19.60%

100-300 300-500 500+ (RMB)

With the Development of economy

and citizen income, parents are

prone to spend more money on thebobyfood

Source: www.kanbaby.cn

Monthly Average Household Spending onBabyfood (RMB)

5.20%

68.50%

26.30%

100-300 300-500 500+ (RMB)

Parents pay more attention

on the nutrition, quality and

added value of the products

Due to the one-childpolicy, parents are

willing to pay more

attention on the

only child

Economic g rowth St imula tes the r is ing of co nsumpt ion level

Economically Advanced Regions

Less Developed Regions

Economically Advanced Regions

Less Developed Regions


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5.40%

5.50%

12.00%

25.60%

42.40%

76.80%

33.60%

Good Package

Long Guarantee Period

Imported Products

Reasonable Price

Brand Reputation

Baby's Acceptance

Nutrition

Parents are more concerned about the quality and nutrition combination

Questionnaire of 3005 parents on ranking of buying criteria


Products with the

function of immune-enhancing and

mental-developing

are more popular

What parents conc ern most ly is the qual i ty and nutr i t ion o f the products


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Parents prefer foreign brands for better quality and services


MeadJohnson

Nestle

Wyeth

Dumex

YiliWondersun

Abbott

Morinaga

Synutra

Friso

Meiji

Ranking 1 2 3 4 5 6 7

Weichuan

8 9 1110 12

The most often consumed baby milk powder brands for infants

MeadJohnson, Nestle,

Wyeth and Dumex are

the Top 4 brands

which customers are

willing to choose

Better quality and taste is the main reason for consumers choice of foreign brands


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Consumers attitudes are quite emotional

To lay a solid foundation for children is soimportant. I am more concern about the quality ofthe products

Taking good care of baby is the responsibility of

parents. So I will buy top-quality milk powder

I can not let my child lose at the scratch line. Theexpensive products may have better effect

Source: Questionnaire of consumer psychology

From Consumers view, quality and brand influence is more important than price


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Contents


Analysis Across Supply Chain

Raw Material

Products Distribution

Retail

Service


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Executive Summary

Domestic brands have raw material advantages.

They have their own cattle farms and processing plants

Many dairy companies can use the existing resources and devices for further babyfood producing

without huge amount of investments

Lack of adequate production bases is the key issue to multinational Babyfood

Companies

Customer requirements oriented products development is a key success factor

Foreign BabyFood brands have successfully made use of medical channels tomarket and sell their products in China

Baby food companies are intensifying their advertising efforts in China to capture

the market

Internet channel will become another important way for product sale

Communication is more important than promotion in the Babyfood market

Improving the satisfaction degree of customers will add value to the brand


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Value Chain Analysis

The Source ofthe Raw Material

PackageMaterials

Technology

Product Category

Product

Positioning

DistributionChannel

Hospital Channel

Internet Channel

Propaganda

ConsumptionGuide

Product Display

Promotion

Training ofSalesperson

Presale Services

After-sale Services

Raw Material Retail ServiceProducts Distribution

ELEMENT

ACTORS

Cattle Farm

Raw MaterialSupplier

Production Bases

Product Designer

NutritionDelegate

Advertiser

Distributor Prolocutor

Salesperson

Trade Assistant

MarketingDepartment

NutritionConsultant

Quality Consultant

Doctor


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Domestic brands have raw material advantages

Many domestic companies have dairy related products. They can use the current

resources to produce babyfood without investing a lot.

Many domestic companies have their own cattle farms and processing plants

Many dairy companies can use the existing resources and devices for further babyfood producing

without huge amount of investments

Due to the drought in the milk powder raw material main exporter Australia , the purchase price

soared upward.

Yili has established 4 milk powder production

bases in Hohhot Inner Mongolia, DurbatHeilongjiang, Shihezi Xinjiang and Wuhan

Hubei. Yili has become the largest milk

powder producer in China.

The 4 bases of Yili has covered four strategic

region including northern, northeastern,

northwestern and central china

Raw Material

How to bring raw material

advantages into full play is a

key success factor


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In the milk powder producing area, Nestle only

has one production base located in

Shuangcheng Heilongjiang in China

Nestle had attempted to merge Yunnan Diequan

Dairy Company but ended in failure

Lack of adequate production bases is the key issue tomultinational Babyfood companies

High cost of raw materials has become the Achilles heel of multinational babyfood

companies

Dont have adequate milk powder production bases

Cost is highly affected by the international price of raw material

They are seeking cooperation with domestic companies or though merger and acquisition

Dumex has one production base in Shanghai

and plans to construct the second base in

Nanhui district to expand production

capacity

Raw Material


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Customer requirements oriented products development isa key success factor

Products

4C4P

Product-Oriented Customer-Oriented

The traditional 1P+3P market

theory in the babyfood field has

become outdated

Product

Price

Place

Promotion

1C+3C market theory is more

suitable in the current

competitive market

Customer

Cost

Convenience

Communication


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Better Babyfood positioning will lead to market successProducts

Successful Babyfood products stand for

meeting the requirements of consumers.

While designing new products, the followingfactors must be considered

What the customers want

The products category depending on different

customer needs

Using of new technology to produce high quality

products

Carefully design the package to cater for popular

demand

Different products positioning to different region

Dumex Dupro and MeadJohnson Enfapro

are mainly designed for Hign-End market

with better nutrition combination and higher

price

Positioning: High-End market

Baby

Food

Quality

Nutrition

Package Region

Positioning

Technology

Foreign brands are mainly po sit ioned at the high-end market


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Foreign BabyFood brands have successfully made use ofmedical channels to market and sell their products in China

Distribution

Multinational babyfood companies have successful experiences in establishing

medicals channel to promote the sale of their products

MeadJohnson and Wyeth have a pharmaceutical background. They use medical channels to

promote the sales

A doctors recommendation is an important reference frame for parents brand selection

Doctors recommendations, medical lectures and one-to-one customer profiling are key success

factors for multinational babyfood companies, especially in the high-end market

World-class babyfood leader Heinz has established its

Heinz Food Experts Panel which consists of experts inthe fields of food, nutrition and medicine

Nestle is the first company to establish the medical

channel in China.

Nestle has a large group of nutrition delegates to maintain its

medical channel in a smooth and steady developing condition

The use of medical channel is a compet i t ive advantage for mult inat ional brand.


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Baby food companies are intensifying their advertisingefforts in China to capture the market

Distribution

2005VS2006 1-8 China Top 5 City of BabyfoodAdvertisement Investment (Million RMB)

121.2

187.5

63.6

136.8

62.5

122.2

64.2

121.4

67

99.9

020406080

100120140160180200

Guangzhou Changsha Chengdu Shanghai Chongqing

2005 1-8 2006 1-8

Morethan50%

25.40%

46.90%

47.70%

55.80%

226.40%

302.70%

0.00% 50.00% 100.00% 150.00% 200.00% 250.00% 300.00% 350.00%

Scient

Others

Dumex

Yashili

Wyeth

Abbott

rate of increment

2005 vs 2006 1-8 China Babyfood AdvertisementInvestment Increment Rate

Advertisement Investment

The strong growth momentum of theChinababy food market drives the increment of

advertisement investments

Baby food advertisement investments are

mainly in the densely populated cities

Guangzhou

Shanghai

Market Opportunity

2007 is called the Year of the Golden Pig

which is considered a prosperous year for

having children Big advertising efforts this year are expected

to attract more (new) customers

The potential market is very big and offers lots

of opportunities for baby food companies

Source: CRT 2005 Market Analysis Statistics


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Internet channels will become another important way forproduct sales in China

Distribution

2006 Internet transaction figures of China are 26.65 billionRMB, representing 0.85% of the consumer goods salesfigures. In the year 2002, it only took up 0.04%

The phenomenon reflects the high speed development ofInternet transaction

Women of reproductive age are mainly at the age range from

25-35. They are mostly born in the 1980s, raised during therise of Internet

They are well educated and eager to accept new things.

Their salaries are mainly distributed between 1500-3500 RMB

The transaction figures of Taobao in the 1st

quarter 2007 hasexceeded 7 billion RMB and the total number of registeredmembers has reached 35.1million RMB

From Dec 2006 to Jan 2007, the total sales figures of milkpowder on Taobao was nearly 300,000 RMB


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How to make good use of internet channel is theproblem domestic companies face

Distribution

Strengths

Adequate distribution entities

Better logistics system

Threats

Share of the baby food market

and the impact of the brand are

the advantages of multinational

companies

Difficulty in coherent price control

Opportunit ies

The Internet marketing of

multinational companies in China

is not mature enough

Weaknesses

Lack of experience in website operation

Lack of scientific Investment income

analysis system

Not enough brand charisma

Internet Sales Channel

B2C, C2C Channel

Taobao

Ebay

B2B Channel

Alibaba


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What the parents want from the products is the sense of satisfaction

The quality of the products

The nutrition combination of the products including two main functions, immune-enhancing and

mental-development

Baby food is a high-risk food and once the consumers are satisfied with the product,

they will show high level loyalty

In the sales process, expressing the key features and added value of the products according to the

customers requirements is rather important.

It will arouse the consumers purchasing desire

Communication is more important than promotion in theBabyfood market

Retail

Price reduction may boost the sales volume but

does not help to increase the value of the brand

Price reducing may give the consumers feeling of

lower quality

Price reducing will cause the decrement of profit

margin.

How to express the key features of the products to the customers is a key succ ess factor


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Value=Customers Sense of Satisfaction/PriceService

Improving the satisfaction degree of customers will add value to the brand and

decrease the impact of high price

Better service including presales and after-sales services

Customer guidance helping to learn baby-nurturing knowledge

Regular social useful activities to add value to the brand

Establish comprehensive presale and after-sale service mechanism to improve the

satisfaction degree of customers

Set up specialized service hotline and service department

Provide experts lecture and free child rearing consulting services

Regular Journal of Nutrition and some baby nurturing guide

Dumex Gold Club and MeadJohnson A+ Club

provide many Human-based services such as

product consulting, baby nurturing and nutrition

consulting services

Improving customers satisfaction degree will add brand value


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Pu Jun | YGPB b f d M k t A l i PPT

www.capgemini.com

Documents

Babyfood Market Analysis_V3