Sheep Milk Market in China (2)

Part
01
of one
Part
01

Sheep Milk Market in China (2)

The sheep milk market in China is expanding rapidly, thanks to a growing demand for alternative milk infant formula among mothers in the country. Below are some insights on how sheep milk products are distributed in the country and which companies are making a name in the space.

Insights on Sheep Milk Distribution Models in China

Recently published sources covering the distribution of sheep milk in China indicate that overseas sheep milk brands typically enter China and distribute their products there via cross-border e-commerce platforms, brick-and-mortar retailers, and joint ventures with China-based companies. Milk products, in general, are distributed in the country mostly through supermarkets, independent small grocers, hypermarkets, and internet retailers.

Distribution Through Cross-Border E-Commerce Platforms

  • Cross-border e-commerce appears to be one of the ways sheep milk producers are distributing their products to Chinese consumers. Last year, there was news that Spring Sheep Milk Company, a sheep milk producer based in New Zealand, will be rolling out its Gentle Sheep Premium Toddler Formula to China via cross-border e-commerce.
  • It appears that the company began selling its sheep milk products in China last July and that the company did this via Alibaba's Tmall. Tmall is a cross-border e-commerce platform in China.
  • This decision of the Spring Sheep Milk Company to set up a flagship store on a cross-border e-commerce platform seems to have paid off since the company's sales on the platform had more than doubled between August and September.
  • The growing popularity of cross-border e-commerce in China may be related to the fact that there are two major types of consumers in the country. According to Andy Geismann, a project manager who works for New Zealand-based Waikato Milking Systems and is currently concentrating on small ruminants, there are two market streams in China. First are people who can afford only the local produce, and second are people who have higher disposable incomes and are willing to pay a premium for dairy products that were "made in a country that has a clean, green image."
  • Pier Smulders, the New Zealand country manager of Alibaba, also shared that Tmall is "the place in China where premium overseas brands get introduced to Chinese consumers." According to Smulders, Tmall is "a perfect entry point for brands like Spring Sheep to target those Chinese consumers looking for those imported brands."
  • Tmall is China's biggest cross-border e-commerce platform. Products sold on the platform do not have to be formally registered in China.
  • Like Spring Sheep, A2, another New Zealand-based dairy company, started on Tmall as well.
  • According to Smulders, Tmall is where overseas brands launch their products and capture the interest of young, affluent consumers in China.

Distribution Through Offline Channels

  • The fact that H&H, a Hong-Kong-based goat milk producer, has recently entered into a couple of agreements to distribute its goat milk brand Biostime via brick-and-mortar retailers in China suggests that despite the growth of e-commerce, offline channels remain very much in play in the country.
  • H&H, whose goat milk products are already available online in China via Tmall, JD, and Mama100's WeChat, partnered with retailer Aiyingshi in December 2019 and with retailer Kidswant in January 2020. Together, these two retailers have around 670 locations across China.
  • Both Aiyingshi and Kidswant are retailers of products for mothers, infants, and children in China. In 2019, there was news that Kidswant was already reaching almost 60% of Chinese cities that have a population of over 500,000.
  • Goat milk and sheep milk are two milk categories in the country that have high growth potential.
  • The joint venture between Bubs Australia, an infant nutrition company, and Beingmate, a Chinese dairy company, was recently able to secure a partnership with Kidswant.
  • In Asia, Spring Sheep Milk Company is reportedly adding not just online distribution channels but offline distribution channels as well.

Distribution Through a Joint Venture With a China-Based Company

  • Forming a joint venture with a China-based company appears to be another way to distribute products in China.
  • In March 2019, news surfaced that infant nutrition company and goat milk producer Bubs Australia will enter into a joint venture with China-based dairy company Beingmate to distribute its products in China.
  • Beingmate has a distribution network of 30,000 stores in China. It also has 280 products in its portfolio. Among its products are infant formula products.
  • Kristy Carr, the chief executive officer of Bubs Australia, had the following to say on the joint venture: "Beingmate's extensive infrastructure, local knowledge, regulatory expertise, and extensive domestic distribution footprint, coupled with Bub's unique premium international offering, will have the capacity to transform our business."
  • It appears it is easier for overseas brands to enter the Chinese market through China's lower-tier cities. One of the reasons Bubs decided to form a joint venture with Beingmate was Beingmate's strength in driving product sales via the country's lower-tier cities, where entry costs are lower and the country's recent multi-child family policy has a positive impact.
  • Maui Milk, a New Zealand-based sheep milk producer, was able to enter China through its joint venture with Shanghai Bewell, a marketing company in China.

Milk Distribution Channels

  • Supermarkets have the lion's share of milk sales in China. In 2019, they accounted for 44.3% of milk sales in the country.
  • In China, they are the biggest distributors of milk products, and they have the biggest selection of milk products.
  • In 2019, food wholesalers and food retailers accounted for 23.8% and 16.8% of the country's milk sales, respectively.
  • Food wholesalers typically operate locally or in their target provinces. They recruit and manage milk distributors in tier-two or tier-three cities.
  • A chart published by statistics portal Statista in 2020 shows that in 2017, the breakdown of drinking milk sales in China, by distribution channel, was as follows: supermarkets (32.3%), independent small grocers (20.8%), hypermarkets (15.3%), internet retailers (9.5%), convenience stores (3.9%), discounters (0.2%), and other grocery retailers (18%).

Impact of E-Commerce on Domestic and Imported Dairy Products

  • E-commerce has intensified the war between imported and domestic dairy products in the country. It has led to stronger demand for high-quality or premium products that are made overseas.
  • Daxue Consulting, a consulting firm that focuses on the Chinese market, reports that online platforms have made the distribution of dairy products in China more efficient and that cross-border e-commerce or the purchase of dairy products through daigous is growing in popularity among younger consumers in urban areas.
  • Daigou, whose literal translation is "buy on behalf," pertains to "a consumer-to-consumer (C2C) relationship of intermediaries who purchase overseas goods for Chinese consumers for a fee."
  • It is worth noting that because of the steady growth of cross-border e-commerce, the Chinese government is now taking steps to regulate it. Since January 1, 2019, daigou merchants have been required by law to register and pay taxes.

Key Players in China's Sheep Milk Market

The largest sheep milk brands in China could not be reliably ascertained in the allotted time. There is a list of the top 10 sheep milk powder brands in China, but this list does not look credible. Based on the limited available information, three of the key players in China's sheep milk market appear to be the Baiyue Dairy Group, Blue River Dairy, and Spring Sheep Milk Company.

Spring Sheep Milk Company

  • The Spring Sheep Milk Company offers Spring Sheep New Zealand-branded products.
  • It has five products, namely Full Cream Sheep Milk Powder, Sheep Milk Calcium Chews — Vanilla, Sheep Milk Calcium Chews — Strawberry, Sheep Milk Calcium Chews — Mixed Berry, and Gentle Sheep Premium Toddler Sheep Milk Drink. These products are categorized into sheep milk powder, sheep milk calcium tablets, and sheep milk toddler formula.
  • It distributes its products in New Zealand, where it is based, and in China, Taiwan, Vietnam, Singapore, and Malaysia.
  • Financial figures, such as company revenue and revenue in China, are not publicly available. As it is not a public company, it is not obligated to disclose its financial information.
  • What is known is that it has 11 to 50 employees and that its sales on Tmall, a cross-border e-commerce platform in China, had more than doubled between August 2020 and September 2020.

Blue River Dairy

  • Blue River Dairy manufactures nutritional infant formula using milk from three species, namely cow, goat, and sheep.
  • Established in New Zealand in 2003 and bought by the Chen family from Changsha, China in February 2015, Blue River Dairy has a presence in New Zealand and China.
  • With its recent acquisition of Italy-based Alimenta, it now owns 60% of all sheep milk sources in the world and controls 70% of all sheep whey resources in the world.
  • Its annual revenue is estimated by ZoomInfo at $5 million and by Dun & Bradstreet at $6 million. The portion of this revenue accounted for by China could not be ascertained, however.
  • All that is known is that in the two years preceding November 2019, its revenue from its exports to China grew by 1,078%.
  • Between 2016 and 2019, the company's production grew from 400,000 cans a year to 1.2 million cans a month.
  • The company was recognized as the Fastest Growing Exporter at the Deloitte Fast 50 Awards in Auckland in 2019.

Baiyue Dairy Group

  • The Baiyue Dairy Group, one of the more well-known players in China's market for alternative milk products, offers goat milk and sheep milk products.
  • Among its products are probiotics instant goat milk powder for adults, goat milk-based infant/baby formula, whole sheep milk-based infant formula, and full cream sheep milk-based infant formula.
  • According to eWorldTrade, Baiyue is the leading producer of goat and sheep milk products in China.
  • The company's geographic footprint could not be reliably ascertained. eWorldTrade estimates that 21% to 30% of Baiyue's revenue is from exports, though, so this could mean that the company sells its products outside China as well.
  • eWorldTrade estimates the company's revenue at more than $!00 million. The portion of this amount accounted for by the company's sheep milk business in China could not be reliably ascertained.

Research Strategy

Sources covering the distribution of sheep milk products in China are scarce. The few sources that are available briefly touch on how overseas sheep milk brands, many of which are manufactured in New Zealand, are distributing their products in China. To provide a more robust report, we expanded our research to include how goat milk products and milk products, in general, are distributed in China. We noticed that some manufacturers of sheep milk products, for example, the Baiyue Dairy Group, manufacture goat milk products as well. It appears that goat milk and sheep milk are both alternative milk and infant formula categories that are growing in popularity in China.

The top players in China's sheep milk market could not be reliably determined within the allotted time, as the financial information needed to perform the ranking is not readily available. As mentioned above, we found a list of the top 10 sheep milk powder brands in China, but this list is not reliable as it confuses goat milk brands with sheep milk brands. The three companies presented above were selected based on information gathered from publicly available sources. Based on the limited available information, these companies are three of the companies that are well-known and are seeing success in the space.
Sources
Sources