China infant nutrition challenges: Feihe’s profit shrinks 33.5% as country struggles with low birth rate

Feihe is China’s largest infant formula player with a market share of 17 per cent last year. According to data from Kantar Worldpanel, Danone’s Aptamil and fellow Chinese firm Yili took the second and third spot with a market share of 13 per cent and 7.6 per cent respectively.

In its financial results released on March 28, Feihe said that group revenue was down 8.3 per cent yoy to RMB$19.53bn (US$2.7bn).

Group profit for the year also slumped 33.5 per cent to RMB$3.29bn (US$455.08m).

Chairman Leng Youbin cited the low birth rate in China and a highly competitive industry as the primary factors causing the decline.

On top of infant milk formula, Feihe also sells raw milk, adult milk powder, and dietary supplements in the US via its subsidiary Vitamin World USA.

A breakdown shows that revenue from its infant milk formula products had contracted 10.3 per cent to RMB$17.88bn (US$2.47bn) last year.

Revenue from this category was 91.5 per cent of its entire business last year, down from 93.5 per cent in the year before.

China’s birth rate was 6.39 births per 1,000 people last year, which was the lowest ever recorded. In total, 9.02 million new births were reported.

Meanwhile, the number of children between zero to three years old also almost halved from approximately 50.1 million in 2018 to 28.5 million last year, said Feihe, citing data from Frost & Sullivan.

As of December 31, Feihe’s infant formula products were available in more than 83,000 retail points of sale, including maternity stores, supermarkets, and hypermarket chains.

The offline channel remained its main revenue generator, accounting for 79.6 per cent of its total dairy products revenue last year.

Adult milk powder, rice powder supplement sales up 23.4% ​

In contrast, Feihe’s other dairy products, including adult milk powder, liquid milk, rice powder supplement products, saw its revenue climbed 23.4 per cent to RMB$1.42bn (US$196.91m).

In addition, sales from its nutritional supplement products were up 2.8 per cent to RMB$231.7m (US$32.05m) and accounted for 1.2 per cent of the Group’s total revenue.

Its nutritional supplement business came from its acquisition of Vitamin World USA in early 2018.

The subsidiary is active in the US, operating in 45 specialty stores across malls and outlet centres, although the products are also available via e-commerce platforms. 

A place for premiumisation ​

Despite the ongoing challenges, Leng believes that China’s infant formula milk market will remain stable, with premium products “expected to be the driving force.”​

“Due to increasing urbanization, rising disposable income and growing health awareness, the demand for high-end infant milk formula products is expected to be the driving force of the overall infant milk formula industry in China,” ​said Leng.

He added that lower-tier cities, as well as rural areas in China, were becoming wealthier and more urbanised.

As such, families in these regions are increasingly able to afford higher quality infant milk formula products.

“In general, these regions have larger populations and therefore higher potential for consumption growth,” ​he said.

At the same time, Feihe will be focusing on products beyond infant formulas, including products for pregnant women, children and students, healthy food, and nutrition.

The intention is to provide products for consumers from birth to growth, and from adulthood to longevity health.