Summary of Key Points
In the first half of 2026, Yili and Mengniu finally ended years of pressure on demand and price wars, with clear signs of revenue recovery: Yili's revenue increased by 4.1%, and Mengniu's by 7.8%. The mainstay of their liquid milk business also saw a rebound (with Mengniu's liquid milk business growing by 5.2% more significantly). However, their profit performances varied: Yili's net profit decreased by 20% due to the impairment of its stake in Aoyou Dairy, while Mengniu's net profit increased by 15.9% thanks to its joint ventures. Nevertheless, industry demand has not fully turned around, and the turning point for profits still depends on the recovery of raw milk prices, breakthroughs in high-value-added businesses, and improvements in historically acquired assets.
I. Revenue Recovery: Clearing Out Old Channels + Expanding into New Channels
The core of the revenue growth for both leaders lies in "repairing old channels and tapping into new ones":
- Old Channels: Reducing Inventory and Addressing Disorder
Yili began implementing inventory reduction and a "freshness strategy" in 2024. By the first half of 2026, the inventory of liquid milk held by distributors had been reduced to a reasonable level, improving product freshness and turnover efficiency. Both companies have also strictly addressed issues such as online price discrepancies and cross-selling (where distributors in different regions compete by selling at lower prices), resulting in a more stable pricing system at the retail level.
- New Channels: Membership Stores and Snack Vending Machines as Growth Drivers
In the past, membership stores like Sam's Club and Aolique mostly sourced custom dairy products from smaller dairy companies. This year, they have started turning to Yili and Mengniu. For example, Yili has launched a custom black coffee for Sam's Club, and Mengniu has produced organic fresh milk for the same store. Snack vending machines, instant retail platforms (such as Meituan Flash Purchase), and the B2B market (catering) have also seen significant growth for Yili. Mengniu's inventory turnover days decreased from 36 to 30.5 days, with notable increases in sales of its Telsonsu and fresh milk products.
- Marketing Impact: The Winter Olympics and World Cup Boosted Sales
Mengniu's sales increased by 12% during the Winter Olympics, and its online GMV during the World Cup increased by 14%, with a corresponding rise in sales through convenience store channels. The strategy shifted from simply advertising to converting event traffic into actual orders.
II. Profit Growth Lagging Behind: External Factors and the Aftermath of Price Wars
Although revenue has increased, profits have not kept pace for two main reasons:
- External Asset Impacts
Yili's issue stemmed from its stake in Aoyou Dairy, whose revenue decreased by 20% in the first half of the year, turning from a profit to a loss of over 700 million yuan. As a result, Yili had to record a goodwill impairment of 1.5 billion yuan, which, combined with inventory depreciation losses, directly dragged down its net profit by 20%.
Mengniu, on the other hand, saw its joint ventures (such as Modern Dairy) turn from a loss of 585 million yuan to a profit of 40 million yuan this year. The revenue from these ventures increased by 60%, and cheese sales grew by 30%, contributing to a 15.9% increase in net profit. However, these businesses still account for a small portion of its total revenue, and Mengniu's profit stability still depends on its liquid milk business.
- The Aftermath of Price Wars
Mengniu cut the prices of some basic milk products in the second half of last year, and the effects continued into the first half of this year, resulting in a 0.9 percentage point decline in gross profit margin. Although Yili emphasized price maintenance, it acknowledged that consumer purchasing power had not fully recovered, and industry average prices remained low. The only consolation was a decrease in raw milk costs; Yili's gross profit margin even increased by 0.25 percentage points, but Mengniu was offset by rising prices for some of its raw materials.
III. The Industry Has Not Fully Recovered: Weak Demand and Low Prices Remain the Status Quo
The revenue growth of the leading companies does not indicate a turnaround for the entire industry:
- Weak Demand
Nielsen data shows that dairy product sales across all channels decreased by 9.7% and 8.6% in May and June, indicating that consumers are still purchasing less.
- Low Prices
The CPI for dairy products fell by 1.7% in June, forcing companies to lower prices or offer discounts.
- Imbalance Between Supply and Demand
Dairy production increased by 5.8% in the first half of the year, but demand did not keep up, with weak average product prices and a consumption structure (e.g., a low proportion of premium dairy products).
IV. When Will Profit Turnpoints Occur? It Depends on Two Key Variables
For the industry to shift from focusing on volume sales to higher profits, two hurdles need to be overcome:
- Raw Milk Price Recovery
The number of dairy cows has been declining for two consecutive years (a 4.3% year-on-year decrease at the end of June, with a 20% decrease among farmers). This contraction in supply has pushed milk prices to their lowest levels; in July, the average price of fresh milk in major producing provinces turned positive for the first time. As milk prices rise, the cost advantages of smaller, less reputable brands will disappear, giving Yili and Mengniu a stronger market position. Both companies expect milk prices to stabilize in the second half of the year, with supply and demand reaching balance in 2027.
- Breakthroughs in High-Value-Added Businesses
The profit margins on regular milk are low, so companies need to move towards more profitable products such as functional milk, cheese, and high-end ingredients (e.g., lactoferrin, whey protein powder). These products require higher technical expertise and are more expensive to produce. Yili has invested in a 10,000-ton cheese production line and built the first whey protein powder production line in China, while Mengniu's "Nai Lian Su" line produces lactoferrin and other ingredients, launching the professional dairy brand MnmpX targeting infant formula, functional nutrition, and the catering market. Only by increasing the value per kilogram of raw milk can companies reduce their reliance on price wars.
Conclusion
The revenue recovery of Yili and Mengniu is a positive sign, but the turning point for profits has not yet arrived. The key will be whether raw milk prices can continue to rise and whether the companies can develop their high-value-added businesses. After all, relying solely on volume sales is not enough to generate substantial profits; quality improvement is essential for long-term stability.