June 15, 2009


China's Yili one-up against Mengniu in latest dairy matchup


The battle between two Inner Mongolia-based dairy giants, Yili and Mengniu, over the past decade has intensified recently as they try to recover from last year's melamine-tainted milk scandal.


As they fight their way back, Yili seems to gain the upper hand after being appointed as the official dairy group for next year's Shanghai Expo.


With potential profits as one of the benefits for being the dairy sponsor, the company said the sign of national recognition is more important as it could further enhance awareness of the Yili brand.


More than 70 million visitors from home and abroad are expected for the Shanghai Expo, where all of Yili's products ranging from milk and yogurt to ice cream and milk powder will be displayed and provided at all venues and facilities.


Yili is now working on new quality standards customised for the Shanghai Expo that will be implemented soon and followed in the future.


The milk war between Yili and Mengniu has been played out on many fronts including sponsorship at China's premier events. On one such occasion, Mengniu failed to seal the sponsorship position at the Beijing Olympics last year and Yili walked away with the lucrative sponsorship.


However, the melamine scandal that began in last September tarnished the entire country's dairy industry. But Yili was the quickest to recover with the company reporting a 104 percent increase in profits from a year earlier to RMB113 million in its first quarter financial report while the third-largest producer, Bright Dairy, recorded a profit of RMB8.75 million from January to March.


Although Mengniu did not release figures, industry experts said it is unlikely that it outperformed Yili since it suffered another blow to its business early this year with the discovery of the illegal additive osteoblast milk protein (OMP) in one of its high-end products.


Though OMP was found not harmful to humans and the company has stopped using it since February, the revelation still dented consumer confidence in Mengniu.


It created an opportunity for Yili to take the market share Mengniu momentarily lost and promote its high-end milk products, which are the most profitable.

According to its 2008 annual financial report, Yili set an ambitious target of RMB500 million in profits based on sales of RMB21.6 billion this year.


In order to improve its profitability, the company will be adjusting its product mix and increasing the ratio of mid- and high-end products to about 40 percent.

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