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Lactalis infant formula fallout could be fatal in China

This article is powered by Dairy Markets

The world recall by Lactalis of 7,000 tonnes of its infant formula comes just as Chinese consumers have begun to show more confidence in IMF products, and while ‘a new round’ of baby boom is in progress.

Memories of the 2008 melamine crisis, in which at least six Chinese babies were reported to have died through contaminated IMF, and many thousands more were poisoned, are still raw.

So far no babies are reported to have died from Lactalis’s own contaminated products. But Chinese consumers, who turned in their droves towards safe foreign-made IMF have now had that certainty wrenched from them.

Salmonella infection can be life-threatening, but is obviously not as egregious as the adding of a toxic chemical to milk in order to increase its nitrogen content.

Infant formula makers are subject to strict controls on both the composition of the product and its production. This is because parents have a right to trust what they are feeding their children.

How this failed in Lactalis’s case we do not yet know, and given the company's past lack of openness about its operations, we may never know.

Chinese consumers have been slow to forgive their own dairy industry, even though only a small part of it was responsible for the 2008 outbreak. No amount of tightening of controls by companies and government has quite removed the taint of suspicion that hangs over the sector.

China’s dairies have had some success in winning back consumer trust. But it takes time, and many parents still prefer, if they can afford it, to buy foreign-made for their vulnerable babies.

Lactalis can only hope that its prompt-ish recall is successful. But that hope hangs on a thread: it admits it does not know how much infected product remains on the market, how much has already been consumed, or is sitting on shelves, or in people’s homes.

In the eyes of many Chinese parents the recall may be too late, even if there are no further instances of salmonella infection linked to their products.

If there are further outbreaks in France, or outside France, and in particular in China, the Lactalis brands may be fatally compromised, their IMF business all but wrecked.

The timing of Lactalis’s mishap could not be worse. On one level it is at a time of the Christian calendar dedicated to the birth of the Son of God, who appeared on Earth as a vulnerable baby. The symbolism, I assume, will not have been lost on chastened Lactalis executives.

New baby boom

On a wider canvas, China is undergoing a new round of baby boom, according to market researchers Nielsen.

Not only is the lifting of the two-child policy beginning to pick up pace with a growing number of births, but the economic situation is bright.

China’s economy is growing positive with GDP growth staying at 6.8% - 6.9%. Consumer confidence in China is picking up steadily since the last quarter of 2016‘s 106 and has reached 114 in the third quarter of 2017, a record high for the past three years.

Price is no longer the key factor of consideration but product upgrade, and convenient purchase channels are the keys for parents. With intense competition in the market, the driving force for further growth lies on consumption upgrades and innovations, according to Nielsen’s 2017 Chinese Infant Product Industry Report.

Thanks to the lifting of restrictions, the number of births has increased significantly with new-born babies in 2016 reaching 17.86 million, a 7.9% increase on what was forecast and at its highest since 2000.

Coupled with the steady pick up of the Chinese economy over the past few years, the sales value of the infant products in China has reached RMB123.2 billion (Sep 2016 – Aug 2017), according to Nielsen data, or 11% growth, compared to 3.9% last year.

Data from Nielsen’s infant and retail channels, reveal that the sales value of the stage-one infant milk formula has increased significantly by 17% in the second quarter of 2017 and this trend is observed to have extended to stage two-infant milk formula which has recorded a 17.4% increase.

Price not an issue

Vishal Bali, managing director of Nielsen China, said that even in regions of lowest overall growth there were “a large group of affluent parents who are willing to spend money on their children".

Therefore, he added, it was important for brand marketers to target not to neglect regions outside the big cites and  to identify target parent segments, so as to increase their chances of reaching the parents with the right channels and the enhanced product choices and range.

Prices update, Dec 12

For Chinese mothers, price is less important than in many other parts of the world when purchasing infant products. They are willing to pay a higher price for quality. As many as 50% of Chinese mothers interviewed for the report said they valued the product brand than the price.

According to Nielsen’s analysis of the offline infant product market, it was found that consumption upgrade is the key motivating factor for the market growth, overriding the price increment and organic growth factor.

Over half of the surveyed mothers also said they purchased on these overseas sites as foreign products are of better quality. Low-priced infant products continuously observed a downward trend while an upward trend is seen for products iin other price categories.

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