By Dominique Vidalon
PARIS (Reuters) – China’s plan to increase local production of baby formula products has not come as a surprise to global dairy maker Danone, which has plans to launch a new ultra-premium product in that market, said Danone’s chief financial officer.
According to a document jointly released earlier this month by China’s central planner and several ministries, China aims to increase local production of baby formula so that more than 60% of the market can be supplied domestically.
The move could be a blow to the baby milk businesses of Nestle, Danone and Reckitt Benckiser which have generally flourished in China’s $25 billion baby formula market.
“What is happening is not a surprise. At the end of the day there will be a few local players and international players. We see the category growing 3-5% in China with middle-class affluence,” Finance Chief Cecile Cabanis told the Deutsche Bank Access Global Consumer Conference in Paris.
Growth was driven by demand from “lower-tier cities and for ultra premium” categories, she added.
China is an important growth market for Danone, contributing about 30% of sales to Danone’s Early Life Nutrition (ELN) business which makes infant formula and baby food products.
Cabanis reiterated on Thursday that Danone expects its ELN business in China to return to growth in the second half of the year, having suffered a slump in the first quarter partly due to lower birth rates.
She added that focusing on premium products would help the division, and also said Danone had an “innovation in the pipeline” in that area, but declined to give more details.
Her comments come as rival Nestle plans to launch a new line of baby formula under an existing brand in China this year, targeting smaller cities.
Cabanis also reiterated Danone was confident of delivering all its financial targets for 2019 and 2020.
(Reporting by Dominique Vidalon; Editing by Kirsten Donovan)