Mengniu to grow lead with higher margin products

By Dominique Patton

- Last updated on GMT

Related tags: Milk

Mengniu Dairy, China's biggest liquid milk supplier, said last week
that its first quarter sales would beat industry rates of 20 per
cent.

Unlike some of its competitors, the dairy has not raised milk prices despite a slightly higher cost of raw milk.

Sugar, used in ice cream and other dairy products, has also become significantly more expensive but Mengniu executives said new, higher margin products would offset these increased costs.

"Though the price of our new liquid milk is higher than the average, it's very high value-added. Therefore we believe domestic consumers will accept it,"​ Mengniu chief executive Niu Gensheng told reporters at an annual meeting in Hong Kong.

The firm has recently launched Milk Deluxe OMP, Milk Deluxe 100% Pure Milk and Milk Supreme in China's biggest cities, with margins of 40-60 per cent per product compared with a typical 20-30 per cent on its older products, Niu said.

The new milks also cost more than double that of rival brands.

Mengniu is working on new milk powder products too, thanks to its joint venture with Danish group Arla Foods.

"Already in the company's pipeline are six to eight products contributed mainly by Arla Foods,"​ Mengniu executive director Yang Wenjun told The Standard​ newspaper.

It is expected to seek increasing presence in international markets, following its sponsorship of Hong Kong Disneyland.

"We'll have more marketing campaigns and promotions like this to strengthen our brand image in overseas markets further,"​ Yang said.

Mengniu's sales jumped by 50.1 per cent to reach CNY10.8 billion in 2005 and its net profit rose to CNY456.8 million, up 43 per cent on 2004.

Investment bank KGI Securities said in a report this week that Mengniu's new products and effective sales strategy would be play a major role in outstripping competitors' revenue growth.

The price of raw milk is in addition expected to stabilise during the second half and sugar prices should also remain at the current level.

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