The company has found a niche by selling its own high-end products to the country’s wealthy middle class.
Danone CEO Emmanuel Faber hopes he won’t have to lament over spilled milk. On Sunday, the French giant revealed its intention to sell its $ 2 billion stake in China Mengniu Dairy. This is part of Faber’s plan to reorganize the company’s portfolio and placate disgruntled investors. Danone would lose access to a growing company, but selling its own brands to eager Chinese consumers will keep the money flowing.
Mengniu, which is listed on the Hong Kong Stock Exchange, is well positioned to generate revenue by supplying its local market, valued at $ 89 billion in annual sales according to Euromonitor. It is the second largest supplier of dairy products in China, where per capita consumption is less than half that of Japan. Meanwhile, liquid dairy products – almost 90% of Mengniu’s sales – are growing fast. Imports exceeded 1 million tonnes last year for the first time, according to Rabobank.
But China Mengniu shares are down 20% from the all-time high reached in early January. The English publication of Danone’s 2020 annual results mentions Mengniu only once for his disappointing contribution in 2020.
Danone has also found a niche by selling its own high-end products to the wealthy middle class in China, which accounted for 10% of its profits before the pandemic. Its Aptamil baby milk brand is now the best-selling foreign milk in the country, and in July it paid € 100 million to acquire another local brand and develop its facilities. Other products, like their fruity water, are also catching on.
It is true that this is a fragmented market with fierce competition: over the last decade, Danone has increased its market share in the Chinese dairy segment by less than one percentage point. But if Danone can take advantage of the fat cows, he won’t miss Mengniu.
