The New Zealand-based company will be introducing an infant formula containing HMOs in mainland China in the second half of FY25.
This is due to growing number of consumers choosing products that contain specialised formulations and ingredients, such as HMOs.
The product, marketed as a2 Genesis, contains three HMOs, namely 2’FL (2’-fucosyllactose), 3’SL (3′-sialyllactose), and 6’SL (6′-sialyllactose), as well as the prebiotic galacto-oligosaccharide (GOS) and the probiotic Bifidobacterium lactis HN019. It also contains algal DHA.
The series is available in stage 1-3 and developed with Yashili NZ based on Hong Kong food regulations.
Just last month, the products have been launched in Hong Kong via the cross-border e-commerce channel.
It will be launched into China under a2MC’s English label product portfolio and priced higher than its other English label SKU known as a2 Platinum.
As compared to a2 Genesis, a2 Platinum does not contain HMOs and Bifidobacterium lactis HN019. It also contains a lower amount of GOS and contains DHA sourced from fish instead of algae.
“The rapid growth of HMO and specialty product segments have contributed to the English label [infant formula product] market’s growth, with consumers adopting English label products due to ingredients and specialised formulations not widely available in China label (such as those including various HMOs).
“To capitalise on this growing market opportunity, the company has developed and commenced sell-in of its most premium English label IMF product, a2 Genesis™ with a China focused launch planned for 2H25," said the company.
Yohan Senaratne, managing director, International at The a2MC revealed that the price of the product would be in the high RMB200S (US$27) instead of RMB300S (US$41).
He was responding to questions raised during the investor call which took place after the company’s presentation of its first half of FY25 financial performance.
He explained that HMOs were considered premium ingredients and would thus be placed ahead of its a2 Platinum products, but still, it would not be as premium as its China label products.
“In terms of pricing for a2 Genesis, its of course a little higher than our a2 Platinum products, but not as high as what you would have for the ultra premium China label products. So it will be in the high 200s, rather than in the 300s per unit.”
He added that the pricing was benchmarked to other English label infant formulas that also contain HMOs.
“And the reason for that, of course is that HMOs product is a premium proposition, and that’s the prevailing price point that we see for the other English label HMO containing products, but it is definitely different to other China label products.
“And pricing for English label products overall tends to be lower than China labelled imported products. That’s roughly why it’s sitting ahead of a2 Platinum but below China label products.”
Global R&D Centre to meet Chinese consumer needs
The company also signed an agreement to establish the “a2 Global R&D Centre” in partnership with China State Farm.
The aim is to build up the science around a1-protein free milk and developing new products that combine the benefits of a2 milk and synergistic ingredients.
There is no specific timeline in place for the R&D centre yet, but the key goal is to develop products catering to Chinese consumer needs.
“The focus of it is on both on the A1-protein free science and continuing to invest in and build that up, as well as the standards around that as well.
“And then thinking about product innovation linked to that, and plus other ingredients, innovative ingredients in the market, that we can generate synergistic benefits between the a2 milk as well as combining with certain ingredients can give enhanced benefits as well.
“All of this is in the spirit of developing more beneficial products for our Chinese consumers, and investing within our position in the market,” said David Bortolussi, managing director and CEO of The a2MC during the investor call.
China market fuelled by CBEC and English label products
Group revenue for The a2MC in the first half of FY25 was up 10.1 per cent yoy from NZD812.1m (US$465.7m) to NZD893.8m (US$512.6m).
Revenue growth was driven by continued sales increase in China and other parts of Asia - with revenue from the region up 11.8 per cent.
Its China business has largely benefitted from its focus on cross-border e-commerce and diverting away from the dwindling daigou channel.
The company also claimed that its China business had outgrown the industry, backed by strong sales of its English label products sold via cross-border e-commerce.
“Despite the overall China IMF market decline, a2MC’s China & Other Asia segment revenue grew by 11.8 per cent to NZD$614.2m (US$352.2m) primarily driven by strong English label IMF performance in the CBEC and O2O channels, with lower China label IMF growth impacted by market decline and temporary supply constraints,” said the firm.
Sales of its English label products were up 13 per cent, while sales of its China label sales were only two per cent higher due to temporary supply constraints.
Citing data from Kantar Worldpanel, a2MC said it ranked number five in terms of market share in China’s infant milk formula market last year.
With a market share of 7.7 per cent, it was ahead of Junlebao, Nestle, Wyeth, Mead Johnson, and Biostime.
China’s homegrown firm Feihe continued to dominate the charts with a market share of 17.5 per cent, followed by Danone’s Aptamil which had a share of 14 per cent, then Yili with a 9.8 per cent market, and Friesland Campina’s Friso ranking number four with 7.8 per cent market share.
“Improved strong brand health metrics, supported by marketing investment and sales execution underpinned a2MC maintaining its top-5 IMF brand position and being the third highest share gainer in the overall China IMF market in 1H25,” said the firm.
Again, based on Kantar’s data, it added that its market share was up 0.4 per cent in December 2024 as compared to June 2024.
Yili and Nestle had greater market share increase, with growth rate of 1.1 per cent and 0.7 per cent respectively.
On top of a higher revenue, a2MC’s EBITDA (earnings before interest, taxes, depreciation, and amortization) also climbed five per cent from NZD$113.2m (US$64.9m) to NZD$118.9m (US$68.2m) on the first half of FY25.
Net profit after tax also rose 7.6 per cent from NZD$85.3m (US$48.9m) to NZD$91.7m (US$52.6m).
Underestimated demand for senior nutrition in China
The a2MC said it had underestimated the demand for its senior nutrition products in China, which it said were quickly sold out during the Chinese New Year gifting season.
The company launched products for supporting gut, bone, and immune health for seniors in China last December as part of its efforts in capitalising on the needs of the growing ageing population.
“We launched the products at the end of December. And luckily, January is the Chinese New Year, which is the gifting season that typically younger people send gifts to their parents or the senior people,” said Li Xiao, CEO, Greater China, when responding to queries during the investor call.
“Our products’ sales is pretty strong. In the first month of launch, we sold out all the products, so that we have to kind of catch up the production quickly in February and March because everything was sold out, but it’s still too early to say.
“The out-of-stock situation is probably because we kind of underestimated the demand, and I see that performance is pretty strong as a new product launch in the first month,” he said.
He added that the scale of China’s seniors nutrition market cannot be overlooked.
“China already has 300 million population who are above 60 years old, and this is a new ageing generation with much more affluent power and a different lifestyle from the previous Generation.
“So that’s going to be a big market. At the moment. It’s like a 1.5 billion market growing double digits and with the government’s attention and consumer attention on the health wellbeing, it is going to increase and expand into an attractive market.”
