China melamine scare may play into big dairy brands' hands

By Neil Merrett

- Last updated on GMT

Related tags Milk

The global furore over the recent melamine contamination scandal in China appears to have driven major shifts in the country’s dairy industry, not all of them to the detriment of manufacturers, says a new report.

In figures supplied by the research group TNS Worldpanel, despite an overall downturn in Chinese dairy sales volumes during September, the country’s shoppers were increasingly turning to premium and international brands.

The contamination scandal was related to the presence of the industrial chemical melamine in milk products, linked to the hospitalisation of thousands of Chinese children this year. A number of dairy groups operating in the country were alleged to be involved including Sanlu and Arla Mengniu, which are themselves joint ventures with leading international manufacturers.

Melamine is a chemical that can make it appear there is more protein in a product, and has been linked to causing kidney stones and other health problems.

Fair share

At the peak of the scandal, the report suggests that over the space of one week, consumer dairy sales plummeted by 54 per cent compared to the same period the previous year. However, taking into account the fours weeks ending 3 October, purchases fell only by 18 per cent, according to TNS.

Belying these falls, some multinational dairy producers were found to be on the receiving end of an unexpected sales surge, which TNS says boosted their marketing share in China’s dairy market. The country is widely seen as an important strategic area for expansion.

The share improvements occurred even with a hike in dairy prices and infant milk by about 26 per cent and 33 per cent respectively.

The report claimed that the consumer switch was particularly prevalent in smaller urban areas, where formerly dominant local brands were being removed from shelves over fears of potential contamination.


Jason Yu, general manager of TNS Worldpanel in China, said that multinationals and larger local brands had a strong opportunity to meet consumer concerns following the scandal, adding that aggressive new marketing may be required to do so.

Yu suggested that there may be particular potential for local companies to act quickly and consolidate in the market for liquid milk and yoghurts, which he said were less populated by major global players.

“One possible option is to accelerate the premiumisation of the category, focussing on marketing premium priced products from credible sources and production processes,”​ he stated. “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.”

Local confidence

TNS said that by surveying 1,600 Chinese consumers, it found many buyers were more confident that larger players like​Mengniu and Yili, which were both implicated in the scandal, would recover from the incident than their smaller counterparts,

“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,”​ the report stated.

Related topics Markets Emerging Markets

Related news

Show more