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· Posted on
February 21, 2024

A2 Milk's bittersweeet earnings show tasty milk demand in a shrinking market

Despite a 43% jump in A2 Milk's China sales, its share price dropped over 8%.

What's the key learning?

  • A2 Milk really struck gold when they launched their baby formula with a focus on the Chinese market in 2012, and it has announced a 22% jump in profit after a marketing blitz in China over the past year.
  • Despite the jump in its China sales, A2 Milk's share price dropped over 8% in line with the shrinking of the overall Chinese market for infant formula caused by declining birth rates.
  • When there is no growth in a market, the focus becomes stealing market share from others.

👉 Background: A2 Milk was founded back in the year 2000. Here’s how it works: Regular milk contains A1 and A2 proteins, but A2 milk only has the A2 Protein in their milk (meaning less indigestion and tummy aches).

👉 What happened: In 2012, A2 Milk really struck gold when they launched their baby formula with a focus on the Chinese market. After a big marketing blitz in China over the past year, A2 Milk has announced a 22% jump in profit.

👉 What else: Ironically though, despite a 43% jump in its China sales, its share price dropped over 8%. The overall Chinese market for infant formula shrank by 12.5% because of declining birth rates.

What's the key learning?

💡 When there is no growth in a market, the focus becomes stealing market share from others.

💡 What’s even worse is when a market size is shrinking -  because that means each business will have to fight for a greater slice of a smaller pie.

💡 The challenge for A2 Milk is that China is its most important market - worth nearly half of A2’s total revenue. But as birth rates in China have been declining for several years, it may need to look at other markets for growth.

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