By YUAN Yingqi
Bright Dairy, once China’s second-largest food brand, saw its profits more than halved in Q4 last year.
The dominant dairy brand in the Shanghai area saw its overall 2022 revenue fall by 3.4 percent. Worse still, profits for the year collapsed, losing close to 40 percent. Net margin dropped to a new low of 1.4 percent.
Production and sales of both fresh milk and dairy products dropped, despite the current fashion for raw milk and gourmet yogurts.
Squeezing at the bottom
Bright Dairy has been cutting costs and improving efficiency - normally euphemisms for sacking staff - but small savings in marketing and sales were offset by a huge increase in administrative expenses.
Salaries jumped 10 percent to 550 million yuan (US$80.6 million), most going to backroom or office workers. Actual milk production is a comparatively trivial activity.
Bright Dairy cut spending on ads by 14 percent, but the number of salespeople remained largely the same, though they appear to be earning much less. The average take of sales staff fell from 391,000 yuan in 2021 to 373,000 yuan. About 200 of more than 3800 Bright Dairy distributors have been given the boot.
Inventing new options
China’s whole dairy industry is trying to rebrand itself as a healthy lifestyle option. Marketing and PR expenses are high and it may not be the best time to skimp on these costs. Almost all dairy producers are baselessly touting the same redundant narrative - how minimum processed, probiotic-rich dairy is good for gut health and fridge space.
At the same time, milk producers are ruthlessly peddling a competing narrative, namely that highly-processed (“fortified”) dairy products enriched with vitamins A, D, and B12, calcium, and other minerals are just as good if not better for you, than raw, unprocessed milk. China is one of the world’s biggest vitamin importers. Vitamin imports are set to reach 18.2 million kilograms by 2026.
Some fortified dairy products also contain probiotics, supporting another unsubstantiated marketing line that so-called beneficial bacteria can improve digestive health.
It is also worth noting that while local dairy brands are expanding nationwide thanks to better cold chains, Bright Dairy is recruiting distributors in its home base of Shanghai and cutting the number elsewhere.
Down the drain
Bright Dairy hired more factory workers and paid them less, down from 180,000 yuan in 2021 to 166,000 yuan last year. At the same time, production declined across all product lines.
Managers, on the other hand, are raking it in. Their average salary is over 210,000 yuan, far more than that of competitors such as Yili (180,000 yuan), Sanyuan (163,000 yuan) and Yantang (154,000 yuan).
Receivables from distributors increased by 18 percent. Inventory almost doubled from the 2019 level to 4.2 billion yuan. In fact, 120 million yuan of inventory was poured down the drain last year, 30 percent more than in 2021, as sales stagnated and fresh milk went sour.
Short-term debt jumped by 70 percent from 712 million yuan to 1.2 billion.
