Product and Service
Companies, who has been grouped in baby formula sector of food industry , are manufacturers of powder formula/baby formula.
Demand for Product and Service
Global demands for baby formula products have been strong and growing fueled by increasing demand from emerging market, growth in developed market is flat though.
The Sector
Sector’s current, trend, causes behind trend, and future
Current and Trend
- Emerging market’s demands for baby formula products has been growing and the major driver of this sector.
- Demands for developed countries present stability but a lightly declining. The average sale price was pushed up as consumers in this segment are pursuing premium products.
- In China, the most important Asian market, consumers are shifting their preference away from the products manufactured locally.
Causes behind the trend
- The growth in demands in emerging markets has been generally supported by increasing disposable income of consumers and thus the accumulated wealth resulted from enhanced global trading, quantitative easing monetary policy, and improved productivity. At the same time, other drives include that the increased awareness for the importance that a complete nutrition plays for baby health, increasing number of working mothers, and the abandon of one child policy in China.
- Premium products that can provide higher quality, taste, or better feeling by consuming that product have been the trend in consumers market of developed market. The driver behind this trend is consistent with what have driven the consumption to grow in developing countries as mentioned above – monetary policy, global economy growth, and the lifted productivity.
Industry Future
Among the fundamental driving powers behind the demand for baby formula products, the turning over of the quantitative easing monetary policy will probably exert pressure on demand for premium products in developed markets and therefore the price and margins. It may have less impact on developing market since more positive factors will still be actively supporting the growing demand in that market.
Therefore, we think both sale volume and sale number will be likely to decline since there is no guarantee for a continuing rise in the sale price in developed market and companies will rely more on growth of demand from developing market.
Numbers
General Financial Performance of Companies In the Sector
Generally, global demand for baby formula has grown and it seems this growth has been supported by increasingly accumulated wealth resulted from enhanced global trading and improved productivity. It is particularly true in developing countries where parents are able to provide more nutritious formula to feed their babies as their disposable income increase. More working mothers and abandon of one child policy in China also contribute this increasing demand. At the same time, it seems the sale volume is decreasing lightly since the market is mature as breast feeding are getting more popular, however, the sale has been offset by increasing sale price as the market is pursuing premium formula products.
While the global demand is expected to grow, the recent changes in economy and in the emerging market may impact differently on companies who have different business structures. For example, for those companies rely heavily on emerging market the strong US dollars harm their sales and squeeze their earning. At the same, the consumers of China’s shifting away from locally manufactured products force companies to changes their operating and sales strategy that produce their products locally.
High enter barriers make it easier for the existing companies in this sector to keep their high margins. And the margin has also gained supported by lower dairy cost in the recent years.
According our data, the sector‘s average enterprise price/EBI ratio is above 30 (up to 2017), a signal that the market is highly confident on global demands from emerging market and financial situation of companies in this sector.
