Infant formula sales slump at Biostime but firm bullish over future growth
The figures are said to be a reflection of the uncertainty caused by recent regulatory changes in the Chinese infant milk formular (IMF) market and follow similar lacklustre results reported by Nestle, Danone and Synutra.
Although the majority of the regulations, including new rules for health foods, approved lists and import tax changes, will not come into force until next year, analysts say they have created uncertainty and caused inventory build ups at the ports.
“At the same time, they have led traders to hold less inventories and also forced the smaller brands with little hope of ‘making the cut’ to discount to clear inventories. All this has pressed the value and mainstream segments both for domestic as well as the mainstream import segment,” noted SIG analyst Pablo Zuanic.
Nestle also recently commented on the decline of the value market in China, and helps explain the substantial 65% drop in sales for Biostime’s Adimil brand.
According to market research company Nielsen, the overall -1% decline for the industry in the first half of the year - the first RMB decline in many years - varied by channels.
Mother and baby stores actually saw an 8% rise in sales, but supermarkets dropped by 13% and e-commerce sites slipped by 5%, with a marked shift away from consumer to consumer sales, to business to consumer sales.
Despite the latest headline figures, SIG said the company remained bullish about its future prospects.
“Even though in the short term the company believes the IMF market will continue to be overshadowed by the regulatory environment due to the newly released IMF recipes registration rules, it believes these changes in the mid-long term will lead to industry consolidation and strengthen the company’s position,” it stated.
It is also forecasting a boost from the full implementation of the two-child policy.
On a base of 16-17m annual births, it estimates incremental second newborns will amount to 5.66M in 2016 and 5.83M in 2017, easing to about 4M over the next four years.
It also expects the new regulations to eventually strengthen its position as the number of players in the market reduces and there is stricter monitoring of labels and functional descriptions.
Meanwhile, Biostime has revealed it plans to launch an organic line under the brand name Healthy Times by the end of the year.