International dairy brands to reap benefits from melamine scandal

Posted by Daniel Palmer on 12th November 2008

TNS Worldpanel, global market leader in consumer purchasing information, today announced that although China’s dairy market was hit by sales spiralling downwards, there are many winners emerging from the melamine scandal.

The criminal contamination of milk products in China led to the tragic deaths of four babies as well as causing over 54,000 infants to fall ill and has seen food standards bodies worldwide test and assess the safety of dairy products from China. For international dairy brands, however, the fallout could provide an opportunity to increase their presence in the lucrative market.

The overall consumer purchase volume measured in the worst week amidst the milk scandal plummeted by 54% compared to the same week in 2007, and seriously affected all industry players. However, when measured over four weeks up to 3rd October dairy purchases only went down 18%. Research data clearly shows that in a quest to buy safer milk, many Chinese consumers switched from standard to premium products and from local to international brands, especially when buying infant milk products, and most noticeably in the lower tier cities.

For the international brands, this subsequently led to market share gains, even though dairy prices were hiked up by a staggering average of 26%, and 33% for infant milk. The largest impact was felt in smaller cities, as many of the local brands that previously had a strong presence had to withdraw their products from the shelves, giving way to international brands.

Dumex, a widely distributed international infant milk brand with factories in China, saw its market share in lower tier cities increase from 9.8% to 20.1%. Another winner of the scandal was local manufacturer Ausnutria (Aoyou), whose market share shot up from 2.6% in 2007 to 6.8% in the same four week period in 2008, indicating that consumers appreciate that Aoyou sources its raw materials from Australia and emphasises this in its marketing.

By comparing consumer reactions to local brands in recent interviews with over 1,600 Chinese consumers, TNS Worldpanel found out that consumers are more confident that the larger players like Mengniu and Yili will recover from this incident, while smaller brands still lack consumer confidence. In fact, the confidence in the recovery of local brands is significantly larger in smaller cities than in tier one cities, where consumers are more willing to pay higher prices for international brands.

“Obviously this incident represents a huge opportunity for international brands with premium products who should now step up with aggressive marketing strategies,” Jason Yu, General Manager TNS Worldpanel China. “But we also know that large local brands can benefit from the trust that consumers have shown in them. We recommend they act as fast as possible, especially in the market for liquid milk and yogurts where they still have less international competitors than in other food sectors.

“One possible option is to accelerate the premiumisation of the category, focussing on marketing premium priced products from credible sources and production processes. If they can prove to consumers that they are making all efforts to recover from this crisis, local brands will be able to fight back for their market shares successfully.”