A2 Milk to wean off daigou dependency, chairman says

ByJessica Yun

November 17, 2021 — 5.05pm

Embattled milk and infant formula maker A2 Milk issticking to its China strategybut will reduce its reliance on the daigou market as it looks to exercise greater control over supply and demand issues in 2022.

Chairman of the dual-listed company David Hearn acknowledged it had been a horror year for shareholders disappointed by poor performance but said there was “absolutely” light at the end of the tunnel for the once-market darling.

A2 Milk’s revenue and net profit fell by 30 per cent and 79 per cent respectively over the 2021 financial year and was forced to downgrade its profit forecasts four times in as many months.

However, Mr Hearn said the 21-year-old company would remain committed to theChinese market by adjusting its strategy, including reducing reliance on daigous (professional shoppers that resell luxury goods to Chinese buyers).

“Daigou is not going to disappear, but it’s never going to be quite the channel it once was and other channels are clearly replacing those,” Mr Hearn said, after the company’s annual general meeting on Wednesday.

He added the daigou market, severely hamstrung during the pandemic by the travel ban that stemmed the flow of international travellers and students, was already showing signs of recovery. “But we’re not relying on a huge daigou bounceback.”

Mr Hearn said striking the right balance between supply and demand was both the company’s primary focus and its greatest risk, and that it was watching market prices “like a hawk every day”.

A2 Milk chief executive David Bortolussi said the business would “of course love to have greater diversification” but that the “reality” of the opportunity in China was “substantially greater” than other markets.

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Mr Hearn said the $4.43 billion company was now adjusting its approach to the lucrative Chinese market by tightening control of its distribution channels and partners; using different promotion strategies; and increasing investment in marketing to enhance consumer perception of the brand.

“We have a less than 3 per cent share in the world’s largest infant formula market, so we’re by no means tapped out. We’ve got plenty of room to grow,” he said.

A2 Milk’s share price dipped slightly over Wednesday, closing down 0.33 per cent to $6.09.

VanEck deputy head of investments and capital markets Jamie Hannah said the AGM contained no nasty surprises for investors and the company was “not in a terrible way”.

“I’m not worried about the company,” Mr Hannah said, adding that A2 Milk had been affected by the pandemic as well as geopolitical factors which were partially out of the company’s control. But he warned the business needed to diversify to more markets

“They need to cover off as many markets as they can; as we’ve seen, being tied to one market can have particularly damaging impacts if something doesn’t go well there.”