It plans to launch China label versions of its existing fortified adult milk powder products designed for supporting the immune system and bone, joint, and muscle health.
David Bortolussi, CEO and managing director of The a2 Milk Company, revealed the plans during a question and answer session with shareholders that took place after the company’s annual meeting on November 22.
Earlier this year, the company introduced English-label fortified milk powder products in a bid to grow its business beyond infant formula and fresh milk products.
In response to a shareholder’s query, Bortolussi said that the high-priced fortified products have been performing well and were more profitable than the non-fortified basic milk products.
“So far, we have introduced our English label fortified products, one fortified with lactoferrin and one with fortigel, which are sort of targeting the adults and senior markets.
“To date, they are performing really well. I mentioned in my address that high priced fortified products are performing well...What is not performing well for us at the moment is more basic milk powder in a pouch because of the competitive dynamics, [and so] the price of milk powder has been impacted more. ” he said.
The company hopes to achieve further growth by introducing Chinese labels of these products into China where seniors nutrition is a thriving but highly competitive market.
“What we’ve got planned in terms of the senior segments is in the China label part of the business. We are planning to launch new products next year targeting the seniors market.
“It’s a large part of the market, it’s growing rapidly, with double-digit growth rate at the moment. It’s very competitive already and the margin structure is generally quite a lot lower than infant.
“We would work towards capturing the opportunity there but probably don’t think about the figures are anywhere the same as our infant formula business from a sales or margin point of view.”
China is the a2 Milk Company’s biggest market, where it is one of the top five players in the infant formula market.
In FY24, the company said that its total infant milk formula sales were up 4.6 per cent to 1,160m.
Citing data from Kantar Worldpanel, the company said it has a market share of 7.3 per cent as of June 2024 - ranking behind Feihe (17.1 per cent), Danone’s Aptamil (13.6 per cent), Yili (8.7 per cent), and Friso (7.7 per cent).
However, with birth rates declining and increasing market competition, the company has been looking at different ways to maximise China’s market potential.
“We are prioritising the China market, we are maximising the potential of that market.
“At the same time, we are expanding our adjacent categories and new markets overtime,” said Bortolussi.
According to China’s National Bureau of Statistics, the number of new-borns in China was nine million last year – which was 5.6 per cent lower than 2022.
Both local and foreign infant formula companies have been affected by shrinking birth rates.
Homegrown brand Feihe said in April its FY23 profit slumped 33.5 per cent to RMB$3.29bn (US$455.08m).
Health and Happiness, which owns the infant formula brand Biostime, also said that its infant formula sales in the first nine months of 2024 was 24.3 per cent lower than the same time last year.
The super-premium category, where Biostime is mainly active in, contracted by 23 per cent between September 2023 and September 2024, the company said, citing data from Nielsen.
In view of a smaller infant formula market, some infant formula companies have looked to childhood and senior nutrition for new growth.
Junlebao Dairy Group is one such example.
The company last year outlined in its nutrition science strategy that it planned to ramp up products for middle-aged and older consumers.
Its product, Le Gai (乐钙), for instance, was designed to support calcium absorption for this group of consumers.
Other priority markets
Outside of China, the company will prioritise South East Asia, the Middle East, and the US for further growth.
In South East Asia, the company has instance entered the Vietnamese market this year and is expanding its distribution in Singapore.
In the US, the company is selling both fresh milk and infant formulas based on the USFDA’s enforcement discretion – a policy which allowed overseas brands to fast track the US market for a short period to help the country overcome a supply crunch.
Bortolussi said the company had submitted an application for to the USFDA this month for selling its infant formulas for the long-term.
Supplements business a possibility
The company may also consider the possibility of branching into the supplements sector, Bortolussi said, in response to queries on whether the firm would go into the whey protein supplement business.
He said that while whey protein has been a high-growth industry in the last decade, it would be expensive and difficult for the company to do so, as the company was focusing more on beta-casein than whey protein.
“The a2 brand and the a2 proposition is around being a1-free in terms of the beta-casein protein. As such, we are very much focused on the beta-casein element rather than the whey protein element.
“There may be some benefits in developing high protein products for different applications, but the complication in that – to extract a lot of beta-casein protein for those products, it going to be difficult and quite expensive..." he explained.
Instead, the company will focus on developing fortified milk powder products and potentially supplements overtime.
“At the moment, we are very focused on our infant product expansion, and to expand that portfolio, we are expanding intro other nutritionals, fortified milk powders and you can see some examples that we have launched recently.
“There’s more to come targeting kids and seniors, and then potentially supplements and then other categories including traditional dairy,” he said.