A2 Milk boss warns of use-by date for Chinese daigou shopping heyday

The once-highly lucrative daigou market of Chinese shoppers buying and exporting infant formula is in the rearview mirror for A2 Milk, as the company continues to navigate around COVID-19 disruption and China’s declining birth rate.

A2 Milk on Monday revealed double-digit increases in net profits, earnings and revenue for the 2023 financial year. However, it also pointed out ongoing shifts in consumer habits in its core market in China, as parents move away from English-label baby formula (down 6.1 per cent) in favour of Chinese-label products (up 26.9 per cent).

A2 Milk chief executive David Bortolussi.Credit: Adam Firth

Chief executive David Bortolussi said even though cross-border trading, freight availability and costs had improved, and more Chinese international students were returning to Australia, he anticipated the daigou channel to recover to just “half of what it was” in its pre-pandemic heyday.

“There [are] a lot of things that are conducive to a daigou recovery. Unfortunately, we’re not seeing a significant rebound in that,” Bortolussi said.

Amid a relatively tight labour market, Bortolussi said Chinese international students had plenty of options other than daigou shopping to supplement their income while studying in Australia. Meanwhile, Chinese parents were also increasingly opting to buy their infant formula online and in-store.

“I can be reasonably definitive about that: [the daigou channel] will not get back to the same size that it was,” Bortolussi said. “We’re hopeful that there may be a recovery but by no means are we dependent on that or planning for that to happen. That would just be a nice thing to occur for everybody.”

The $3.9 billion company has changed its daigou strategy a number of times: in late 2021, A2 Milk signalled it would reduce its reliance on daigou shoppers, but less than a year later planned to rebuild its daigou community, as the channel was “turning a corner”. Bortolussi’s comments on Monday indicate the shift away from daigou shopping looks more permanent.

He also warned of challenges ahead in the Asian country, where fewer babies are being born, competition is expected to tighten, and prices are expected to come under further pressure. A2 Milk’s strategy has been to ramp up advertising and marketing campaigns to raise brand awareness against a backdrop where China’s overall infant formula market size has shrunk 14 per cent.

China’s fertility rate – already one of the world’s lowest – dropped to a record low of 1.2 in 2022, which has prompted Beijing to introduce measures like financial incentives and better childcare facilities to address the problem.

A2 Milk’s net profit after tax lifted 26.9 per cent to $155.6 million for the 2023 financial year, while earnings rose 11.8 per cent to $219.3 million. Revenue increased by 10.1 per cent to $1.6 billion.

Despite revealing double-digit growth, A2 Milk’s numbers undershot some analyst expectations. The gloomy outlook did not inspire shareholders, who will not receive a dividend, and sent the company’s share price tumbling 13.6 per cent on Monday.

The company expects to notch $2 billion in revenue by the 2026 financial year and achieve “low single-digit revenue growth” for the 2024 financial year. The business will continue to be challenged by declining birth rates in China as well as an industry-wide transition of all Chinese-label brands to new infant formula standards, known as GB registration, which will put pressure on prices.

A2 Milk is taking steps to grow its presence in the US, South Korea and other Asian countries, and will develop products aimed at seniors to capture the ageing population in China.

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