“Investor Network” Xie Yinan

Editor Wu Yue

Since this year, the consumer industry has been hit hard by the pandemic, and the dairy industry is no exception. Production figures for the dairy industry released by the National Bureau of Statistics show that industry sentiment was weak in the first half of the year.

However, no one expected that China Mengniu Dairy Co., Ltd. (02319.HK, hereafter “Mengniu”), the industry leader, had passed an inflection point and outperformed the industry across the board. In the first half of 2022, Mengniu's revenue was 47.72 billion yuan, an increase of 4% over the previous year, and Guimu's net profit was 3.75 billion yuan, an increase of 27.3% over the previous year.

Moreover, all of the company's categories have achieved rapid growth in leading industries. As a result, Mengniu ranked first in the market share of room-temperature liquid milk e-commerce.

What's even more surprising is that Mengniu also perfected its major strategic idea — to create another new Mengniu in 2025. Many people think this is impossible at all. The reason is that the number of newborns is declining year by year, and competition among domestic and foreign companies is intensifying.

But to a certain extent, Mengniu is quite likely because it has already set many records. Up to now, Mengniu has 68 factories worldwide, with a total annual production capacity of over 10 million tons, and has opened up markets in more than 10 countries and regions, including Singapore, Malaysia, Australia, and Canada.

Mengniu President Lu Minfang even went on to say, “In the next 10 years, Mengniu's international revenue will hopefully account for 15% of total revenue.”

The “Top 20 Global Dairy Industry Ranking” was published by Rabobank based on sales data of dairy companies. It is currently one of the most authoritative rankings in the global dairy industry. On August 17, the “2022 Global Dairy Industry Top 20” list was announced. Mengniu Group rose two places in a row, ranking 7th, and also became a Chinese dairy company that achieved a rise in ranking on the list.

Coincidentally, in the “Kantar BrandZ Most Valuable Global Brand” ranking released in June this year, Mengniu's brand value ranked first in China's dairy industry with a 15% year-on-year growth rate, making it the only brand in China's FMCG industry to reach double digits.

The deep logic of resilient growth

Behind the motivation to “create another Mengniu” is Mengniu's strict innovation in quality inspection. The sampling pass rate continues to reach 100%.

Starting with a tree of forage and a cow, Mengniu strictly controls milk sources. In self-built large-scale ranches, dairy cows eat forage cultivated using the world's leading technology. Mengniu strategically invests in the three major breeding enterprises of Fuyuan International, Modern Animal Husbandry, and China's Shengmu to introduce high-quality forage and promote the cultivation and production of high-quality local fodder to ensure a balanced nutritional balance of energy, protein, fiber, minerals, vitamins, etc., so that good cows can really produce good milk.

Some investors think that this kind of treatment is too amateurish; there is a specialty in the surgical industry, so why should they grow grass specifically for milk.

But the truth is that only by grasping safety at the source can we obtain high-quality raw milk that exceeds EU standards. In 2021, Mengniu officially made breakthrough progress in the “EU Benchmarking Project”, which upgraded and supplemented 114 raw material indicators and 38 product indicators. The quality of Mengniu's seven categories met the requirements of EU standards, officially becoming the only enterprise in the Chinese dairy industry currently certified by the General Standard Technical Service Co., Ltd. (SGS).

Mengniu's quality innovation stems from innovation in its production model: it systematizes the planting of forage, raising dairy cows, production and processing, etc., to ensure the safety of the entire industry chain without dead spots; and upgrading the ranch, factory, supplier, and food safety management system to world-class quality.

In the barn of the self-built ranch, the air is fresh, the water is constantly heated, the feces are automatically cleaned, and the bed is covered with biogas residue; throughout the farm, biogas heating and biogas liquid return to the fields are comfortable and environmentally friendly; looking at the factory, the milking, powder spraying, and packaging process takes 2 hours... Mengniu uses next-generation information technology, especially the Internet of Things and big data, and introduces internationally leading quality management concepts to achieve accurate quality management and traceability throughout the life cycle of dairy products.

And these are just a starting point. On the basis of the entire industry chain, Mengniu continues to innovate explosively:

In June 2021, the company released the “Mengniu Nutrition and Health Policy (2021-2025)”. Through the joint efforts of internal and external cooperation platforms, the company comprehensively promoted the nutritional health of dairy products and made the safety of dairy products more secure. In November 2021, Mengniu participated in the “Key Technology for Safety Control and Quality Improvement of Milk and Dairy Products” and won the second prize of the National Science and Technology Progress Award.

The country's and industry's affirmation gave Mengniu more motivation to make dairy products as good as possible. At present, Mengniu has built a world-leading “high-tech research institute and highly intelligent production base”, collaborating with 16 domestic and foreign universities, research institutes, and 30 R&D partners to continue in-depth nutritional research.

Mengniu became a sample of industry development

All of this is still a microcosm of Mengniu's industrial upgrading.

On June 24, the “China Corporate Social Responsibility Report Rating Expert Committee” of the Chinese Academy of Social Sciences released a rating report on Mengniu's 2021 Sustainable Development Report (ESG Report). The rating results showed that the process, substance, completeness, balance, comparability, readability and innovation of Mengniu's 2021 Sustainability Report all reached a five-star rating, which combined into a “five-star excellent” rating, ranked the highest in domestic and industry ESG reports.

Terunsu continues to be “better.” According to public information, Terunsu was born in 2005, pioneered high-end milk in the Chinese dairy industry, and has now grown into a high-end milk brand with the world's leading sales volume.

In 2005, Mengniu launched a series of products such as Terunsu pure milk, Terunsu low-fat milk, and Terunsu organic milk, which kicked off the high-end milk market in the Chinese dairy industry. Over the course of more than ten years of development, Terunsu has always insisted on innovating, using high-quality milk sources from exclusive ranches, and adhering to the industry's high standards of raw material selection and production processes. In terms of quality, it has achieved a leap in protein content from 3.3 to 6.0, gradually becoming popular around the world.

In the post-pandemic era, Mengniu's high-end fresh milk brand also successfully “broke the circle”, and “Daily Fresh Language” and “Modern Farm” achieved rapid growth. During the Shanghai epidemic, Mengniu, as the main insurance provider, was also the first to launch a new model of community group buying business. Its social reputation led to its market share ranking first for high-end fresh milk.

The cheese business is one of Mengniu's advanced businesses. In the early years, Mengniu innovated and launched the room-temperature cheese product “Mengniu Room Temperature High Calcium Cheese Bar”. Today, popular models such as Mica Landuo and Aisse Sunrise are leading the way, capturing consumers' discerning taste buds time and time again.

Behind the hot new products is the silence of a large number of internal innovations. What consumers can see will always be the tip of the iceberg of Mengniu's ability to develop technology.

According to management master Peter Drucker, innovation is both rational and sentimental. In terms of brand innovation, Mengniu and Master's ideas coincide. In helping the aviation industry, Mengniu has always accompanied China's manned space industry and has persisted for 19 years.

In 2003, Mengniu became a partner in China's aerospace industry and became the first dairy company to support the development of China's aerospace industry; in 2005, Mengniu milk was used as “special milk for Chinese astronauts”, and its self-developed bifidobacterium “BBMN68” entered space aboard the Shenzhou 11 manned spacecraft to carry out space experiments; in 2017, Mengniu became a strategic partner in China's aerospace industry, entering a new development stage of “space quality” upgrading...

If Mengniu's deep cooperation with China's aerospace industry stems from the high degree of compatibility between the two sides in terms of values, then Mengniu's long-standing relationship with the World Cup stems from Mengniu's dream of “world quality, natural strength.”

Earlier, Mengniu once again joined hands with FIFA to become the official global sponsor of the 2022 Qatar World Cup, and renewed the signing of two world superstars, Messi and Mbappe, as brand ambassadors. At the Qatar World Cup in November this year, Mengniu will continue to show the world the style of China's dairy industry.

Pursuing continuous innovation in quality models, production models, products and brands, Mengniu's social reputation has soared as a result, and has also been recognized by research institutes at home and abroad.

SPDB International recently gave Mengniu a “buy” rating. The reason is that Mengniu is a leader in the high-end development of China's dairy industry, while the per capita sales volume of the Chinese dairy industry is low, and there is plenty of room for future growth. It not only benefits from trends such as increased consumer health awareness and consumption upgrades, but is also highly compatible with the country's strategic development direction and has been supported by national policies for a long time. As the industry continues to consolidate and competition gradually improves, these advantages give the company a high degree of certainty for long-term growth.

Lu Minfang, president of Mengniu, said that as the youngest Chinese dairy company in the world's TOP10, Mengniu will continue to gather superior global resources, adapt to the major trend of domestic consumption upgrading, and make every effort to comprehensively advance the “create another new Mengniu” strategy. (Produced by Thinking Finance) ■