Having gone through a challenging first half of the year, Mengniu Dairy delivered a resilient semi-annual report card, achieving a revenue of 44.67 billion yuan, a year-on-year decrease of 12.6%, and an operating profit of 3.12 billion yuan, with the operating profit margin increasing by 0.6 percentage points year-on-year to 7%.

This year, due to the recovery of market consumption being lower than expected, coupled with the intensification of industry supply and demand contradictions, the dairy industry has faced many challenges in growth. Mengniu Dairy has proactively embraced change, increasing category innovation, business format innovation, and model innovation, with several sub-categories achieving growth against the trend in the first half of the year.

On the day of the performance meeting, Mengniu Dairy's President Gao Fei attended and frankly responded to the market's attention to industry changes, and for the first time, he released the new strategy of "One Body, Two Wings." In Gao Fei's view, the rigid demand for the domestic dairy industry has not changed, but the industry development has shifted from pursuing "scale benefits" to exploring "value creation," crossing the cycle with new growth.

Embracing the cycle adjustment, multiple businesses have shown resilient growth. Since the Spring Festival this year, due to the oversupply of raw milk and the underperformance of consumer demand, the dairy industry as a whole has shown a short-term downward trend, which has also brought significant pressure to the growth of the dairy industry. Judging from the performance of the main dairy companies currently announced, the growth rate has declined to varying degrees.

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In response to the external attention to the changes in the first half of the year's performance, Gao Fei responded at the performance meeting, stating that on the one hand, it was due to changes in the market environment, which led to the recovery of consumption being lower than expected and also affected the enthusiasm of channel merchants to stock up; on the other hand, in the first half of the year, in order to maintain reasonable inventory at the terminal, Mengniu also took the initiative to control the delivery pace, which also had an impact on sales volume.

It is understood that the change in Mengniu's revenue in the first half of the year was mainly due to the aforementioned reasons leading to changes in sales volume, with the impact of product structure and price being relatively small. Therefore, Mengniu's operating profit margin in the first half of the year still expanded by 60 basis points year-on-year, and it is confident that the operating profit margin will continue to expand throughout the year.

In addition, facing the challenges of the cycle, in the first half of this year, Mengniu adapted to market changes and forged ahead, consolidating its industry position in advantageous categories while achieving growth against the trend in several sub-categories.

The financial report shows that in the first half of this year, Mengniu's core business, liquid milk, achieved a revenue of 36.26 billion yuan. Although the overall sales volume has declined, there are still continuous highlights in businesses such as UHT milk, low-temperature yogurt, and fresh milk.In the realm of ambient fresh milk, due to the continuous decline in raw milk prices and market demand falling short of expectations, market sales have also been affected. However, the core flagship product, Telunsu, has demonstrated stronger cyclical resilience. Over the past few years, Mengniu has been focusing on the high-end market, enhancing the quality of Telunsu to meet consumers' demand for high-quality milk. In the first half of this year, Telunsu's sales performance was generally better than the ambient fresh milk category. At the same time, Mengniu's parent brand has introduced lactose-free milk, supplementing the niche market and expanding the consumer base for milk.

In the fresh milk business, despite the intensifying price wars and competition in the domestic fresh milk market in the first half of the year, Mengniu's high-end fresh milk brand, Daily Fresh Language, and its sub-brand, Little Fresh Language, both achieved double-digit growth. They have maintained a leading position in both online and offline channels. Moreover, the low-temperature fresh milk business team has seized high-potential growth channels such as domestic catering, coffee, bulk sales, and snacks, driving an increase in overall sales volume. In March of this year, Daily Fresh Language officially entered the Hong Kong market for sales.

In the low-temperature yogurt business, as a strong category for Mengniu, the company has been precisely positioned in the three major tracks of nutrition, taste, and functionality in recent years, continuously promoting product innovation and structural upgrades. In the first half of 2024, although the low-temperature yogurt industry as a whole experienced a high single-digit decline, Mengniu's low-temperature yogurt business still achieved growth against the trend, continuing the positive trend since the second half of last year. As a leader in the entire low-temperature yogurt category, Mengniu has maintained the number one market share for 20 consecutive years.

In the first half of this year, Mengniu's ice cream business achieved a revenue of 3.37 billion yuan, which showed a significant decline compared to the same period last year. In response, Gao Fei stated at the performance meeting that the domestic ice cream industry as a whole faced deinventory pressure in the first half of this year, posing a great challenge to Mengniu's ice cream business. Mengniu is also striving to innovate and break through by strengthening products, channels, and brands.

However, in the overseas market, Aixue ice cream achieved strong growth in the first half of the year, with a significant improvement in profit margins. It has become the number one ice cream brand in Indonesia and the second in the Philippines for ready-to-eat ice cream. Especially driven by the Paris Olympics, Aixue's brand recognition in Southeast Asia has grown rapidly, paving the way for the company's subsequent expansion in the Southeast Asian market.

As the growth of the liquid milk category reaches its peak, the cheese category has also become a breakthrough focus in the dairy industry in recent years. In the first half of this year, Mengniu's cheese business achieved a revenue of 2.11 billion yuan, with a continuous increase in its proportion of total revenue. At the same time, the cheese business held by Miaokelan Duo and Mengniu Group has also been integrated, clearing the way for collaborative development.

At the performance meeting, Gao Fei stated that Mengniu has established an absolute leading position in the domestic cheese industry, but this is only the beginning of the grand blueprint for cheese. The next step for Mengniu is to continue to expand and strengthen categories such as cheese, butter, and cream, including building a brand and product matrix targeting C-end consumers and B-end different scenarios, making "two oils and one cheese" a new growth engine for Mengniu's business.

Beyond traditional business, Mengniu also achieved breakthroughs in new channels and businesses in the first half of this year. In recent years, the rapid development of tracks such as catering, coffee, and new tea drinks has made the former a major consumer of dairy ingredients, and B-end business has become a battleground for dairy companies.

According to Gao Fei, in the first half of this year, Mengniu's professional dairy business has entered multiple channels in the catering and baking industries, establishing good cooperation with well-known brands such as KFC, Pizza Hut, Luckin, Kudi, and Mixue Bingcheng. For example, in August of this year, Mengniu established a strategic cooperation with Yum China, and Mengniu's "Green Mood" joined hands with "KFC" to launch a co-branded product, "Green Mood Milky Ice Cream," which was introduced into more than ten thousand KFC stores nationwide. In addition, Mengniu and Mixue Group's Da Ka International have started a strategic cooperation, reaching a consensus on the supply cooperation of production materials such as pasteurized milk and milk powder.In 2023, Mengniu officially announced its entry into the professional sports nutrition track, launching the high-end professional brand Maisheng, which focuses on the sports nutrition of Chinese people. This move is also considered a new attempt at the large-scale health transformation of dairy enterprises.

In the first half of this year, sales of Mengniu's professional nutrition brand Maisheng increased by more than three times year-on-year. During this period, the brand has comprehensively met the sports nutrition needs of aerobic exercisers, anaerobic exercisers, and the general sports population by improving its product matrix, including liquid protein lines, aerobic exercise lines, and protein bar lines.

New Thoughts Behind the "One Body, Two Wings" Approach

Following its debut at the beginning of 2024, the public has been paying attention to the new moves of the new president, Gao Fei. At the semi-annual performance meeting, Gao Fei also talked about his thoughts and ideas on Mengniu's strategic direction for the first time.

Gao Fei stated that the most frequently asked question during investor meetings was whether Mengniu's strategy would change. In his view, Mengniu has always been on the right strategic track, so Mengniu's strategy "will not change, and there is no need to change." While firmly adhering to the strategy of "creating a new Mengniu," Gao Fei also insists on the FIRST portrait (F: First-Choice, the beloved Mengniu of consumers; I: International, the globalized Mengniu; R: Responsibility, the more responsible Mengniu; S: Spirit, the culturally strong Mengniu; T: Technology, the digitalized Mengniu). This set of strategies is the crystallization of Mengniu's wisdom and its anchor.

However, since the beginning of this year, the market situation, supply and demand relationship, and consumer environment of the domestic dairy industry have undergone significant changes. How to navigate through cycles and achieve innovative breakthroughs has become a new challenge for Mengniu's new management team.

At the performance meeting, Gao Fei also presented the new strategy of "one body, two wings." The "one body" refers to the six major businesses of Mengniu, including ambient temperature, low temperature, fresh milk, frozen products, milk powder, and cheese, as the foundation. The "two wings" are innovation business and international business.

Gao Fei indicated that in the main business, Mengniu's existing six categories need to be strengthened and optimized, expand their strengths, and address their weaknesses, while continuously innovating and breaking through. In terms of innovation business, efforts should be made to promote continuous breakthroughs in professional nutrition and professional raw materials, establishing a strong moat. In international business, leveraging the successful experience of Aixue in Southeast Asia, the region will be used as a bridgehead for future international market development.

From the industry's perspective, what Gao Fei is contemplating is also the common issue faced by the domestic dairy industry, which is how to cross the cycles. For a long period, including Mengniu, domestic dairy enterprises have experienced a period of stable growth. Especially during the pandemic, domestic dairy consumption saw a rapid increase. However, after the pandemic, the industry has shown signs of a phase peak.At the 15th Dairy Industry Conference held this year, Gao Fei stated in his speech that the domestic demand for dairy products has not changed, and the current difficulties in the dairy industry are not only due to external factors but also related to the lack of diversification in domestic dairy categories, the contradiction between supply and demand balance, and the relatively low resilience of the industry chain.

From an external perspective, the key to breaking through new growth lies in the wing of innovative business.

In Gao Fei's view, the future development of the dairy industry is no longer about pursuing economies of scale, but about how to create value for consumers. The domestic consumer group for dairy products is changing, with product demands becoming more personalized and diversified. Currently, the supply side of the industry is somewhat lagging, which also forces the industry to shift from drinking milk to consuming dairy products, from basic nutrition to overall health, and from simple rough processing to refined processing in the industrial structure. During this upgrade process, there will be a significant market space and opportunities.

In Mengniu's innovative business layout, it can be seen that Mengniu has achieved phased breakthroughs in new functional materials such as sports nutrition and HMO, and has tasted the sweetness. The professional sports nutrition brand, Maisheng, launched just a year ago, has rapidly developed in the exclusive sports population field, with sales in the first half of the year increasing by three times year-on-year; Mengniu is also the only Chinese enterprise that has independently developed HMO raw materials, and has just obtained approval from the US FDA this month.

In response, Gao Fei said that in the future, Mengniu will continue to increase investment in research and development, enhance the company's functional value in the entire health field through more professional nutrition and more professional raw materials, refine and strengthen innovative business, and create a new growth curve.

In the industry's view, innovative business will not only become the moat for Mengniu's main business in the future but also become a new driving force for the innovative development of the main business.

As the other wing, international business is also the necessary path for domestic dairy enterprises to break through their comfort zone, go global, and expand their scale.

It is not difficult to find that most of the international dairy industry giants are globally-deployed enterprises. In recent years, with the continuous improvement of Chinese dairy enterprises in brand awareness, technology research and development, product innovation, and the enhancement of China's global influence, Chinese dairy enterprises have the strength and ability to expand overseas.

Taking the Southeast Asian market as an example, it has a total population of about 670 million, equivalent to half the size of the Chinese market. More than 50% of the population is under 30 years old, and with the economic development in recent years, the purchasing power of Southeast Asian consumers is also continuously increasing. The local market dairy products are mainly dominated by international dairy brands, with few local brands. Compared with the saturated Chinese market, this is also a new incremental market that Mengniu cannot ignore.

At the same time, as the world's first Olympic Global Partner in the dairy industry, the influence of the Olympic Games IP will also provide strong support for Mengniu's overseas expansion.Gao Fei stated that the Paris Olympics successfully conveyed the core value concept of Mengniu's "Born to be Strong" to the world. In the upcoming Winter Olympics in Milan and the Alps, as well as the Summer Olympics in Los Angeles and Brisbane, the Mengniu brand will continue to shine. Through long-term strategic planning, Mengniu will continuously consolidate its Olympic identity and build an international brand. Starting from 2025, Mengniu will fully activate the Olympic rights across all product categories, ushering in a true TOP era, bringing nutrition and health to the world.

From the industry's perspective, behind the "one body, two wings" strategy is Gao Fei's systematic thinking on breaking through the new growth dilemma of the current dairy industry. It is believed that in the future, Mengniu will remain steadfast in its FIRST approach, continuously focusing on R&D innovation, brand building, digital transformation, accelerating channel optimization, and new business development directions, leading the Chinese dairy industry into a new era of high-quality growth.