CHINA – Yili Group, one of China’s leading dairy producers, has reported a consecutive two-quarter revenue decline in early 2024 for the first time in two decades.

This downturn has highlighted potential issues within its core US$11 billion business segment. 

The company’s first quarter of 2024 saw a 2.58% drop in total operating revenue year-over-year, despite a notable 63.84% increase in net profit attributable to the parent company due to non-recurring items.

A detailed analysis of Yili’s financial performance indicates that the decline was largely driven by a 6.8% decrease in liquid milk sales, a segment that traditionally contributes 67.78% to the company’s revenue.

Other segments, such as milk powder and cold beverages, displayed varied performance, with only cold beverages posting growth.

In response, Yili has announced a planned reorganization of its liquid milk channels in the first half of the year to stabilize and grow this segment in the latter half.

Yili is also expanding its milk powder business, cultivating its own brands and acquiring others. In 2022, it acquired Beingmate, a company primarily focused on infant formula milk.

This acquisition boosted Yili’s market share in infant milk powder to about 15%, nearly equal to the industry leader, Feihe. The company aims to become the leader in the milk powder market by 2025.

As of 2023, Yili’s revenue from milk powder and dairy products was US$3.86 billion, up 5.09% YoY. These account for 21.87% of total revenue, second only to the liquid milk business.

Despite holding a 23.8% market share in adult milk powder, Yili’s impact in this relatively small market, which has an annual compound growth rate of 5%, still needs to be improved.

Yili’s future growth will depend on continuously introducing new high-revenue products, a challenging prospect in the current market.

Meanwhile, the revenue contraction was also partly attributed to broader industry trends. Nielsen IQ reported a 1.6% decrease in per capita dairy consumption in China for 2023, with a more pronounced 3.7% drop in liquid milk consumption.

Post-Spring Festival sales have been sluggish, leading to increased promotional activity as distributors manage excess stock nearing expiration.

Looking forward, Yili aims to diversify its focus, concentrating less on the highly penetrated ambient milk market and more on potentially lucrative sectors like chilled milk, which has shown promising growth rates but remains underpenetrated compared to other categories.

Regarding sales volume, Yili is already the market leader, with Yili’s Jin Ling Guan brand exceeding US$1.4 billion in sales revenue in 2021.

According to Chinese media reports, the dairy sector faces significant challenges as domestic demand for dairy products weakens and costs for raw milk production rise sharply. Over 60% of breeding operations face losses.

This shift has disrupted the supply-demand equilibrium for raw milk, deeply affecting the industry’s economic landscape.

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