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Previous attempts at partnerships with Chinese companies such as Bright Dairy and Wahaha failed due to troubled relationships with its local partners and resulted in substantial losses. These setbacks prompted Danone to attempt to expand its business locally independently but this also foundered, with the company stopping production in its 200,000 t/yr Shanghai yoghurt plant (please see Dairy Products China News Vol.5 January Issue, p8).
Given this background, Danone has witnessed a major loss in market share in China. According to Euromonitor, its market share of yoghurt decreased sharply to 1.6% from 11.4% in 2008. At present, Danone mainly sells its yoghurt in Beijing, Shanghai and Guangzhou, but faces fierce competition from the large dairy processors in these regions, such as Bright Dairy and Yili, which performs well in the yoghurt sector.
The deal should also benefit Mengniu, helping it to build its reputation for high quality products. Mengniu is likely to achieve breakthroughs in the premium yoghurt sector with the aid of Danone’s expertise in quality and product innovation. Mengniu has been making a number of efforts to promote its dairy business through cooperation deals. In May, it increased its stake in China Modern Dairy Holdings from 1% to 28% to secure a stable, long-term premium milk supply. Last year, Arla Foods became Mengniu’s 2nd largest strategic shareholder, and a long-term strategic cooperation project was launched. Above all the company is now highly risk averse after the food scare problems which dented its sales, making it keen to increase customers’ trust in its products through the “halo effect” of foreign cooperations.
The cooperation will exert great pressure on the other yoghurt players, and the rivalry with Bright Dairy will be especially fierce. Bright Dairy leads the Chinese yoghurt market with a share reported at around 20% last year. According to Mengniu, the combined market shares of Danone and Mengniu accounted for a share of around 21% in 2012, with combined sales of about USD0.64 billion (RMB4.0 billion) in yoghurt sector. Figures from Euromonitor showed slightly lower figures, with Mengniu at 16.8% and Danone at 1.6%. Whatever the exact position, there is no doubt that the cooperation will pose a significant threat to the currently strong position of Bright Dairy.
However, the cooperation may be difficult to progress well in practice – and not simply because of the partners in this particular case. Even when such partnerships work relatively well at the beginning, one partner company will often ultimately seek control. Of course, Danone had a JV with Mengniu in 2006 which ended in failure, reportedly as a result of both sides’ attempts to seek a controlling stake. So how long the new cooperation will last is still uncertain.
The news above was sourced from Dairy Products China News, issued by CCM in May.
Table of Contents of Dairy Products China News 1305:
Interview with Changfu Dairy
Rapid Development of Milkbars
Key Processor Results for 2012
Dairy Industry Recovery Status in Q1
Trends in IMAR Highlight Key Dairy Sector Changes
Government Strengthens Raw Milk Supervision
Jiabao Dairy Launches New Yoghurt Plant
Mengniu + Danone Combine to Accelerate Yoghurt Business
Yili Proves an Active Marketer
Bright Dairy to Set Up New Farm
Gansu Launches Large-scale Dairy Farm Project
Created by: on July 1st 2013, 04:40.
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