However, when the market boomed once again, he claims his stock allocation was reduced – meaning he made less money – as A2Milk began e-launching tins of formula across the border. pushed in.
Brand awareness remains strong for a2 Platinum in China, the world’s largest infant formula market – valued in the region of $26 billion.
But Mr. Zhang says A2 Milk has lost the power of the smaller Daigou that helps foster brand loyalty with mothers amid a rise in nationalism for locally made products.
Smaller rival Bellamy also tried to market this important channel in 2016, and it almost went down.
“It is important to renew the consumption life cycle of a brand. For a brand to be successful, the brand, the channel and the consumer must be in vertical balance,” explained Mr. Zhang Australian Financial Review.
“There’s a problem if you harm the people who create value for your brand.”
Recruitment channels (such as daigou) have traditionally been closest to the consumer in China. These small businesses and distributors are on the front lines in discussing the brand and educating consumers who recommend the brand to new users.
Mr. Zhang is clear that Daigou’s recruitment channel did not simply disappear into a vacuum, but because the business became less profitable.
“The success of a brand requires an appropriate pricing structure,” says Mr. Zhang.
“If a brand floods the market to further promote top-line sales, the retail price on the e-commerce channel is less than the wholesale cost of the recruitment Daigou channel – there is no incentive to promote the brand.”
A2 Milk boss David Bortolucci expects 2022 sales to exceed the NZ1.21 billion dollars achieved in fiscal 2021 – based on China and English label Formula’s growth in the second half. But the company also has to overcome China’s low birth rate to grow.
Two years ago a2 Milk shares were trading at around $20 a share. They are now sitting at about $4.50 each. Mr Bortolucci moved quickly to address excess infant milk formula inventory last year since taking office in February 2021.
They told Australian financial Review That daigou channel still plays an important role in new user acquisition and brand development, but indicated that Mr. Zhang was not particularly committed to dealing with a2 milk without directly commenting on his allegations.
“Over the past year, we have increased our direct engagement with the Daigou community, provided more marketing support and saw an increasing number of Daigou representing our a2 Platinum brand,” he said.
“In line with our growth strategy outlined in the market last year, we are simplifying and delaying our English label infant milk formula distribution network. In doing so, we are expanding our distribution network to partners who wish to have more specialized, transparent and performance-based arrangements, and we are pleased with the progress we have made so far. ,
According to Citi analysts, consumer preference for domestic brands continues to rise in China and quality perceptions of foreign brands have deteriorated since last year.
But despite the rise in Chinese nationalism, international formula brands are still popular with Chinese moms. Often local brands can sell for over 500 RMB with a profit margin of over 70 percent, and may be less affordable than imported brands.
“We are looking at the premise that cost of living is having an impact on consumer buying behavior, especially after the pandemic,” says a sector source.
Amid COVID-19 restrictions in China and stock imbalances in the market, Mr. Zhang took the opportunity to centralize his businesses through the “AZ Global” app – so that his army of recruiters could work from home. It works like a franchise system.
[daigou] Chanel is the shoe for the brand… Just because there are shiny and beautiful shoes, doesn’t mean they will fit the shape of your feet.
, wenjun zhang
Previously they had merchants buying from Coles and Woolworths, but were not working with their smaller buyers in Australia due to prolonged COVID-19 travel restrictions.
With online integration their recruiters were able to continue to support infant formula brands.
Mr. Zhang says he has a proprietary end-to-end technology that supports his business through a recruitment channel with detailed data and visibility.
“without [cost effective] Admittedly, it is difficult for an infant formula brand to be sustainable and competitive in China,” he says.
According to Mr. Zhang, a “recruiter” is one who achieves sales despite tough market dynamics, whereas a “reseller” can sell only when market demand is strong.
Mr. Zhang started his business around 2013-2014 with only $30,000. He was looking for an infant formula brand to offer to Chinese parents as Bellamy was already more established. About a year later he started working with a2 Milk.
The pair have both gained from the relationship: At its peak in 2019, China contributed 40 percent of a2 milk sales.
Mr. Zhang grew his business to approximately $500 million a year and owns 11 warehouses in Australia, New Zealand and China.
The a2 milk board, led by David Hearn, is concerned about its primary performance in China for just one important customer – Mr. Zhang. But a2 milk nevertheless returned to that relationship, which now appears to be irreconcilable.
While Mr. Zhang’s relationship with A2 Milk headed south, his ties with smaller rival Bubs Australia were growing stronger.
In March their AZ Global-affiliated entities entered into an equity promotion deal with Babs.
Mr. Zhang says that Daigou Channel should be respected.
He remembers telling Peter Nathan, the former head of A2 Milk’s China business, that “Chanel is the shoe for the brand, the foot. Just because there are shiny and beautiful shoes, doesn’t mean they fit the shape of your feet.” It can cause injury and doesn’t make you better for walking or running.”