The Swiss infant formula giant bought out Pfizer Nutrition on April 23 for a hefty US$11.85bn in a “strategic move to enhance its position in global infant nutrition,” it said, particularly in emerging markets.
The huge buy-out has been in the industry pipeline for some time with other key industry players, namely Danone, falling by the way-side in the bidding war.
This move will strengthen Nestlé’s weak and slow business in China while consolidating its overall leading position in the Asia Pacific market, according to Ildiko Szakai, senior packaged food company analyst at Euromonitor.
Pfizer has a large majority of sales coming from Asia Pacific; around half, with its strongest hold in China; “it ranks fifth in the Chinese baby food market and holds about 7% market value share,” Szakai said, and this strength represents a key driver for the purchase.
“Although Nestlé is the number one player in the overall Asia Pacific baby food market, marginally ahead of Mead Johnson, its weakest market it China… Progressing its weakness and slow performance in this market is a very important objective,” she said.
Lucrative, growing, significant China
China’s baby food market at US$9.4bn in 2011 and has forecast this to soar to double (US$18.7bn) by 2015, Euromonitor data showed.
Leo Wang, business analyst at China Market Research (CMR), told FoodNavigator-Asia the acquisition is “significant”. It secures control of major infant formula brands in China – SMA and Promil – and a “bigger piece of the overall market as a result”.
Wang detailed the four international formula brands in highest demand to be Good Start (Nestlé), Enfamil (Mead Johnson), Dumex (Danone) and Similac (Abbott), with Pfizer’s SMA and Promil also strong.
These six brands account for around 60% of China’s infant formula market, he said, and “represent almost all of the high-end market.”
“These are they brands Chinese mothers are crossing the border into Hong Kong to buy… So Nestlé beat out some its top competitors in a fast-growing sector,” he said.
“Practically all consumers are willing to trade up significantly – pay twice the price of domestic brands or more – in order to get better quality” infant formula products, Wang said.
“Therefore demand for foreign brands is very high and they have a big advantage over Chinese brands,” he added.
This has solidified their position in a growing, lucrative market, he added, and “for them that is probably paying a lot of money for.” Euromonitor forecasts a YoY growth of 19.3% for 2012-13.
Estimates for Pfizer Nutrition’s 2012 sales have been pegged at US$2.4bn by Nestlé.