Revenue from mainland China fell 17 per cent in Q3 from RMB$2.2bn (US$303.2m) to RMB$1.8bn (US$251.5m), the company announced on November 19.
Including revenues from the first two quarters, revenue from mainland China was 12.5 per cent lower, falling from RMB$7.3bn (US$1bn) to RMB$6.4bn (US$878.8m).
The decline was largely due to two factors – a shrinking infant formula market and reduced footfall to offline pharmacies.
In the first three quarters, the company’s infant formula sales fell 24.3 per cent, which it said was due to industry challenges in mainland China, specifically the super-premium category.
Over 75 per cent of the company’s infant formula sales in mainland China come from its Biostime brand of super-premium products.
Decline in the super-premium infant formula segment, however, is an industry wide trend in China due to falling birth rates.
Citing data from Nielsen, the company said the super-premium category in China contracted by 23 per cent between September this year and last year.
Another reason affecting infant formula sales was the transition to new products approved under the new guobiao (GB) national standards.
“The time required to complete the entire transition cycle for our new ‘GB’ series, including depleting our old ‘GB’ IMF products, replacing our Pi- Star Flagship series, introducing the new Pi-Star sub-series, and increasing efforts to acquire new customers — all of which led to lower sell-in during this period,” the company said.
Still, data from Nielsen showed that market shares of H&H’s infant formulas have increased from 11.8 per cent to 13.1 per cent between September last year and this year, following the launch of its new GB approved products.
“During the first nine months of the year, we’ve navigated persistent challenges across mainland China’s super-premium IMF segment, leading to a decline in our Baby Nutrition and Care (BNC) segment (25.3 per cent), and ultimately a decline in Group revenue.
“Despite this, it’s very promising that we’ve maintained our no. three position in the super-premium IMF category in mainland China, with our market share growing from 11.8 per cent to 13.1 per cent and reaching 14.0 per cent in September 2024,” said Nick Mann, Group CEO and CEO for Asia, Australia and New Zealand, H&H Group.
Mainland China remains the company’s largest market, making up 65.9 per cent of its total revenue.
In total, the company’s revenue in Q3 fell 10.5 per cent from RMB$3.3bn (US$455.5m) to RMB$3bn (US$408.3m).
Another challenge faced was reduced foot traffic to pharmacies, which have affected offline sales for both its adult and kids’ supplements.
As a result, sales of its adult nutrition from normal trade channels grew modestly by 3.2 per cent, while that of its paediatric probiotic and nutritional supplements declined by 32.4 per cent in the first three quarters of 2024.
“Sales of our high-margin paediatric probiotic and nutritional supplements declined by 32.4 per cent due to a high base in 2023 and continued lower traffic and sector-wide challenges across the supplements business within the pharmacy channel,” said the company.
Weakest in offline pharmacy sale, is again, an industry-wide phenomenon in mainland China.
Haleon, in its Q3 financial results, similarly said that China consumers have been increasingly spending on multivitamins in e-commerce than in pharmacies.
Adult nutrition offsetting infant, pet health decline in China
In contrast to infant and pet nutrition, H&H Group continues to register growth in its China adult nutrition business through the brand Swisse. Sales from Swisse have also offset the declines in infant and pet nutrition.
Like infant nutrition, mainland China is also the biggest market for the company’s adult nutrition portfolio, accounting for 64.2 per cent of its total adult nutrition and care sales as of September 2024.
Beauty, multi-vitamins, and detox products were the key sales drivers.
The Swisse Plus+ range, with its higher profitability, also made a double-digit contribution to mainland China’s sales in the first three quarters.
Majority of the sales also came from the cross-border e-commerce channel.
“LFL (Like-for-like) sales in the cross-border e-commerce (“CBEC”) channel contributed 76.9 per cent of our mainland China ANC revenue and grew by 7.8 per cent, supported by the launch of more innovative categories, continued consumer education and effective marketing.
“In the normal trade channel, sales grew modestly by 3.2 per cent as the offline market continued to face reduced foot traffic and sector-wide challenges across the supplements category within the pharmacy channel, partially offset by the moderate growth of the online normal trade market.”
Including all other regions, the company’s adult nutrition and care business saw a revenue growth of two per cent in Q3 – up from RMB$1.67bn (US$230.4m) to RMB$1.71bn (US$235.9m).
Mainland China the only market reporting a slowdown
Mainland China was the only market reporting a slowdown in revenue in both Q3 and the first three quarters of 2024.
In contrast, Australia and New Zealand grew slightly from RMB$546.4m (US$75.7m) to RMB$552m (US$76.2m) in Q3.
In the same period, North America saw an increase of 2.8 per cent to RMB$396m (US$54.7m), while other territories grew 10.9 per cent to RMB$186.6m (US$25.8m).
“For the 2024 full year outlook, we expect our ANC segment to maintain its healthy and sustainable growth trajectory in mainland China, retaining our no.1 position online and gaining further market share in overall market in mainland China.
“In Australia & New Zealand, we anticipate a steady growth as we focus on cementing our leading position through our innovative new first-to-market Nootropics range for cognitive health, and Smart Melts range offering a new dissolvable format, while strengthening our leadership in the Sleep category with a second year of our award-winning ‘Go the Swisse to Sleep’ marketing campaign,” said Mann.