A2 Milk, Hershey team up to crack $US711m flavoured milk marketA2 Milk CEO David Bortolussi is aiming to nearly double the company’s revenue to $NZ2bn by 2026. Picture: Britta Campion/The AustralianJARED LYNCHREPORTERAN HOUR AGO OCTOBER 27, 2021NO COMMENTS
A2 MILK HAS ENTERED A PARTNERSHIP WITH HERSHEY’S TO PRODUCE CHOCOLATE MILK AS PART OF ITS GOAL TO ELEVATE ITS AMERICAN BUSINESS TO HIT $US100M ($133M) IN SALES BY 2026.HERSHEY’S, ONE OF THE WORLD’S BIGGEST CHOCOLATE MAKERS, APPROACHED A2 MILK TO STRIKE A LICENSING DEAL, WHICH WILL PRODUCE FOUR CARTON SIZES THAT ARE EXPECTED TO HIT RETAILER SHELVES FROM JANUARY NEXT YEAR AND CARVE A SLICE OF THE $711M US BRANDED FLAVOURED MILK MARKET.BUT AUSTRALIANS ARE UNLIKELY TO GET A CHANCE TO SAMPLE THE PRODUCT UNLESS TRAVEL RESTRICTIONS TO THE US EASE.
“WE DON’T HAVE ANY PLANS TO EXTEND IT AT THE MOMENT. THE LICENCE DEAL IS IN RELATION TO THE US,” A2 CHIEF EXECUTIVE DAVID BORTOLUSSI SAID AHEAD OF THE COMPANY’S INVESTOR DAY ON WEDNESDAY.“THE MARKET STRUCTURING AND CONSUMER PREFERENCES ARE DIFFERENT. SO IN THE US, IT’S CLOSE TO A $1BN AT RETAIL, NEW ZEALAND DOLLARS, AND A GROWING CATEGORY.“AND THE HERSHEY’S BRAND IS THE NUMBER ONE BRAND IN THE US AND YOU KNOW IN TERMS OF A HEALTHIER PROPOSITION, IT’S 2 PER CENT REDUCED FAT. SO WE THINK THAT’S GOING TO WORK IN THE US.
”THE LICENSING DEAL IS PART OF A2 MILK’S BROADER STRATEGY TO NEARLY DOUBLE ITS OVERALL REVENUE TO $NZ2BN ($1.91BN) IN THE NEXT FIVE YEARS AND COMES AT A TIME A2 SHARES HAVE PLUMMETED FROM $20 IN JULY LAST YEAR TO $6.85 FOLLOWING THE COLLAPSE OF THE LUCRATIVE CHINESE DAIGOU, OR RESELLER, MARKET.BUT MR BORTOLUSSI SAID THE COMPANY WAS SHIFTING AWAY FROM THE DAIGOU TRADE — WHICH TRADITIONALLY INVOLVED STUDENTS AND TOURISTS BUYING PRODUCTS FROM AUSTRALIAN STORES AND SENDING THEM BACK TO CHINA. DAIGOUS NOW REPRESENTS ABOUT 10 PER CENT OF ITS INFANT FORMULA BUSINESS AND ABOUT 30 PER CENT OF ITS RESELL CHANNEL, WHICH ALSO INCLUDE SELLING PRODUCTS ON POPULAR CHINESE ECOMMERCE SITES SUCH AS TAOBAO.
THE TRADITIONAL DAIGOU IS ALSO DECLINING FROM ‘SUITCASE SELLERS’ TO MORE CORPORATE GROUPS THAT BUY PRODUCTS AND DISTRIBUTE IT ACROSS THEIR OWN ESTABLISHED CHANNELS.“THAT RESELLER CHANNEL OVERALL HAS EVOLVED INTO A MUCH MORE SOPHISTICATED OMNI CHANNEL NETWORK. SO MORE OF THAT CHANNEL RELATES TO C TO C (CUSTOMER TO CUSTOMER) ECOMMERCE LIKE ON TAOBAO AND OTHER SITES AND ALSO THROUGH THE O TO O CHANNEL, WHICH IS OFFLINE TO ONLINE, OMNI CHANNEL ORDERING,” MR BORTOLUSSI SAID.NEW & IMPROVED BUSINESS NEWSLETTER. GET THE EDGE WITH AM AND PM BRIEFINGS, PLUS BREAKING NEWS ALERTS IN YOUR INBOX.Sign up
“SO IT (DAIGOU) IS STRATEGICALLY IMPORTANT, BUT IT‘S ACTUALLY A RELATIVELY SMALL PART OF OUR BUSINESS NOW.“WE’RE HOPING THAT IT WILL CONTINUE TO GROW AND WE’RE SEEING MORE DAIGOU ACTIVITY AT THE MOMENT AS THE ACTIONS THAT WE TOOK IN MAY ARE HELPING TO IMPROVE PRICING, INVENTORY, FRESHNESS IN THE MARKET AND WE’RE SEEING THE OVERALL CHANNEL ECONOMICS IMPROVE.”ONLINE TO OFFLINE IS A WAY FOR A2 TO SELL ITS ENGLISH-LABELLED PRODUCTS IN BRICKS AND MORTAR STORES WITHOUT STOCKING PRODUCTS ONSITE.
“YOU CAN’T SELL A ENGLISH-LABELLED PRODUCT IN STORE — YOU CAN DISPLAY THE PRODUCT EITHER THROUGH IMAGES OR EMPTY TINS. AND IN CERTAIN MBS (MOTHER BABY STORES) STORES AND ALSO IN CERTAIN CONVENIENCE STORES, WE RETAIL THAT WAY AND CONSUMERS PLACE THE ORDER ONLINE EITHER THROUGH THE RETAILER PLATFORM OR DIRECTLY THROUGH OTHER PROVIDERS FOR IT TO BE DELIVERED HOME.“WE’VE REALLY INVESTED IN AND IN THOSE TWO CHANNELS, IN ADDITION TO WORKING WITH OUR CORPORATE DAIGOU CUSTOMERS TO HELP REIGNITE THE TRADITIONAL DAIGOU TRADE AS WELL.
”WHILE THE CHINESE MARKET IS STILL SUPPRESSED, IT REMAINS THE WORLD’S BIGGEST FOR PREMIUM INFANT FORMULA, AND MR BORTOLUSSI SAID GREEN SHOOTS WERE EMERGING.“IF I LOOK AT THE SEPTEMBER QUARTER LAST YEAR, THROUGH THE SEPTEMBER QUARTER THIS YEAR FOR OUR RESELLER OR ENGLISH LABEL BUSINESS, OVERALL WE‘RE STILL DOWN SINGLE DIGITS. BUT IF I LOOK AT THE ADJACENT QUARTER, SO THE FOURTH QUARTER OF LAST FINANCIAL YEAR TO THE FIRST QUARTER OF THIS YEAR, WE’RE UP SIGNIFICANTLY DOUBLE DIGITS.
“WE DID, TO BE FAIR, CONSTRAIN SALES IN THE FOURTH QUARTER, WE’RE TRYING TO REBALANCE OUR INVENTORY. BUT WE’RE SEEING SIGNS OF STABILISATION AND HOPEFULLY THAT ENGLISH-LABEL/RESELLER CHANNEL WILL BE IN GROWTH COME THE FULL YEAR BUT IT’S TOO EARLY TO TELL AT THIS STAGE.
”MAKING SALES MORE CHALLENGING IS CHINESE CONSUMERS NO LONGER PRIORITISING INTERNATIONAL INFANT FORMULA BRANDS — 13 YEARS AFTER A MELAMINE CONTAMINATION SCANDAL STEERED PARENTS TO FOREIGN PRODUCTS.“FOR A PERIOD OF TIME, INTERNATIONAL BRANDS HAD A COMPETITIVE ADVANTAGE DRIVEN BY THAT EVENT AND OTHER ISSUES. BUT I THINK NOW IT’S VERY MUCH A LEVEL PLAYING FIELD,” MR BORTOLUSSI SAID.
“NOW THE NUMBER ONE CONSIDERATION IS BRAND. AND WE ARE ONE OF, IF NOT THE STRONGEST BRAND IN THE MARKET, WHICH IS REALLY REASSURING.“WE BASICALLY DON’T HAVE A BRAND ISSUE, WHICH WOULD BE A FUNDAMENTAL ISSUE FOR US. WE HAVE MORE A CHANNEL TO MARKET ISSUE THAT WE NEED TO RESOLVE.”
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