Milk formula is one of the fastest growing food categories globally, with double-digit growth rates being driven by the insatiable appetite of the world’s youngest consumers. A third of the US$41 billion spent on milk formula globally in 2013 went on toddler milk formula products alone, making it the single largest milk formula category, ahead of standard milk formula (for newborns) and follow-on milk formula (for babies aged 6-12 months). In the last 15 years sales of toddler milk formula have grown by nearly 400% in constant value terms, with it having gone from a product that was overlooked to becoming an essential item in the shopping baskets of most middle-class parents. Increasing marketing restrictions on toddler milk formula could be seen as a threat, but it is unlikely that this will make too much of a dent in sales. A fashion item commanded by parents and children alike, it is hard not to draw parallels between the toddler milk craze and that of Asia’s most-loved fictional character, Hello Kitty.
As with all infant formula categories, the growth of toddler milk formula has been driven by rising demand from Asia Pacific, notably China (sales of toddler milk formula in China tripled over the last five years, with over 40% of global toddler milk formula sales accounted for by China alone) but also Indonesia, Vietnam and Thailand. Rising incomes mean that parents are able to buy milk formula not only for their infants but also their toddlers - products that were unaffordable for previous generations. Global companies have capitalised on this new generation of parents in Asia Pacific and other emerging markets, with food safety scandals still having a lasting effect on local brand loyalty. In 2013, Mead Johnson, Nestlé, Danone and Abbott accounted for nearly a 50% value share of toddler milk formula in Asia Pacific, with retail value sales of US$6.6 billion between them.
The Largest Five Toddler Milk Formula Markets Globally - Historic and Forecast % CAGRs
Source: Euromonitor International
Regulation is likely to become increasingly strict. The European Parliament has already placed a ban on the use of baby images on the front of formula products, while the European Food Safety Authority (EFSA) recently announced that the use of toddler milk formula does not offer any additional value in meeting the nutritional requirements of children aged 1-3. Many toddler formulas are sweetened with sugar or corn syrup, and a number of products with added flavours – including chocolate and vanilla - have been launched and subsequently pulled, raising questions as to how attractive they are for children and the role they may play in childhood obesity. Marketing restrictions on infant formula are tight, with the World Health Organization (WHO) recommending exclusive breastfeeding up until the age of 4-6 months. However, in most countries, toddler formula is not covered by current marketing regulation, although it seems likely that this will change, especially as the number of overweight and obese children globally – which currently stands at over 40 million according to the WHO – continues to rise.
In Europe, where parents are becoming ever more aware of the controversy surrounding childhood obesity and where the population of children aged 0-4 is smaller, tighter regulation is likely to have a negative impact on sales, which are forecast to be fragile with a CAGR of 2% over 2013-2018. In comparison, the consumption of milk formula in Asia Pacific is almost a craze and brand loyalty and recommendations from family and friends, as well as the large baby population, are likely to continue to reinforce sales of toddler formula, with or without limitations on marketing. In parts of the region, particularly China, demand is outstripping availability to the extent that an illicit trade in milk powder has developed. Authorities in Hong Kong were forced to place export restrictions on toddler formula in 2013 to protect domestic supply as large quantities were being carried across the border to the mainland either for personal use or for resale. Despite narrowing restrictions on trade and marketing, consumption of toddler milk formula will continue to rage on for as long as parents in Asia Pacific see it as an essential item in their shopping trolley.