Succeeding in Asia Pacific: Exploring the Dairy Market and Consumer Dynamics

September 2016

With over 60% of new dairy sales expected to be generated in Asia Pacific in the next five years, the region is receiving a great deal of attention from foreign investors. However, the challenging operating environment poses both opportunities as well as pressures for foreign investors. This briefing explores the dairy market and consumer dynamics in the region, and identifies growth opportunities.

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Asia Pacific will make up 63% of absolute dairy growth in volume terms over 2016-2021

The region will represent over a third of the global market size in 2021, compared with just 28% in 2011. This rapid growth offers significant opportunities for dairy players, as levels of consumption of dairy are still far below Western standards, and signify ample growth opportunities to be exploited.

Operating environment in the region’s largest market is proving challenging, with high local ownership. Smaller markets might offer an easier route to market

Despite growing foreign investment in Asia Pacific, 90% of the top 10 dairy players in the region are local, indicating a strong competitive advantage of local players over international. As such, whilst the majority of dairy growth will come from the region, the (disadvantaged) operating environment makes it very difficult to trade in some of the region’s largest markets, such as China and India. Other markets, such as Indonesia, might offer an easier route to market, where, for example, foreign players capture 50% of the top 10 dairy players’ sales, or Vietnam, where this is a third.

Future growth pillars in dairy are a growing middle-class, rapid urbanisation, health-consciousness and food safety

Mass urbanisation, reduced activity and poor diets will accelerate the rise of the average Body Mass Index (BMI) in Asia Pacific. Dairy products are well-positioned to offer a nutritious (“natural”) healthy product over many other food types. Also, as snacking will form a greater part of people’s diets, snack-packed dairy products offer a great alternative to products which are high in salt and sugar.

Health and food safety allow for higher margin pricing in Asia Pacific, and many companies’ growth strategies are aimed at just that

Given the widely publicised food safety scandals over the last few years, companies are now promoting their quality control over production processes more prominently, to help ensure food safety and restore consumer confidence in the industry. Associating dairy products with health and wellness and quality assurance allows for higher margin pricing, as well as differentiation. As such, several multinationals have now changed their corporate vision to reflect just that, including Yili, Nestlé and Huishan. Future innovations in dairy will therefore be centred on a health positioning, and give greater importance to technology which aids in tracking the dairy product from grass to glass.

Introduction

Scope
Key findings

What Makes Asia Pacific a Key Region for Dairy?

Asia Pacific at a glance
Asia Pacific overtakes Western Europe as the largest region in 2016
Asia Pacific dairy sales are driven by three countries…
… yet Vietnam and Indonesia offer an easier route to market
Region poised for growth, mainly due to GDP and habit persistence
Indonesia has the largest unmet dairy potential in the region

Understanding Consumer Dynamics in Asia Pacific

Future growth pillars in consumer dynamics
Growing middle-class, of which the bulk comes from four markets
More women in the labour market increases demand for convenience
Open trade in Southeast Asia to further bolster urbanisation
Ample room for growth: rising middle-class vs low penetration
A look at consumers’ eating preferences and choices in Shanghai
Retail channel preferences of a working middle-income consumer
Obesity “epidemic” also prevalent in Asia Pacific
Consumers are getting bigger in line with rising urbanisation
Food scares increase demand, not just for foreign brands…
….but also lead to unusual sales in other areas
Repositioning of blenders to include safety measures

Understanding Dairy Market Dynamics

Top 10 dairy companies in Asia Pacific
Health and safety: A key corporate selling point, or can’t do without?
Both low- and premium-priced milk formula do well in China
Explaining the success of Yili and Mengniu in China
Changing corporate visions in the food world
Nestlé pledges more investment in food safety
Dairy companies target nutrition with health campaigns

Recommendations

Recommendations

Appendix: Industry Forecast Model

About Euromonitor International’s Industry Forecast Model
Soft drivers and the Industry Forecast Model
Growth decomposition explained
Significance and applications for growth decomposition
Key applications for Industry Forecast Models
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