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QINGDAO TODAY
在线翻译:
szdaily -> Business -> 
Nestle, rivals vie for baby formula prize in smaller cities
    2019-05-09  08:53    Shenzhen Daily

NESTLE plans to launch a new line of baby formula in China this year under an existing brand, targeted at smaller cities, as the world’s largest packaged food company tries to lengthen its lead in the world’s biggest baby milk market.

The new line will focus on smaller provincial cities, often in China’s western provinces, where greater shipping distances and lower incomes can make some imported brand goods unaffordable, though wealth there is growing.

Baby milk units of Nestle, France’s Danone and Reckitt Benckiser enjoyed years of prosperity mainly just targeting parents in big cities like Shanghai and Beijing, banking on their appetite for ever-pricier premium formulas and foreign brands following a domestic 2008 tainted milk scandal.

Slowing growth has now made geographic expansion crucial, and new distribution models have made it easier.

The big catch, however, is the intense competition and logistical hurdles they will encounter in China’s US$25 billion baby formula market as they run up against local players who dominate in the smaller cities.

Some 55 percent of respondents in a survey by the User Research Institute of BabyTree, China’s leading parenting website operator, said domestic brands better understood Chinese consumers.

“This reflects a broader trend that indicates local brands are gaining traction among consumers in China,” said Wang Lei, head of the institute.

Chinese retail sales of baby formula grew 9 percent last year, according to Euromonitor International. That is down from nearly 17 percent growth in 2014. Yet the scale of the country, with more than 15 million births last year, and consumers’ preoccupation with quality means it is still by far the world’s most important market for baby formula.

Nestle’s new line will come under the umbrella of one of its three existing Chinese brands — Illuma, S-26 and NAN — but will be marketed differently, said Thierry Philardeau, head of its infant nutrition business.

Lower-tier cities in China accounted for 47 percent of the baby formula market 15 years ago, Nestle’s Philardeau said, but 73 percent today.

Because of consumers’ unique concerns around safety and quality, baby formula is much more expensive in China than in Europe. One 800g can of baby formula in China tends to cost north of US$30, while a similar can costs $13 in Britain.

Adam Xu, a partner at OC&C Strategy Consultants in Shanghai, said though willingness to pay high prices for baby formula was universal in China, the growth of quality national players was making life harder for premium Western brands.

Chinese formula makers, which include Feihe International, China Mengniu Dairy and Inner Mongolia Yili Industrial Group, have grown stronger amid a host of marketplace shifts.

At the same time, investments by domestic players in premium brands and special formulations are helping to overcome safety concerns, said analysts at Citi Research. They predict Chinese brands could reach 53 percent market share by 2022, up from 40 percent in 2015. (SD-Agencies)

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