In China, the bourgeoning market of liquid milk and dairy products has transformed into a fierce battlefield packed with domestic and international milk producers fighting aggressively for the market share. This situation seriously challenges the status quo of a long-standing milk duopoly in China, and more importantly, unveils great market potential of the under-saturated and under-estimated liquid milk demand for foreign brands.<\/p>\n

 <\/p>\n

Money, Milk, and Media<\/strong><\/p>\n

It was not a long time before Chinese consumers were bombarded with flooding milk commercials and dazzling dairy product placement in variety shows and movies. In November, Yili, the largest dairy firm in China, pledged $470 million U.S. dollars in its TV advertising campaign for the year of 2016. With $171 million dollars on exclusive naming rights for two of the most-watched Chinese reality shows, Yili also bought exclusive primetime advertising slots for CCTV\u2019s 2016 Rio Summer Olympics Scoreboard and other leading entertainment shows.<\/p>\n

Not to be eclipsed its most ambitious competitor Yili, Mengniu also marched on with its advertising campaign. The firm generously invested hundreds of millions of dollars in naming TV programs that are major rivalry with those sponsored by Yili. During the media sponsorship auction season this year in China, in TV advertising alone, Mengniu sponsored $120 million dollars with competition show Run for Time and Summertime Sweetheart Season 1, a reality show that is even still in its brainstorming stage.<\/p>\n

There has been a long history of Yili and Mengniu\u2019s competition in the Chinese milk industry. Unlike baby formula market where foreign brands completely outplay Chinese domestic sellers and claim 54% of the market, liquid milk consumption is a different story.<\/p>\n

Yili and Mengniu, counterparts of Apple and Android in the cell phone industry, dominate significant market shares of liquid milk in China. Both milk giants account for 21.7% and 18.8% of Chinese liquid milk sales respectively, followed by WaHaHa of 9.6% and Bright Dairy of 6.9% in 2013. Yili earned a profit of $652 million dollars in 2014 while Mengniu claimed its profit at $360 million dollars.<\/p>\n

The overwhelming advertising strategy employed by dairy companies guarantees that if a television show consumer turns on his TV during prime time, this target consumer would be very likely exposed to milk advertisements, either kids drinking milk with smiling faces or young professionals trying a solve her digestion problem with premium-priced yogurt.<\/p>\n

The aggressive marketing approach, along with the considerable amount of advertising money that is more than 80 percent of the annual profit, exactly reflects how desperate Chinese milk companies are in order to capture the ever growing market of liquid milk. But the duopolistic situation is about to change, when foreign competitors come into play and try to get a share of the huge cake.<\/p>\n

<\/a>\u00a0<\/a><\/p>\n

(Yili and Mengniu’s TV ad campaigns with reality shows\u00a0Where Are We Going Dad? Season 3<\/em> and Run For Time Season 1<\/em>.)<\/p>\n

The Next Growth Point<\/strong><\/p>\n

If there is anything that deserves attention in the Chinese milk industry, it\u2019s the exuberant and growing demand that dictate the liquid milk market. As the Chinese government abandoned its controversial one-child policy, China will implement its two-child policy starting from next year. For dairy firms around the globe, the good news is that in the next decade, millions more children will be accompanied with cow milk during their childhood and adolescence. In the future, those who grow up with milk consumption behavior can be core customers that help support sustainable growth of dairy companies in the long run.<\/p>\n

Even if the new two-child policy may bring more babies, the sales increase in the baby formula market has remained comparatively weak. A Nielsen report shows that in the first half of 2014, dollar sales of baby milk powder in China jumped by 7 percent, however unit sales slumped by 4 percent. As the competition in milk powder market intensifies and the market gets saturated, price wars can become a normal state in the industry, making it harder for firms to grasp the market share. While the sales of baby milk are likely to face its bottleneck in the near future, liquid milk, in contrast, has a brighter prospect.<\/p>\n

Thanks to the continuing urbanization and shifting consumer behavior in the Chinese rural area and third- and fourth-tier cities, more people are switching from drinking soy milk to cow milk for their breakfast. In 2012, a Chinese consumes only 32 pounds of milk a year on average, whereas an American drinks 168 pounds per year and the figures for neighboring Japan and South Korea are 75 pounds. A ten percent annual increase of discretionary income over the past decade enables Chinese consumers to spare more money on their groceries, thus creating huge potential for liquid milk consumption.<\/p>\n

However, the 2008 melamine scandal left long-lasting aftershock on Chinese domestic milk brands. Eighteen local dairies were found adding melamine into raw milk in order to fake high quality cow milk. Consumer confidence has never recovered from deep suspicion against local milk companies since then. In an effort to appeal to those who have lost their faith in domestic milk, foreign companies seized the chance and launched its marketing campaign. The result proved to be a huge success.<\/p>\n