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Yili Group milks world of industry experience

2015-03-31 13:06:36Source:China DailyAuthor:

Chinese customer shops for a carton of Yili pure milk at a supermarket in Xuchang city, Central China's Hunan province, November 16, 14. [Photo/IC]
 
Alongside a piece of armor from the movie Iron Man in a dairy museum in Hohhot are models of cows and equipment used in milk production.

The items on display represent a clever product placement by dairy giant Inner Mongolia Yili Industrial Group Co Ltd within the blockbuster franchise by The Walt Disney Co, which has drawn wide attention from Chinese viewers. And it is a prime example of how the dairy producer is leveraging global resources to increase its share of the domestic market and cultivate a strong Chinese brand overseas.

The company is expected to step up collaboration with leading world dairy suppliers, farms and institutions to lower costs, improve resources and hedge against fluctuations in global milk prices, according to its top official.

Executive President Zhang Jianqiu said in an interview with China Daily on Monday that Yili's overseas investment decisions are based on an evaluation of how such moves can improve its product portfolio and production capacity.

"With the focus on capacity upgrades and research and development, moves to go global have fueled Yili's innovation and product diversification," he said.

Last year, it was cheaper to source from abroad than from domestic farms. A kilogram of milk on average costs 2.4 yuan (39 cents) in New Zealand, half the cost of buying within China, he said. Also, Western dairy farms have an established history of quality.

Hedging against the fluctuation of global dairy prices is another incentive for Yili to go abroad.

"We collect 10,000 metric tons of milk daily," said Zhang. "We have to be able compete against global dairy players."

Chinese dairy companies are making an increasingly significant impact on the global industry, said Zhang. Yili's goal is to become top five dairy brand in the world by 2020.

The company was listed by the Netherlands-based bank Rabobank Group as the first Asian dairy producer to reach the top 10 last year.

Relatively low per capita milk consumption in China offers room to grow for foreign and domestic dairy players. Per capita milk consumption in 2014 in China was 14.3 liters, one-third of the level in Japan and one-fifth that in the United States-and that is despite a tripling of consumption since 2004.

Since a 2008 scandal in which melamine was added to milk powder, sickening about 200,000 infants and killing several, Chinese consumers have grown more cautious about domestic dairy products, particularly in the infant formula sector, creating massive opportunities for foreign brands.

China has become the world's most competitive and dynamic dairy market, said Zhang. "We must constantly develop new products to meet the needs of sophisticated Chinese consumers."

Despite a weakening market last year for fast-moving consumer goods, dairy producers kept up the momentum. The top two players, Yili and China Mengniu Dairy Co Ltd, achieved double-digit growth rates.

Yili's revenue for last year is estimated at 55 billion yuan, up 15 percent, with profit of about 4.5 billion yuan, a surge of 40 percent.

The maker of Shuhua milk, which was developed for many Chinese consumers who are lactose-intolerant, has become a leading item in the dairy market.

Its market share grew from 18.2 percent in 2009 to 25 percent in 2014.

As resource-constrained country, China is not a very good place to farm, said Jason Yu, general manager of Kantar Worldpanel. Learning from foreign experience and gaining advanced industrial technology will help Chinese dairy producers maintain market leadership and evolve.

More appealing to middle-class Chinese consumers is the availability of e-commerce. That trend, combined with the improvement of the nation's logistics system, have eroded barriers of regional dominance among dairy producers and enabled foreign competition, he said.

Domestic players such as Yili should strengthen their advantages in traditional distribution channels and diversify their product portfolios.

"A strong domestic brand and producer will better integrate its resources and benefit consumers in the long run," said Yu.

Global strides

On March 26, 2015, Yili inked an agreement with the Netherlands for a Chinese dairy R&D center at the Wageningen University to study variability in milk composition and create a food safety identification system.

In 2014, Yili's first major overseas plant was set up in Glenavy, South Canterbury, New Zealand with a total investment of more than 3 billion yuan ($483 million).

Yili formed a strategic alliance with Italian dairy producer Sterilgarda Alimenti SpA to produce liquid milk products for the domestic market in China.

Yili also signed a deal with US milk cooperative Dairy Farmers of America to set up a dairy plant in Kansas. The new plant plans to produce 80,000 tons of milk powder a year.