Baby formula is in trouble, dairy companies are eyeing cats and dogs

Zebra Consumption Chen Xiaojing

The demographic dividend continues to ebb, and the milk powder business is getting harder and harder to do. How can milk powder companies break through?

The financial report for the first half of 2026 released a clear signal: a number of leading milk powder companies generally feel that their main business is under pressure. They are looking beyond infants and young children, into areas such as youth nutrition, functional nutrition for middle-aged and elderly people, sports nutrition, women’s products, and even extend to the last “member” of the family – pets, launching various pet nutrition products.

In order to quickly build a business map, mergers and acquisitions have become the mainstream means for major companies to build the second curve, hoping to quickly complete the iterative transformation from an infant formula manufacturer to a full life cycle nutrition company.

However, behind the lively cross-border layout, the reality is still skinny. New businesses such as nutritional products, pets, and fast-moving consumer goods are still in the cultivation and climbing stage, and infant formula is still the ballast stone of various companies.

集體承壓

The declining newborn population has directly rewritten the underlying survival logic of the domestic infant formula industry. The scale of infants and young children aged 0-3 years continues to shrink, and the infant powder market bids farewell to the era of expansion and has fully entered the stage of stock game. In the first half of 2026, the financial reports of many head and milk companies intuitively reflect the operating pressure faced by the industry.

Yili Co., Ltd. (600887.SH) achieved operating income of 64.331 billion yuan in the first half of the year, a year-on-year increase of 4.13%, and net profit attributable to the parent company was 5.759 billion yuan, a year-on-year decrease of 20.02%.

Although the company’s basic liquid milk base remains solid, with milk powder and dairy products ranking first in the industry, the rare sharp decline in net profit attributable to the parent company still triggered discussions within and outside the industry.

One of the core factors comes from large impairments. In the first half of the year, Yili Co., Ltd. made provisions for asset impairments totaling 2.456 billion yuan, including 1.547 billion yuan in goodwill impairments and 908 million yuan in inventory depreciation impairments, mainly due to losses caused by Ausnutria (01717.HK)’s promotion of channel optimization and inventory clearance.

As an important chess piece for Yili to supplement the milk powder sector, Ausnutria’s operating performance fell short of expectations. In the first half of this year, operating income was 3.163 billion yuan, a year-on-year decrease of 18.62%, and net profit attributable to the parent company was -705 million yuan, a year-on-year decrease of 490.71%.

During the period, the company’s own-brand formula goat milk powder achieved revenue of 1.495 billion yuan, a year-on-year decrease of 19.8%; its own-brand formula milk powder revenue was 523 million yuan, a year-on-year decrease of 45.6%.

The old baby powder company Beingmate is also in a difficult situation. During the reporting period, the operating income was 1.292 billion yuan, and the net profit attributable to the parent company was 71 million yuan, a year-on-year decrease of 4.63% and 3.60% respectively. The company stated that the overall prosperity of the industry is not good, the number of traditional maternity and child stores has declined, and business expansion is under pressure.

In the first half of the year, the company’s milk powder business revenue was 1.067 billion yuan, a year-on-year decrease of 11.75%, and still contributed 82.45% of the total revenue. The pressure on the channel side is particularly prominent. As of the end of the period, there were 1,245 dealers, 334 fewer than the end of last year, and a large number of dealers chose to leave.

As the leading brand in the domestic infant formula industry, China Feihe is also in the dilemma of increasing revenue without increasing profits. In the first half of 2026, operating income was 9.362 billion yuan and net profit attributable to the parent company was 837 million yuan, a year-on-year increase of 2.32% and a decrease of 16.30% respectively. A typical increase in revenue does not increase profits.

This is mainly due to the impact of expenses. During the reporting period, the company’s sales and distribution expenses were 3.425 billion yuan, a year-on-year increase of 7.87%, and the sales expense rate rose to 36.58%, a new high in the past three years. The infant formula market is struggling with its stock. In the short term, brands can only increase marketing investment to defend their position.

Looking for the second curve

Infant formula powder has completely entered the era of stock competition, and the growth ceiling has emerged. In order to create a new growth engine, companies have continued to extend their business boundaries from the infant group to the whole family nutritional consumption scenario.

In response to growth difficulties, each company explores different paths. Beingmate (002570.SZ) has launched sanitary napkin products, expanding from the maternal and infant market to the larger female market. However, the sanitary products track has long been occupied by leading brands. It is still difficult to know how much growth the new products can bring to the company.

According to Beingmate’s plan, three major ecosystems have been built: maternal and infant products, family nutrition, and good life, which respectively correspond to the main business of infant formula, adult milk powder and nutritional products, sanitary products, care and fast-moving consumer goods. It has even set foot in the pet nutrition track.

In 2024, Beingmate established a pet food company, launched the cute pet series brand POZA, launched a cute pet series for cats and dogs, and launched special colostrum goat milk powder.

Judging from the data, the above-mentioned new businesses have shown growth potential. In the first half of 2026, its supplies business revenue was 116 million yuan, a year-on-year increase of 398.87%.

In addition to its basic goat milk powder base, Ausnutria is focusing on its nutritional products business, targeting segments such as sports nutrition, workplace repair and anti-aging. In the first half of this year, the nutritional products business revenue was 237 million yuan, a year-on-year increase of 51.92%.

China Feihe (06186.HK) has chosen to develop full-life cycle nutrition products, and in addition to infant powder, it has developed categories such as children’s cheese and functional nutrition powder for middle-aged and elderly people. At the same time, it has developed B-end raw material business and focused on core dairy raw materials such as whey protein and lactoferrin to create new growth space.

The full-category dairy giant Yili Co., Ltd. targets adult consumer groups, comprehensively deploys functional tracks such as sugar control, bone, heart, and immunity, and expands segmented functional products such as goat milk powder and camel milk powder to cover consumers’ diverse nutritional and health needs. In addition, we will increase our efforts in deep processing of upstream dairy raw materials.

According to third-party retail research data from Nielsen and Xingtu, Yili’s adult milk powder business has a retail sales market share of 26.8%, continuing to lead the industry.

Mengniu Dairy’s layout on the second curve is both similar and different from Yili’s. In addition to milk powder, the company has added new businesses such as sports nutrition and special medical foods, especially Mioclando’s cheese business, which has become an important force in the second curve.

It is found that when exploring the second curve business, most of these milk powder companies and dairy companies are based on their own advantages and are deeply engaged in functional products. At the same time, they increase the added value of their products through the market supply of core raw materials such as lactoferrin.

In fact, when choosing to cultivate new growth engines, Biostime’s parent company H&H Group (01112.HK) sensed transformation opportunities earlier. In 2015, it acquired Swisse, an Australian nutrition company, and entered the field of adult nutrition products, which has now become the core product of the company’s adult nutrition and care business. In 2020, it acquired SoliGold, an American pet nutrition company, and entered the field of pet nutrition and care, providing a transformation reference sample for peers.

Mergers and acquisitions have thus become the mainstream way for the industry to build the second curve: Ausnutria acquired the Dutch sheep cheese company Amalthea and extended its business to sheep cheese products; China Feihe acquired the American nutritional and health supplement company Mevis; Beingmate acquired the entire equity of the American life technology company SCL.

A series of capital actions are aimed at promoting the company to upgrade from an infant formula manufacturer to a global nutrition company.

However, the transformation of an enterprise is by no means as simple as acquisition and expansion of product matrix. Behind it is a complex process of resource integration and business integration.

Judging from the results at this stage, some companies have achieved initial results in their new businesses. In the first half of 2026, Ausnutria’s international business and nutritional products business revenue accounted for 23.8% of the company’s total revenue.