After spending nearly 20 billion on marketing in three years, has Mengniu’s liquid milk only achieved a “lonely” success?

The World Cup has ended, but in this round of marketing, Mengniu has made a lot of money and won a wave of praise. Although sports marketing has always been Mengniu's tradition, from Gu Ailing in the Winter Olympics to Messi in the World Cup, Mengniu has been making great strides, but the high sponsorship fees and advertising fees have also put Mengniu under a lot of pressure.

Relevant data shows that Mengniu's sponsorship fee for this World Cup is as high as 60 million US dollars, equivalent to nearly 420 million yuan. Although Mengniu has previously stated that it will invest 2 billion in event marketing, due to the slowdown in revenue growth in the first half of the year and the impact of the epidemic, Huatai Securities believes that the terminal customer flow has decreased since the fourth quarter, and Mengniu's sales revenue growth rate is expected to be under pressure.

But it is undeniable that since 2021, Mengniu has become the main partner of the Chinese Football Association's Chinese Team. In addition to football, Mengniu's sports marketing has also penetrated into basketball, athletics, swimming, cycling and fencing. In 2022, Mengniu attracted countless attention by announcing a 10 million yuan reward for the women's football team and signing Gu Ailing in advance.

According to iFinD data from Tonghuashun, from 2018 to 2021, Mengniu's sales expenses were 18.833 billion yuan, 21.536 billion yuan, 21.541 billion yuan and 23.488 billion yuan, respectively, of which advertising and promotion expenses were 7.006 billion yuan, 8.5 billion yuan, 6.803 billion yuan and 7.208 billion yuan, respectively. The total advertising and promotion expenses in the past three years reached 22.511 billion yuan.

Despite this, the high marketing expenses have not brought better performance to Mengniu. Not only is its liquid milk business approaching its ceiling, but its "second growth curve" is still unclear. How can Mengniu stand out and achieve growth?

01 Liquid milk still dominates despite high marketing costs

Although Mengniu's third-quarter financial report has not yet been released, we can still get a glimpse of it from its semi-annual report. In the first half of 2022, Mengniu achieved revenue of 47.72 billion yuan, a year-on-year increase of 4%; gross profit was 17.459 billion yuan, a slight decrease of 0.5% year-on-year; net profit attributable to the parent was 3.75 billion yuan, a year-on-year increase of 27.3%. After excluding one-time gains, the company achieved a net profit of 2.977 billion yuan, an increase of only 1% year-on-year.

In this regard, Mengniu also stated in its financial report that in the first half of 2022, due to the impact of the domestic COVID-19 epidemic, logistics efficiency declined and store traffic decreased; global market inflation climbed and raw material costs rose, "bringing short-term challenges to the dairy industry." Guolian Securities believes that due to negative factors such as repeated epidemics, declining channel enthusiasm, and lack of terminal consumption scenarios, Mengniu's revenue growth rate has slightly declined.

Under the pressure of sales, Mengniu also faces the challenge of declining gross profit margin. The financial report shows that due to the increase in the average price of raw and auxiliary materials during the period, and the increase in depreciation expenses caused by the commissioning of additional factories and production equipment, Mengniu's gross profit margin in the first half of the year fell by 1.6 percentage points year-on-year to 36.6%.

Looking at the liquid milk business, which Mengniu relies on the most, the revenue in the first half of 2022 was 39.665 billion yuan, accounting for 83.1% of Mengniu's total revenue. Although it increased slightly by 0.55% from last year's 39.448 billion yuan, the growth rate was much lower than the 21.1% in the same period last year. In comparison, Yili's liquid milk business revenue in the first half of the year was 42.892 billion yuan, accounting for 67.59% of the total revenue.

Not only that, Mengniu's ambient acid and milk beverages saw a revenue decline of nearly 20% due to the lack of consumption scenarios and reduced personnel mobility; in terms of milk powder business, due to the impact of the decline in the number of births and the epidemic in the first half of the year, revenue was only 1.894 billion yuan, a year-on-year decline of 25.6%.

According to iMedia Research data, from January to November 2021, China's liquid milk production was 25.801 million tons, up only 9.6% year-on-year. It is undeniable that the liquid milk track as a whole has entered the stock market, and its market channel penetration rate has basically been saturated. Although Mengniu has launched the high-end line of Telunsu and the fresh milk track, it is still difficult to break through the liquid milk market. Mengniu may need to bet on new chips.

02 The ceiling of old business has been reached, and the incremental space for new business is unclear

As competition in the liquid milk market intensifies and brands such as Adopt a Cow, Maiqiu'er, and Junlebao continue to gain momentum, Mengniu urgently needs to find new growth points. In the future, only the ice cream business, cheese business, and milk powder business are likely to become Mengniu's "second growth curve."

In terms of ice cream business, Mengniu achieved revenue of 3.904 billion yuan in the first half of the year, a year-on-year increase of 29.96%, a considerable growth rate. In particular, the linkage with Moutai has greatly boosted the revenue of Mengniu's ice cream business. However, for seasonal products, the popularity and high growth trend of the "Moutai Ice Cream" IP are difficult to sustain after all, and can only bring temporary performance growth to Mengniu.

In addition, in the first half of this year, Mengniu's other income, including cheese business, was 2.26 billion yuan, about 2.5 times that of last year. For Mengniu's shareholding and market share leader Yili Group, in the first half of 2022, the company achieved revenue of 2.594 billion yuan, an increase of 25.48% over the same period last year; and achieved a net profit attributable to shareholders of listed companies of 1.06 billion yuan, an increase of 18.03% over the same period last year.

However, other businesses mainly based on cheese only account for 4.7% of Mengniu's total revenue. Relevant data show that as of 2021, the scale of my country's cheese retail market is only 12.27 billion yuan. Coupled with the competition landscape of alternating new and old players such as Yili and Bel, it is really difficult to support Mengniu's future by relying solely on the cheese business.

Mengniu's milk powder business also failed to help it win the turnaround. In the first half of 2022, Mengniu's milk powder business revenue was 1.89 billion yuan, a year-on-year decline of 25.6%, and the situation is not optimistic. Although Mengniu has been spending huge sums of money to complete acquisitions in the milk powder field, neither Yashili, Dumex nor Bellamy's has brought corresponding returns to Mengniu. The poor management of Yashili led to Mengniu's goodwill impairment of 2.254 billion yuan in 2016, which caused Mengniu's net profit to turn from profit to loss that year.

In contrast, other dairy brands, Feihe Dairy's annual revenue in 2021 was as high as 22.776 billion yuan, its net profit attributable to the parent company was as high as 6.871 billion yuan, and its gross profit margin was as high as 70.28%; Yili also increased its investment in the milk powder business, which enabled its milk powder and dairy products business to achieve operating income of 12.071 billion yuan in the first half of 2022, a year-on-year increase of 58.28%. In other words, if the milk powder business is done well, it can bring a significant boost to the gross profit margin and net profit of the dairy industry.

03 Dairy giants are on the verge of collapse

In recent years, the competition for high-end brands in China's dairy market has become increasingly fierce.

First, Yili acquired Amul and launched the top-end version of organic milk. Then, the new brand Adopt a Cow and launched refrigerated Jersey milk, entering the high-end product line. Not to mention the entry of various players such as Xinruyi, Huishan Dairy, and Yantang Dairy, bringing a variety of dazzling new concepts: grass-fed milk, zero lactose, ultrafiltration technology, etc.

Mengniu is also unwilling to relax, keeping a close eye on the fast-growing low-sugar and zero-sugar low-temperature yogurt market. In the first half of this year, Mengniu launched the new product Youyi C100g with zero sugar, the new probiotic products Daily Beauty & Daily Lightness, and laid out the zero sugar track and probiotic powder functional track. In August, Mengniu announced that it had completed the acquisition of a low-temperature business joint venture and planned to privatize Yashili International.

In addition to frequently launching new product lines, major dairy companies are committed to promoting digital transformation and upgrading to expand the coverage of the "fresh radius". For example, Xinruye, based on the Internet of Things, cloud computing, big data and other technologies, has built an intelligent breeding environment to improve pasture production efficiency and fresh milk quality; downstream, it has integrated digital users across the region, opened up online and offline channels, and accurately reached users at all stages.

It is undeniable that digitalization has become a must for dairy companies. Whether it is to deal with the complex problems in the agricultural and animal husbandry industry chain in the future, or to deal with terminal service formats, dairy companies need to enhance their own level, constantly try and error, and explore, perhaps to maintain their own attractiveness and better integrate with today's young people.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.