Meiji to report its first profit in China milk market

Japan’s Meiji Holdings is set to report its first profit from its refrigerated milk business in mainland China in the current financial year.
In Shanghai, a 950ml carton of Meiji's locally branded milk costs about Rmb 20 (US$2.90), 50% more expensive than its flagship brand in Japan. The premium pricing reflects Meiji Holdings' strong position in the country.
Ever since the 2008 milk scandal which destroyed public confidence on domestic milk, Chinese consumers turned to foreign brands, most of which were long-life (UHT) products. These remain popular but are not as delectable as refrigerated varieties.
When Japan's Asahi Group Holdings abandoned the refrigerated milk market in 2016, Meiji Holdings which started its Chinese milk business in 2013 became the only foreign refrigerated milk seller in China.
Pricing is not the only factor that makes China a lucrative market. Raw milk costs less than in Japan, where milk makers must negotiate prices with dairy associations. According to Nomura Securities, the marginal profit on a carton of Meiji Holdings' milk is Yen 145 (US$1.32) in China, nearly 10 times the Yen 15 (US$0.14 ) in Japan.
Meiji now seeks to expand production. “Sales are so good that our production capacity lags,” said Bunjiro Yao, a senior executive at a Meiji unit in China. To increase production, the company needs approval from the Chinese government. Already, a plant in Jiangsu Province is operating at full capacity while it awaits approval to expand. Meiji also plans to expand into other areas in China with 2 more plants expected to come online by March 2027 the latest.
China's refrigerated milk market in 2017 was estimated at US$4.1 billion by Euromonitor Plc, but sales of all Meiji Holdings' food products in the country totaled only about US$107 million in the financial year ended March 2018.
Meiji performance in Japan remains sluggish, with sales falling 2% from a year ago during 2nd quarter 2018 due to weak demand for functional yogurt and chocolate products, its 2 key domestic earners. Meiji is banking on the growth of its China business to shore up its future financial performance.
China's refrigerated milk market is expected to surpass Japan's, which stood at Yen 530 billion (US$4.77 billion) in 2017.
Meiji Holdings seek to capture more market share from its larger Chinese rivals.