Facing margin cuts, dairy firms shift to healthy products

Some Chinese dairy producers have seen gross profit margins of their infant formula milk powder products continue to decline due to the impact of foreign brands, high costs and inventory pressures. So, more producers are trying to target healthy products.

The two-child policy in China didn't trigger sales growth of the domestic dairy sectors, which had their growth dampened by the boom in cross-border e-commerce, price competition and other factors.

In the first three quarters of 2016, Biostime International Holdings Ltd, a Chinese nutrition and baby care products provider, saw its sales of infant nutrition and care products drop to 2.76 billion yuan ($400 million), a 3.3 percent year-on-year fall. The drop is mainly due to declining sales of middle quality infant formula milk powder products, according to the company.

In December, Biostime completed its purchase of vitamin maker Swisse Wellness Group Pty Ltd, Australia's top provider of vitamins, herbal and mineral supplements products. It paid A$311 million ($224 million) for the 17 percent of shares still outstanding after its 2015 purchase of 83 percent for about A$1.38 billion.

Since the initial acquisition, Biostime said it has seen strong sales growth of Swisse products. In the first half of 2016, Biostime netted sales growth of 34.9 percent year-on-year from Swisse. The company said it plans to further expand its sales channels of Swisse products this year.

Jason Yu, general manager of Kantar Worldpanel, a market research firm, said the acquisition is a good sign that Biostime is diversifying its products offerings beyond its core businesses, where the company and other domestic producers have seen increasing market competition.

About two years ago, Biostime also expanded its business to sell diapers, but it suffered a setback as some Japanese diaper brands have taken big market shares in China.

Meanwhile, the market for yogurt has gained ground, despite a sluggish domestic market for infant milk formula.

Classy Kiss, a yogurt brand from Green's Bioengineering (Shenzhen) Co Ltd that mainly targets the high-end consumer market, saw significant sales growth of its yogurt products in the third- and fourth-tier markets. It also launched a yogurt designed to help improve intestinal health after a meal, hoping to cash in on Chinese consumers' growing demand for healthy products.