babyfood market analysis_v3
TRANSCRIPT
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PuJunJuly 8, 2007
Babyfood Market Analysis
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Pu Jun | YGPBabyfood Market Analysis.- PPT
2007 Capgemini - All rights reserved 1
Contents
Babyfood Market Overview
Market Size and Trends
Manufacturer Analysis
Consumer Analysis
Analysis across Supply Chain
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Pu Jun | YGPBabyfood Market Analysis.- PPT
2007 Capgemini - All rights reserved 2
Executive Summary
The potential Babyfood market space in China is very large
There are about 70 million of 0-3 year-old babies in China
The statistics of newborns in China is about 17.5 million per year, representing 13% of the world
newborns
High-End Babyfood market is the focus of competition
Multinational companies have advantages in market share
Multinational Babyfood take up more than 50% of the whole market share especially in the high-
end market
After the Inferior Milk Powder Incident, market is becoming more regulated
Babyfood companies are seeking cooperation for better marketing performance
Parents are willing to pay more money on the babyfood
Parents are more concerned about the quality and nutrition combination
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Pu Jun | YGPBabyfood Market Analysis.- PPT
2007 Capgemini - All rights reserved 3
Manufacturers have categorized their products into different age group
0-6 Months 6-12 Months 1-3 Years
ProductCategory
Milk Powder Milk Powder
Baby Cereal
Vegetable Powder Vegetable Puree
Baby Cereal
Meat Puree
Baby has different nutritionrequirement in different age
group
Manufacturers have
designed different products
according to the various
market demand
Mothers milk and babymilk powder are main
nutrition resources for
infants at 0-6 months
With the increasing of the
age, milk powder is not
sufficient enough to meet
babies nutritionrequirements
supplementary baby food
is mainly designed for
baby above 6 months
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The potential Babyfood market space in China is very large
Birthrate
Market
Demand
There are about 70 million of 0-3year-old babies in China among
which 10.7 million are urban
ones.
With the steady development of
economy and population, China
has become the second largest
Babyfood consumption country
next to USA and will be number
one by 2010.
The statistics of newborns in
China is about 17.5 million per
year, representing 13% of the
world newborns
The annual demand of baby milkpowder is about 300 thousand
tons but the producing capacity
is only about 100 thousand tons
in China per year. The potential
market space is thus quite large.
Econom ic grow th and populat ion increase is the main reason for market demand expansion
87%
13%
Source: National Bureau of Statistics of China
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Pu Jun | YGPBabyfood Market Analysis.- PPT
2007 Capgemini - All rights reserved 5
With the rising of the domestic living
standard, the demand for high-quality
babyfood is expanding rapidly
Parents are not very knowledgeable, but
they tend to believe the recommendation
of experts
China is one of the largest babyfood
consumption countries. The annual
market growth rate is about 20%. Last
year the total sale figures of baby milk
powder is about 5 billion RMB
High-End Babyfood market is the focus of competition
Economic & Social Background Industry Background
The profit margin of high-end market can
reach 20-30%
Developing of the high-end market can
help promote the upgrading of the
products, improve the industrial structure
and segment the market to meet thecustomers needs
Can help enterprises optimize the layout
of the brand and bolster the corporateimage
The potential High-end market attracts a large number of enterprises
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-64.50%
-19.50%
2.30%
23%
46.10%
2.40%
-80.00%
-60.00%
-40.00%
-20.00%
0.00%
20.00%
40.00%
60.00%
80.00%
100 Total(RMB)
Growth Rate of Sale Volumn Growth Rate of Sale Figures
The demand of
High-End marketis quite large
High-End products is the main growth point in the future market
Market TrendThe Market Growth of Different Grades Products
in Price Level in China
Consumers have higher demand
on products quality
High-end products have the
highest level of technology, the
most advanced formula, and the
most balanced nutrition
combination, represented thedeveloping trends of the market
Quality
Nutrition
Taste
Package
Formula
Source: ACNielsen Market Analysis Statistics
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Contents
Babyfood Market Overview
Market Size and Trends
Manufacturer Analysis
Key Players of the Market
Market Share
Competition and Cooperation
Consumer Analysis
Analysis across Supply Chain
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Economically advanced regions are main markets
Shanghai
Hohhot
Tsingtao
Shuangcheng
Guangzhou
Harbin
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8.35%
6.22%
5.53%
14.55%
Abbott10.85%
1.75%
2.16%
2.46%
2.88%
3.93%
MeadJohnson15.95%
Dumex13.05%
Wyeth12.32%
MeadJohnson Dumex WyethAbbott Synutra YiliNestle Sanlu YashiliBeingmate Scient MorinagaOthers
Multinational companies have advantages in market share
2006 Babyfood Market Share Multinational Babyfood take up more
than 50% of the whole market shareespecially in the high-end market
High quality products
High level services, including presale and
after-sale services
High brand influence
Domestic brands have theiradvantages in cost control and prices
Play a more important role in the low-end
market
Raw material supply is a merit for domestic
babyfood companies
Can reuse the current dairy distribution
network
Source: 2006 Dairy Market Analysis Report
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After the Inferior Milk Powder Incident, market is becoming more regulated
After the Inferior Milk Powder Incident, Government strengthened the supervision
and control of the market and enacted a series of laws to prevent a similar incident
from happening again
Supervision in the entire production process from raw material to finished products
Market is becoming more and more regulated
Enterprises relying on low-price penetration and unreal propaganda are gradually disappearing
Enterprises are improving quality through the introduction of new technology
The self-discipline of companies and transparency of the market has greatly improved
China's Babyfood industry has entered a new competition stage
After the market reshuffle, there is a gap in the
rural market
Due to the strengthening of market regulation, some
inferior-product producers have been eliminated
Due to the low consumption standard in rural areas, it
is more suitable for the development of domesticbrands
Under the supervis ion of th e government, market compet i t ion wil l becom e more and mo re regulated
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Babyfood companies are seeking cooperation for better marketing performance
Cooperation between enterprises can help further optimize the Allocation of
Resources and make up for their deficiencies
Cooperation between domestic enterprises and multinational enterprises can bring domestic raw
material and channel advantages into full play.
Meanwhile, domestic enterprises can use foreign companies technology and service edge
Sanlu has cooperated with New Zealand
dairy company Fonterra and set up a large
modern dairy plant in Tangshan
Mengniu has collaborated with Denmark
famous dairy company ArlaFoods for further
development
Taiwan dairy company UNI-PRESIDENT has
subscribed 15% stake of Wandashan and
total subscription amount is 300 million RMB
Cooperat ion between enterpr ises is a good way for market entrance
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Pu Jun | YGPBabyfood Market Analysis.- PPT
2007 Capgemini - All rights reserved 12
Contents
Babyfood Market Overview
Market Size and Trends
Manufacturer Analysis
Consumer Analysis
Consumer Attitude
Analysis Across Supply Chain
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Parents are willing to pay more money on the Babyfood
37.10%
43.30%
19.60%
100-300 300-500 500+ (RMB)
With the Development of economy
and citizen income, parents are
prone to spend more money on thebobyfood
Source: www.kanbaby.cn
Monthly Average Household Spending onBabyfood (RMB)
5.20%
68.50%
26.30%
100-300 300-500 500+ (RMB)
Parents pay more attention
on the nutrition, quality and
added value of the products
Due to the one-childpolicy, parents are
willing to pay more
attention on the
only child
Economic g rowth St imula tes the r is ing of co nsumpt ion level
Economically Advanced Regions
Less Developed Regions
Economically Advanced Regions
Less Developed Regions
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5.40%
5.50%
12.00%
25.60%
42.40%
76.80%
33.60%
Good Package
Long Guarantee Period
Imported Products
Reasonable Price
Brand Reputation
Baby's Acceptance
Nutrition
Parents are more concerned about the quality and nutrition combination
Questionnaire of 3005 parents on ranking of buying criteria
Source: www.kanbaby.cn
Products with the
function of immune-enhancing and
mental-developing
are more popular
What parents conc ern most ly is the qual i ty and nutr i t ion o f the products
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Parents prefer foreign brands for better quality and services
Source: www.kanbaby.cn
MeadJohnson
Nestle
Wyeth
Dumex
YiliWondersun
Abbott
Morinaga
Synutra
Friso
Meiji
Ranking 1 2 3 4 5 6 7
Weichuan
8 9 1110 12
The most often consumed baby milk powder brands for infants
MeadJohnson, Nestle,
Wyeth and Dumex are
the Top 4 brands
which customers are
willing to choose
Better quality and taste is the main reason for consumers choice of foreign brands
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Pu Jun | YGPBabyfood Market Analysis.- PPT
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Consumers attitudes are quite emotional
To lay a solid foundation for children is soimportant. I am more concern about the quality ofthe products
Taking good care of baby is the responsibility of
parents. So I will buy top-quality milk powder
I can not let my child lose at the scratch line. Theexpensive products may have better effect
Source: Questionnaire of consumer psychology
From Consumers view, quality and brand influence is more important than price
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Contents
Babyfood Market Overview
Analysis Across Supply Chain
Raw Material
Products Distribution
Retail
Service
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Pu Jun | YGPBabyfood Market Analysis.- PPT
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Executive Summary
Domestic brands have raw material advantages.
They have their own cattle farms and processing plants
Many dairy companies can use the existing resources and devices for further babyfood producing
without huge amount of investments
Lack of adequate production bases is the key issue to multinational Babyfood
Companies
Customer requirements oriented products development is a key success factor
Foreign BabyFood brands have successfully made use of medical channels tomarket and sell their products in China
Baby food companies are intensifying their advertising efforts in China to capture
the market
Internet channel will become another important way for product sale
Communication is more important than promotion in the Babyfood market
Improving the satisfaction degree of customers will add value to the brand
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Value Chain Analysis
The Source ofthe Raw Material
PackageMaterials
Technology
Product Category
Product
Positioning
DistributionChannel
Hospital Channel
Internet Channel
Propaganda
ConsumptionGuide
Product Display
Promotion
Training ofSalesperson
Presale Services
After-sale Services
Raw Material Retail ServiceProducts Distribution
ELEMENT
ACTORS
Cattle Farm
Raw MaterialSupplier
Production Bases
Product Designer
NutritionDelegate
Advertiser
Distributor Prolocutor
Salesperson
Trade Assistant
MarketingDepartment
NutritionConsultant
Quality Consultant
Doctor
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Pu Jun | YGPBabyfood Market Analysis.- PPT
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Domestic brands have raw material advantages
Many domestic companies have dairy related products. They can use the current
resources to produce babyfood without investing a lot.
Many domestic companies have their own cattle farms and processing plants
Many dairy companies can use the existing resources and devices for further babyfood producing
without huge amount of investments
Due to the drought in the milk powder raw material main exporter Australia , the purchase price
soared upward.
Yili has established 4 milk powder production
bases in Hohhot Inner Mongolia, DurbatHeilongjiang, Shihezi Xinjiang and Wuhan
Hubei. Yili has become the largest milk
powder producer in China.
The 4 bases of Yili has covered four strategic
region including northern, northeastern,
northwestern and central china
Raw Material
How to bring raw material
advantages into full play is a
key success factor
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In the milk powder producing area, Nestle only
has one production base located in
Shuangcheng Heilongjiang in China
Nestle had attempted to merge Yunnan Diequan
Dairy Company but ended in failure
Lack of adequate production bases is the key issue tomultinational Babyfood companies
High cost of raw materials has become the Achilles heel of multinational babyfood
companies
Dont have adequate milk powder production bases
Cost is highly affected by the international price of raw material
They are seeking cooperation with domestic companies or though merger and acquisition
Dumex has one production base in Shanghai
and plans to construct the second base in
Nanhui district to expand production
capacity
Raw Material
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Customer requirements oriented products development isa key success factor
Products
4C4P
Product-Oriented Customer-Oriented
The traditional 1P+3P market
theory in the babyfood field has
become outdated
Product
Price
Place
Promotion
1C+3C market theory is more
suitable in the current
competitive market
Customer
Cost
Convenience
Communication
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Better Babyfood positioning will lead to market successProducts
Successful Babyfood products stand for
meeting the requirements of consumers.
While designing new products, the followingfactors must be considered
What the customers want
The products category depending on different
customer needs
Using of new technology to produce high quality
products
Carefully design the package to cater for popular
demand
Different products positioning to different region
Dumex Dupro and MeadJohnson Enfapro
are mainly designed for Hign-End market
with better nutrition combination and higher
price
Positioning: High-End market
Baby
Food
Quality
Nutrition
Package Region
Positioning
Technology
Foreign brands are mainly po sit ioned at the high-end market
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Foreign BabyFood brands have successfully made use ofmedical channels to market and sell their products in China
Distribution
Multinational babyfood companies have successful experiences in establishing
medicals channel to promote the sale of their products
MeadJohnson and Wyeth have a pharmaceutical background. They use medical channels to
promote the sales
A doctors recommendation is an important reference frame for parents brand selection
Doctors recommendations, medical lectures and one-to-one customer profiling are key success
factors for multinational babyfood companies, especially in the high-end market
World-class babyfood leader Heinz has established its
Heinz Food Experts Panel which consists of experts inthe fields of food, nutrition and medicine
Nestle is the first company to establish the medical
channel in China.
Nestle has a large group of nutrition delegates to maintain its
medical channel in a smooth and steady developing condition
The use of medical channel is a compet i t ive advantage for mult inat ional brand.
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Baby food companies are intensifying their advertisingefforts in China to capture the market
Distribution
2005VS2006 1-8 China Top 5 City of BabyfoodAdvertisement Investment (Million RMB)
121.2
187.5
63.6
136.8
62.5
122.2
64.2
121.4
67
99.9
020406080
100120140160180200
Guangzhou Changsha Chengdu Shanghai Chongqing
2005 1-8 2006 1-8
Morethan50%
25.40%
46.90%
47.70%
55.80%
226.40%
302.70%
0.00% 50.00% 100.00% 150.00% 200.00% 250.00% 300.00% 350.00%
Scient
Others
Dumex
Yashili
Wyeth
Abbott
rate of increment
2005 vs 2006 1-8 China Babyfood AdvertisementInvestment Increment Rate
Advertisement Investment
The strong growth momentum of theChinababy food market drives the increment of
advertisement investments
Baby food advertisement investments are
mainly in the densely populated cities
Guangzhou
Shanghai
Market Opportunity
2007 is called the Year of the Golden Pig
which is considered a prosperous year for
having children Big advertising efforts this year are expected
to attract more (new) customers
The potential market is very big and offers lots
of opportunities for baby food companies
Source: CRT 2005 Market Analysis Statistics
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Internet channels will become another important way forproduct sales in China
Distribution
2006 Internet transaction figures of China are 26.65 billionRMB, representing 0.85% of the consumer goods salesfigures. In the year 2002, it only took up 0.04%
The phenomenon reflects the high speed development ofInternet transaction
Women of reproductive age are mainly at the age range from
25-35. They are mostly born in the 1980s, raised during therise of Internet
They are well educated and eager to accept new things.
Their salaries are mainly distributed between 1500-3500 RMB
The transaction figures of Taobao in the 1st
quarter 2007 hasexceeded 7 billion RMB and the total number of registeredmembers has reached 35.1million RMB
From Dec 2006 to Jan 2007, the total sales figures of milkpowder on Taobao was nearly 300,000 RMB
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How to make good use of internet channel is theproblem domestic companies face
Distribution
Strengths
Adequate distribution entities
Better logistics system
Threats
Share of the baby food market
and the impact of the brand are
the advantages of multinational
companies
Difficulty in coherent price control
Opportunit ies
The Internet marketing of
multinational companies in China
is not mature enough
Weaknesses
Lack of experience in website operation
Lack of scientific Investment income
analysis system
Not enough brand charisma
Internet Sales Channel
B2C, C2C Channel
Taobao
Ebay
B2B Channel
Alibaba
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What the parents want from the products is the sense of satisfaction
The quality of the products
The nutrition combination of the products including two main functions, immune-enhancing and
mental-development
Baby food is a high-risk food and once the consumers are satisfied with the product,
they will show high level loyalty
In the sales process, expressing the key features and added value of the products according to the
customers requirements is rather important.
It will arouse the consumers purchasing desire
Communication is more important than promotion in theBabyfood market
Retail
Price reduction may boost the sales volume but
does not help to increase the value of the brand
Price reducing may give the consumers feeling of
lower quality
Price reducing will cause the decrement of profit
margin.
How to express the key features of the products to the customers is a key succ ess factor
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Value=Customers Sense of Satisfaction/PriceService
Improving the satisfaction degree of customers will add value to the brand and
decrease the impact of high price
Better service including presales and after-sales services
Customer guidance helping to learn baby-nurturing knowledge
Regular social useful activities to add value to the brand
Establish comprehensive presale and after-sale service mechanism to improve the
satisfaction degree of customers
Set up specialized service hotline and service department
Provide experts lecture and free child rearing consulting services
Regular Journal of Nutrition and some baby nurturing guide
Dumex Gold Club and MeadJohnson A+ Club
provide many Human-based services such as
product consulting, baby nurturing and nutrition
consulting services
Improving customers satisfaction degree will add brand value
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