The a2 Milk Company is expecting brighter year ahead and it plans to increase marketing spend substantially to resonate better with Chinese mothers, as it is all geared to battle in the world’s most lucrative infant formula market.
a2 Milk expects higher revenue in 2nd half 2022, however the profit will be rechanneled to its massive US$200 million marketing blitz for a2 Platinum formula to compete with domestic rivals.
According to the company CEO David Bortolussi, “We need to strategically compensate for the ongoing subdued reseller and daigou activity in the market that helped build a2 over many years.”
Bertolussi is more optimistic about the business outlook in China now compared to 6 months ago. He mentioned, “The improvement in brand health; China label share gains in mother and baby stores and online; and the improving trajectory in English label channel” as the reasons for the optimism.
External challenges faced by a2 in China are that despite the country being the largest infant formula market in the world with retail sales of about NZ$47 billion (US$32 billion), birthrate was down 11.5% in the current year. In addition, Chinese consumers are also looking at local competitors such as Feihe and Junlebao over international brands. According to Bortolussi, the pandemic has also delayed pregnancies and family planning.
a2 Milk expects steady performance in 2nd half as it implemented price increases for its products to match rising costs of milk and packaging.