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Meiji to quit China formula market due to lean profit
Last Updated: 2013-10-25 09:22 | CE.cn
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By Li Hongmei

Japanese food and dairy manufacturer Meiji Holdings is pulling out of the dairy formula market in China, blaming intense competition and rising costs of raw material for its decision.

"It's hard to see stable profits under the current situation ... " the company said in a statement yesterday.

The "Cherish" milk powder products will not be available to the Chinese consumers after the current inventory clears, it said.

But some of the Chinese online vendors were still selling the Meiji formula yesterday. They said they were not notified about the suspension of the sales.

Three of the four products Meiji intends to stop selling in China are for infants while the other is for pregnant and lactating women.

"China is seeking to protect its homegrown dairy companies and that's part of the reason why Meiji is retreating from the market," said Song Liang, a senior analyst at market research firm China Commercial Distribution Promotion Center.

A mother-to-be, Sherry Gu, said Meiji's withdrawal means "less choice among imported milk powder makers."

Meiji was not in the top-10 milk formula brands in terms of sales volume last year, according to market research firm Euromonitor International. The top three best-sellers - Hangzhou Beingmate Group, Nestle's S26 and Danone's Dumex - held 27.5 percent of the market last year.

Among the foreign brands alone, Nestle, Danone and Mead Johnson Nutrition's Enfamil have 22.2 percent of the share.

Meiji was among the several domestic and foreign milk powder makers to slash their prices after they were investigated by the National Development and Reform Commission's Price Supervision and Anti-Monopoly Bureau.

It was exempted from punishment for collaborating with the investigators and taking self-rectification measures, the NDRC said in August.

Meiji cut the price of four key products by as much as 7 percent. At that time, it promised not to adjust its prices in the next two years. Meiji also sells snacks and chocolates in China but that business remains unaffected.

Retail sales of dairy formula in China is expected to climb 21 percent and reach 91.1 billion yuan this year, according to Euromonitor International. Baby formula, which has huge growth potential in the next few years, is also seeing severe competition.

Baby product sales in China is expected to jump 50 percent to 46.3 billion yuan by 2017 from 30.7 billion yuan in 2012, according to consumer retail consultancy Kantar Worldpanel.

With increasing competition and the introduction of new brands, the combined market share of the top five leading infant formula brands dropped to 59 percent in the first eight months of this year from 63 percent a year ago, the research firm said.

Under a government blueprint, China plans to phase out outdated or inefficient infant formula makers within the next few years. It is also expected to push forward market consolidation and have five domestic infant-formula companies, each with more than 5 billion yuan in annual sales by the end of 2018.

This is seen as another effort at industry consolidation after the 2008 scandal over melamine-tainted milk powder that killed six infants and pushed Chinese parents toward foreign brands.

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