Summary in One Sentence
The 2025 half-year reports just released by seven leading domestic dairy companies show a slight increase in total revenue of 4.7% and a decrease in total profit of 11.3%, which might suggest that the entire industry has fallen into a cycle of selling more but making less. However, this is an illusion caused by averaged data. A single, historic merger and acquisition impairment of 1.5 billion yuan by Yili significantly dragged down the industry's overall profit, while the profits of the remaining six companies actually increased. The underlying issue is that the dairy industry's past strategy of relying on expanding distribution channels, spending heavily on advertising, and scaling up has reached its limits. The industry is now in a stage of significant differentiation. Only those companies that can break away from the competition focused on small profit margins and create products with unique value that consumers are willing to pay for will truly make money.
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Detailed Analysis
1. Don’t Be Misled by the Overall Numbers: The Industry’s Profit Decline is Illusory; It’s Just the Leading Companies Adjusting Old Accounts
Many people might assume that the dairy industry is in trouble when they see that the seven companies together earned 1.229 billion yuan less. However, a closer look reveals a different story: Yili alone earned 1.442 billion yuan less in the first half of the year compared to last year, while the remaining six companies combined earned 213 million yuan more. This means that not the entire industry is losing money.
Yili’s 20% year-on-year profit decline is not due to a sudden collapse in its main dairy business. The reason is that it provided for an asset impairment of 2.456 billion yuan in the first half of the year, of which 1.547 billion yuan was related to the impairment of goodwill from a merger with Ausnutria several years ago. This is a common financial practice of recognizing the current devaluation of an investment and writing it off in one go, which allows for a lighter financial burden in subsequent years. If this one-time expense, which is unrelated to daily dairy sales, is excluded, Yili’s main business would actually show stable profits. The so-called “industry-wide profit slump” is merely an illusion created by this accounting maneuver.
2. The Past Strategy of “Scaling Up for Easy Profits” No Longer Works
In the past, Chinese dairy companies relied on a straightforward approach to profitability: securing milk sources, building factories, distributing products to supermarkets in every county, and spending heavily on TV advertising to build brand awareness. As long as sales increased, the additional revenue could offset the fixed costs of milk production and distribution. Even if the profit per box of milk was only 0.1 yuan, selling 1 billion boxes would result in a profit of 100 million yuan. The larger the scale, the more profit.
This strategy no longer works. For example, in the lucrative infant formula market, the number of births in 2025 was 1.62 million fewer than last year, reducing the potential customer base by nearly 20%, increasing the marketing costs for attracting new customers. Additionally, the price of regular milk has dropped significantly. Nielsen data shows that offline dairy sales in June decreased by 11.9%. With so many competing products, additional advertising and discounts do not necessarily lead to increased sales. What used to generate a 3:1 return on investment now only yields a 1:1 return. To maintain market share, companies may even offer discounts, leading to greater losses. The scale advantage has become a burden rather than a source of profit.
3. The Dairy Industry No Longer Shares Prosperity Equally; Differences Are Widening
The dairy industry no longer experiences uniform growth or challenges. The differentiation among companies is more pronounced than many realize. Mengniu saw growth in all six of its business segments in the first half of the year, with high-value segments like fresh milk, formula, and cheese seeing revenue and profit increases of over 30%. Mölkönig Blue, on the other hand, is not competing in the crowded regular milk market but focuses on the cheese segment, where 90% of its revenue comes from cheese sales, with revenue and profit increases of 28.7% and 13.7%, respectively. In contrast, Guangming’s revenue decreased by 4.8% but its profit increased by 15%. Upon closer examination, most of this profit came from the sale of overseas assets, indicating that its main business is still under pressure.
The criteria for evaluating dairy companies have changed. In the past, the focus was on market share and milk production volume. Now, earning 100 billion yuan from high-profit cheese is considered more valuable than earning the same amount through frequent promotions on regular milk. The capital market no longer values scale achieved through excessive spending.
4. The New Competitiveness of Dairy Companies: It’s About Creating Products with Value
The core competition in the dairy industry is no longer about who sells the most milk but about who can make consumers pay more for products with distinct value. The next wave of success will come from companies that can meet specific consumer needs, such as lactose-free milk for those with intolerance, high-protein fresh milk for fitness enthusiasts, and calcium-rich cheese sticks for children. These products do not rely on price competition. Consumers are willing to pay more for products with clear benefits.
Moreover, the channels for buying milk are becoming more diverse. Some people order fresh milk for the same day through instant retail, others buy large packages of cheese from membership stores, and others purchase children’s growth milk through social media recommendations. The traditional approach of relying on large-scale advertising and distributors is becoming less effective. The ability to create niche products that consumers are willing to buy at full price, without waiting for promotions, is now crucial. Companies that can do this will reap the benefits of this new market landscape.