Guide: In recent years, "domestic substitution" has been widely disseminated as a hot topic. Domestic milk powder brands have gradually grown and emerged, and even surpassed imported brands in market share, becoming the new main force in the industry. Statistics show that in 2014, the market share of Chinese milk powder brands accounted for 45%, and by 2021, the market share has exceeded 60%.
However, with the decline in revenue of top companies, rising costs, and declining gross profits... a deeper crisis is revealed behind it, and the "golden age" of domestic milk powder may be coming to an end. Taking Feihe as an example, from 2014 to 2021, China Feihe's revenue increased from 3.6 billion yuan to 22.86 billion yuan, a full increase of more than six times. However, Feihe's revenue will drop to 21.3 billion in 2022, and Feihe is facing a growth dilemma of simultaneous decline in revenue and profits. Why did Feihe’s once-remarkable “high-end positioning + large-scale advertising campaign” fail?
After consulting and researching, Xu Zhanhai found that China's milk powder market has entered a new competition cycle, and strategic choices in the next one or two years will determine and affect Feihe's market trend.
1. The market does not have enough time for Feihe to save itself
Statistics from the China Dairy Industry Association show that as of September 2022, there are 119 infant formula milk powder manufacturers and 841 dairy product manufacturers across the country. The market share of domestic milk powder has increased from about 30% in 2016 to 68% in 2022, occupying a dominant position in the market.
The picture comes from Feihe's official website
Euromonitor's data shows that in 2022, the top five brands in China's milk powder market are Feihe, Yili, Nestle, Danone and Junlebao, with market shares of 17.5%, 12.3%, 10.7%, 10.3% and 6.4% respectively. . On March 28, Feihe released its first financial report with a double drop in revenue and profit since its listing. In 2022, Feihe’s revenue was 21.31 billion yuan, a year-on-year decrease of 6.41%; the net profit attributable to the parent was 4.942 billion yuan, a year-on-year decrease of 2.807 billion yuan %.
Along with the decline in revenue and profit, there is also the gross profit rate. The overall gross profit rate has dropped from 70.3% to 65.5%, and the inventory turnover has also slowed down accordingly. There are various signs that Feihe milk powder is not so easy to sell, and it will be very difficult to maintain performance growth in the future. The stock price peaked earlier than the performance, from a market value of more than 200 billion Hong Kong dollars in January 2021 to less than 50 billion today.
Pushing high-end, more suitable for Chinese baby physique, and advertising bombardment have been greatly overdrawing Feihe's market potential.
As early as 2013, Feihe began to place advertisements on CCTV at a cost of 300 million yuan. Even with a net profit of only 269 million yuan in 2016, it still spent 550 million yuan on advertising. From 2017 to 2021, Feihe spent a total of 20 billion yuan on sales and distribution expenses in five years.
Under the advocacy of the old positioning consulting company, if the 20 billion advertising expenses are invested in the second signboard, it should not cause a 4-fold drop in market value today. 20 billion, can it be earned back in the future? To put it simply: it is difficult, very difficult, and it can even be said that there is little hope.
Dairy companies want to have a longer-term development, and it is no longer feasible to rely solely on the positioning of "high price means high-end" for marketing. Feihe’s sharp price reduction of the ultra-high-end milk powder product “Star Feifan” series can also prove that Feihe’s high-priced milk powder products are not easier to be accepted by mothers than before. According to the National Bureau of Statistics, China's birth rate has dropped from 12.95% in 2016 to 6.77‰ in 2022, and the number of newborns has dropped to 9.6 million in 2022. This year's data is even worse.
After research in 2022, Xu Zhanhai Consulting found that China's dairy industry has entered a new round of competition, and strategic choices in the next 1-2 years will determine and affect Feihe's market performance. For Feihe, good times have not taken root, and adversity has fallen like a mountain.
In the future, Feihe will not only face strong direct competitors such as Yili, Mengniu, Junlebao, and Guangming, but also face counterattacks from international brands such as Nestle, and countless other small and medium-sized brands.
Early setbacks do not represent final failure, and early success does not represent final advantage. In adversity, seize the opportunity to grow rapidly, and in times of adversity, be prepared for danger and take root in order to resist future risks. There is no permanent market dividend, and the market has been forced to the threshold of transformation.
The first step in down-rooting is to clarify the competitive advantage of the main brand. To truly judge whether a brand has truly established its core competitiveness, one cannot rely solely on data, let alone superstitiously believe in the powerful illusion produced by massive advertising investment. Market share and high growth rate can only represent the success of market operations, and it means that the company has completed the staged goal of "surviving".
2. High-end products cannot save Feihe, and we must continue to upgrade the competitive advantage of the main brand
After Feihe decided on a high-end strategy in a consulting company, it spent a lot of money on marketing and became famous for a while. From 2019 to 2022, the company's sales and distribution expenses will increase from 3.848 billion yuan to 6.545 billion yuan. The total expenditure in four years will exceed 20 billion yuan, and the annual sales expense ratio will average nearly 30%.
In order to establish a high-end image, the company spent a lot of money to sign Zhang Ziyi and Wu Jing as spokespersons. Feihe's slogan "more suitable for Chinese baby's physique" has dominated the screen of various videos for a long time. The reality is that the more rational consumers' choice of milk powder is, the higher the price, the higher the price and the higher the price.
For Feihe’s main brand, there are two reasons why consumers can only understand its high-end products: expensive products + many advertisements. From a deeper level, most consumers have a shallow understanding of Feihe's "high-end". Does hiring a few celebrities and spending a lot of advertising equal high-end? The answer is obvious.
In today's economic downturn, Feihe relies on advertising to maintain its high-end, which cannot support the long-term development in the later period. Mr. Leng once said that the price of milk powder in China is in the first echelon in the world, and Feihe is known as "the most expensive milk powder in the world". As far as the people's livelihood industry is concerned, it cannot be compared with liquor. Liquor can increase the brand's competitive advantage through price increases. The higher the price of milk powder, the further away it is from the mainstream demand of the market.
The key to winning the love of Japanese consumers for Meiji Dairy is the first wave of brand competitive advantages: high-end products (yogurt) are popularized to the public with the most stringent quality and the most affordable price.
Meiji was founded shortly before World War II, during which time Japan was in a state of extreme food shortage. Milk, milk powder, and yogurt were consumer goods for the upper class in Japan at that time, and no one in China could afford yogurt and milk powder in the 1970s, 1980s, and 1990s. After World War II, with the support of the United States, Japan quickly moved from a mature stage of industrialization to a stage of mass consumption in less than 20 years.
In 1950, Meiji Dairy first started the industrial production of yogurt in its own factory, and launched the honey yogurt. What to do in the first stage is to spread yogurt and milk powder from the upper class to ordinary families, driven by products, and realize the industrialized mass production of dairy products at a lower cost. With the successful development of the fermented milk continuous fermentation device, Meiji produced a honey yogurt, which is known as the pioneer product of Japanese mass yogurt, which makes yogurt available to all Japanese.
Later, with the increase of people's income, people's demand changed from drinking yogurt to drinking good yogurt, so Meiji made a deluxe version of nutrition by increasing the content of milk solids in milk in 1957. Yogurt - Meiji GOLD milk, known as the "King of Milk" in Japan at that time.
With the rapid development of the economy, for Meiji, the market has undergone major changes. On the one hand, it is necessary to retain the old users, and on the other hand, it is necessary to continuously meet the needs of new people. Therefore, what it must do is to "break the circle", that is, not only to infiltrate products, brand culture and brand advantages into different circles. If we blindly hold on to the old advantages, we will not be able to grasp the needs of the new era.
From 1976 to 1990, Meiji took the initiative to upgrade the brand advantage to: probiotic strain research brand
After experiencing the high-growth prosperity of the “National Income Doubling Plan” in the 1960s, Japan’s economic growth shifted gears after the mid-1970s, and the GDP growth rate dropped from an average of 10.4% in the 1960s to an average of 4.1% between 1975 and 1984 (based on at constant prices in 2010). If the 1960s were regarded as the era when Japanese people became well-off, this period was a stage of steady progress towards prosperity.
From the perspective of consumption, it has begun to evolve from mass consumption to individual consumption, showing a trend of personalization, diversification, high-end, and branding. A series of products that focus on higher-level needs, such as packaging design and health value, have emerged as the times require. Meiji has seen huge consumption potential from Bulgarian yogurt. On the one hand, it is actively exploring diversified strain sources, and on the other hand, it extends the Bulgarian concept to various categories.
In 1977, Meiji rival Morinaga launched the first lactic acid bacteria beverage with bifidobacteria, which caused a sensation in the market. The Bifidobacterium longum BB536 strain used in it has been studied until now and has become one of the most thoroughly researched probiotic strains in the world. In 1986, 1989 and 1994, Morinaga exported the production method of BB536 to France, Sweden and Germany respectively, opening the curtain of overseas expansion in the 1990s.
In the 1980s, Meiji raised the cooperation with Bulgaria to study dairy microorganisms to the company's strategic level. In the following years, yogurt strains with independent intellectual property rights were launched one after another, further consolidating its leading position in the Japanese yogurt market. In terms of product packaging, on the one hand, Meiji keeps pace with the times and keeps up with fashion trends; on the other hand, it fully considers product characteristics and consumer needs, and designs a variety of new packaging.
From the roof carton, to the industry's first full-open plastic box that is convenient for pouring thick yogurt, to the independent small plastic cup with a foldable spoon, which is convenient for adding fruit yogurt, Meiji's ultimate goal is to satisfy the consumer experience. At the forefront of industry innovation. Packaging innovation has also led to the growth of product sales, and major supermarkets have gradually begun to set up yogurt exclusive areas.
In 1993, Meiji replaced the long-used Bulgarian yogurt strain with LB81, which has a better intestine-regulating effect. In 1996, Bulgarian yoghurt was certified as the first specific health food in the yoghurt field. After several generations of changes, Meiji Bulgarian yogurt, as a representative of no added yogurt, has always occupied an important position in the Japanese yogurt market. Product packaging has changed from carton to plastic box, and the fermentation method has been developed to a low-temperature and low-oxygen process to ensure the vitality and full fermentation of the strain.
In 1998, Meiji researchers selected the strain with the best gut-regulating effect-LG21 from more than 2,500 strains preserved by the company. In 2000, yogurt fermented with the LG21 strain was officially launched. At the time, it was the first product to support human health as a daily food, and it caused a huge sensation after its release, creating a whole new market. After LG21, R-1, LB81, PA-3 and other strains with different health care functions came out one after another. A variety of yogurts with added health value have injected new vitality into the market and led the trend of healthy food.
In 1996, Meiji upgraded the competitive advantage of the main brand again: the functionalization of yogurt .
In 1996, Meiji took the lead in responding to the Specific Health Food Act promulgated by the government, and marked the function on the packaging label, bringing packaged yogurt into the functional era. This is also an important reason why Meiji yogurt can continue to maintain its leading position. Their efficacy studies on the strains are ongoing.
The first one is Meiji yogurt LB81 series, its main function is intestinal health, the second is Meiji yogurt R-1 series, this main function is to activate the immune system and prevent colds, the third is Meiji yogurt PA -3 series, the main effect is anti-purine body. In addition, based on the technical advantages of Meiji Dairy and Meiji Seika in protein-related fields, the "Meiji Milk Protein Project" was launched .
Before the launch of TANPACT, the SAVAS milk protein drink using the "rapid absorption method" has been successful, and now the two business segments have finally achieved business crossover through the TANPACT brand. TANPACT has also successfully "inherited" Meiji Group's technological advantages in the field of milk protein, and achieved rapid product expansion by adding milk protein to the group's existing product categories.
From 2000 to today, Meiji has upgraded the main brand advantage to: take advantage of the synergistic effect of food and pharmaceuticals to promote innovation. Research on health and human longevity is groundbreaking, and always held to the highest ethical standards.
In order to better meet the needs of sports people for nutritional products and compete for a place in the vast market development space, Meiji made corresponding measures in 2016. In order to strengthen the strategy of healthy food, the ready-to-drink protein drink——SAVAS MILK PROTEIN was launched. Relying on a series of advantages such as high-quality protein nutrition, convenient purchase and drinking, and rich consumption scenarios, it leads the Japanese sports nutrition market. While its sales performance is growing It also boosted the overall profit of Meiji Dairy.
In addition, the acquisition of a vaccine company is also one of Meiji's major initiatives to find business growth points. The successive introduction of antidepressants and anti-allergy drugs has also played a significant role in boosting the expansion of Meiji's pharmaceutical business.
Obviously, Meiji Dairy has never regarded itself as the leader, high-end, and far ahead of a certain category in Japan. Instead, according to the dynamic changes in the market, it has redefined the competitive advantage of the main brand four times. Summarize the core capabilities of Meiji Dairy that can last for a century.
First of all, do not abide by a single competitive advantage. Real proof of research and development capabilities through innovation. Because of changes in the economic cycle and population structure, mainstream consumer demand in society has undergone continuous changes. For enterprises, they need to discover and meet the consumption needs of these people in the first place, so they must have the ability of continuous innovation and research and development.
The second is to pay attention to the penetration across circles. To infiltrate the product culture into the hearts of consumers, we need to do various cross-circle penetrations, so that people of different regions and ages can recognize their own products and brand culture at different times, because the power of resonance is very scary. If a brand can do these things, then the brand is not just a LOGO, but a belief, which will form a very strong brand cohesion during the economic cycle.
The last is altruistic value creativity. Meiji has always been thinking from the perspective of consumers, thinking about how to create value for consumers, partners and society. Everyone would never have imagined that a company that sells milk would invest so much manpower, material resources, and money in drug research and development, because it did not put its own short-term interests first. Although these investments cannot be realized quickly in the early stage, in the long run, Meiji has reaped excess returns.
The four main brand advantage upgrades have also created cross-category vitality for it.
3. Based on the advantages of the main brand, the layout of the second signboard
Throughout its history, Meiji has placed great emphasis on research and development to create nutritious foods. To support the healthy growth of young children, the group has been supplying formula milk to the market since the 1920s. In order to make a greater contribution to people's health, the group started producing penicillin and operating pharmaceutical business in the 1940s. Since then, since the 1970s, the group has focused on the development of health food.
From an early stage, the Meiji Group not only focused on promoting dairy products, but also used them as an additional source of nutrition for infants and those receiving medical care. Then developed its own production technology, which led to the launch of its own brand - SOFT CURD Meiji formula milk food in 1951. To this day, the Meiji Group has been continuously optimizing its formula milk products and striving to improve the convenience of the products.
A chocolate chip biscuit treat that has been sold since 1975. The combination of chocolate and biscuits is designed in the shape of mushrooms for packaging production. Four years later, they launched a chocolate cookie snack called "Bamboo Shoot Village" (たけのこの里), which changed the shape of the mushroom into a small bamboo, and replaced the biscuits in the ingredients with cookies.
Since its launch in 1994, it has entered the market with its cheap price, rich milk flavor and large capacity of 200ml. At that time, it broke the common sense of the price of 100 yen for a small cup of ice cream.
In recent years, the Meiji Group has been investing heavily in the research and development of more nutritious foods and more effective medicines, striving to directly meet these health needs. In 2021, the Meiji Group put forward a new slogan - "Creating and Sharing a New Concept of Health", which reflects the commitment of the Group's employees to bring health and well-being to more people around the world through innovative products.
In contrast, Feihe blindly launches new products when the main brand’s competitive advantage is not clear. At most, it can be called “Feihe’s new product” and cannot be called the “second brand”. Building a second brand requires the methodological support of a scientific and systematic main brand competition strategy, because the essence of a second brand is to create a new competitive advantage for the main brand. As a strategic action, the second signboard aims to drive the development and innovation of the main brand and promote the strategic growth of the brand.
Therefore, when creating a second brand, the company must start from the competitive advantages of the main brand, combine market demand and trends, and formulate appropriate strategies in order to achieve brand diversification and enhance competitiveness.
However, many companies tend to fall into misunderstandings in the process of building a second brand. For example, developing a new product or expanding a new category is equivalent to creating a second brand.
In fact, these practices are only necessary measures for enterprises to seek development in the market competition, and may not necessarily bring competitive advantages to the main brand. Similarly, it is also a misunderstanding to regard business diversification as a second brand, because business diversification may not necessarily create a competitive advantage for the main brand, and may even lead to the dispersion of brand resources and management difficulties.
Conclusion:
In today's rapidly changing market environment, a single strong product can no longer cope with the complex and diverse user needs and competitive environment. More and more companies are beginning to adopt the method of cross-cycle competition, that is, to continue or enhance their competitive advantages by updating iterations or entering new fields.
Feihe not only needs to redefine the competitive advantage of the main brand, but also build its own second brand based on the competitive advantage of the main brand. Otherwise, it will be difficult for Feihe in the future to meet the more tragic involution competition in the future. Find the high-level moat that really belongs to the Feihe brand as soon as possible, and rejuvenate it.