On 2 May, Yashili International Holdings Ltd. (Yashili) made an announcement about the development of the Dumex business over the past 3 years. The brand's sales fell 68.3% to USD64.6 million (RMB417 million) in 2015. This drop followed similar declines of 63.1% in 2014 and 37.2% in 2013, the worsening pattern making the peak turnover of USD880.2 million (RMB5.7 billion) in 2012 ever more distant.

Dumex's Financial Figures, 2012-2015

                                                                       Dumex's Sales, 2012-2015

                                                   Source: Yashili International Holdings Ltd.

As an infant formula brand under Danone, Dumex maintained growths in 9 consecutive years from 2003 to 2012, and enjoyed fine recognition in the 1st/2nd-tier cities in China, even achieving 2nd  place in the market. However since 2013, it has declined continuously prior to sale to Mengniu’s Yashili operation in December 2015.

Based on 2015 sales, Dumex cannot be equated with Wyeth (USD1.5 billion or RMB10 billion) or Yili (USD1.0 billion or RMB6.5 billion), or even with the newcomer Shijiazhuang Junlebao Dairy Co., Ltd. (USD111.5 million or RMB720 million). In addition, it has accumulated ever worsening net losses: -USD129.9 million (-RMB839 million) in 2015, vs. -USD128.6 million (-RMB830 million) in 2014 and -USD100.4 million (-RMB648 million) in 2013. In total, the loss exceeded USD356.2 million (RMB2.3 billion).

Moreover last year saw Dumex suffer an especially sharp decline in gross margin, 15.2% compared with 61.9% in 2014, 69.9% in 2013 and 73.5% in 2012.

In the announcement, Yashili attributed the unsatisfactory performance of Dumex to the Fonterra event. In August 2013, the clostridium botulinum event occurred, damaging the Dumex brand and hitting its financial performance, as product recalls led to dramatically reduced sales and chaos in its distribution network.

Expert view: Fonterra event is not the real reason for Dumex’s poor performance

“There were many infant formula brands impacted by the Fonterra event, such as Abbott. So far only Dumex failed so disastrously. This means that the Fonterra event is not the real reason,” stated dairy expert Wang Dingmian.

Analyst Song Liang agreed with this: “Fundamentally, the cause seems to have been the bribery event which also happened in 2013 (Dumex bribed doctors and nurses at hospitals to feed newborn babies with its products, seeking to achieve long-run sales). This threatened the company seriously and finally caused sales declines and continuous losses.”

“In reality Dumex is in a complete mess in China,” continued Wang Dingmian: “It is very difficult for it to reverse its financial collapse and rebuild the brand image. Moreover Yashili is in decline as well. Overall, Mengniu is increasingly a minor player in the category, so its stance that ‘two heads are better than one’ lacks credibility.”

“Only a significant restructure of the Mengniu, Yashili and Dumex operations has a chance of achieving a turnaround,” concluded Wang Dingmian, pointing to a lesson in acquisitions: “When Yashili was acquired by Mengniu in June 2013, its management team was forced out, joining Heilongjiang Feihe Dairy Co., Ltd. (Feihe Dairy) instead - which has achieved fast growth of the last 2 years. This was likely critical.” (In October 2014, Cai Fangliang, President of Feihe Dairy, claimed that the growth in its milk formula business that year surpassed 40%).

This article comes from Dairy Products China News 1605, CCM

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Tag: infant formula  dairy

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