Melamine Scandal Has Improved Sales of Foreign Milk in China

Brands Like Dumex and Ausnutria Have Gained Market Share

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Nervous mothers in China are shifting to foreign infant milk brands such as Dumex
Nervous mothers in China are shifting to foreign infant milk brands such as Dumex
BEIJING (AdAgeChina.com) -- The tainted milk scandal that erupted in China this fall has crippled sales in China's dairy market and tarnished the image of local milk brands Sanlu, Mengniu and Yili.

But the fiasco, which has killed or sickened tens of thousands of Chinese infants, has benefited several foreign milk companies, according to research by TNS Worldpanel, a division of CTR Market Research.

Imported brands have experienced significant market share increases in the past two months as nervous mothers chose foreign brands in a quest to buy safer milk. Many Chinese consumers switched from standard to premium products and from local to international brands, especially when buying infant milk products, and most noticeably in the lower tier cities.
The scandal has helped foreign brands like Ausnutria
The scandal has helped foreign brands like Ausnutria
For the international brands, this led to market share gains, even though dairy prices were hiked by a staggering average of 26%--and 33% for infant milk. The largest impact was felt in smaller cities, as many of the local brands that previously had a strong presence there had to withdraw their products from the shelves, giving way to international brands.

For example, Dumex, an infants' and children's nutrition company owned by Danone Groupe with sales mainly in China and Southeast Asia, saw its market share in lower-tier cities increase from 9.8% to 20.1%.
Dumex's market share in China now tops 20%
Dumex's market share in China now tops 20%
The market share for Australia's Ausnutria Dairy shot up from 2.6% in 2007, to 6.8% in the same four-week period in 2008. Ausnutria has a joint venture in China with Changsha Xindaxin Group, mainly producing and distributing baby foods, including infant milk powder and other nutritional foods made from Australian milk--a strong selling point for Chinese consumers.

Despite the rise in market share for some brands, China's dairy market has suffered tremendously. Sales during the worst week of the milk scandal plummeted by 54%, compared to the same week in 2007. All players were seriously affected. When measured over four weeks up to Oct. 3, total dairy purchases decreased 18%, reflecting the poor sales performance of local brands.

There is "a huge opportunity for international brands with premium products who should now step up with aggressive marketing strategies," said Jason Yu, TNS Worldpanel's general manager, China in Beijing. "But we also know that large local brands can benefit from the trust that consumers have shown in them. We recommend they act as fast as possible, especially in the market for liquid milk and yogurts where they still have less international competitors than in other food sectors."

Local dairy marketers need to "accelerate the premiumization of the category," Mr. Yu said. "[They] focus on marketing premium-priced products from credible sources and production processes. If they can prove to consumers that they are making all efforts to recover from this crisis, local brands will be able to fight back for their market shares successfully."

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