The partnership between a2 Milk Company (a2MC) and Yuhan Corporation (Yuhan) comes at the perfect time to capitalize on the infant formula market in South Korea, as consumers are showing an increasing openness to switching brands, according to leading data and analytics company GlobalData.
New Zealand-based a2MC has entered into an exclusive sales and distribution agreement with Yuhan to promote and distribute a2MC’s branded fresh milk and infant formula products in South Korea. Although Yuhan is better known as a pharma company, lack of direct competition in the depressed South Korea market presents a2 with an opportunity,
Yuhan, a leading pharmaceutical company in South Korea with annual revenue of $1.4bn, has been actively expanding its corporate reach in recent years. This latest move represents a major move outside its traditional portfolio.
Traditionally South Korean consumers have been loyal to goods and products produced within South Korea, sometimes seemingly blindly so. However, in recent years there have been signs of a change in this attitude.
Fiona Dyer, Consumer Analyst at GlobalData, says: “In South Korea, multinationals have struggled to make headway in the infant formula category. Parents in the country appear to be more than satisfied by the offerings of the country’s top two suppliers – Namyang and Maeil.
“However, similar to China, South Korea has been subject to a number of formula adulteration scandals, with the market said to be particularly susceptible to negative publicity. For the top two manufacturers alone there have been a number of incidents between 2009 and 2013.”
Sales of baby milks in South Korea have been declining for several years, primarily a result of falling birth rates. GlobalData figures show a 6.1% fall in volume sales between 2010 and 2016, whilst in current price terms the rise has been just 4.5%. Forecasts are for this generally depressing trend to continue.
Dyer continues: “South Korean consumers have increasingly demonstrated that they are becoming keen on a bargain, so the time appears ripe for a2MC to cash in.
“It seems that a2MC believes that the lack of direct competition may make Yuhan more prepared to stick to the new agreement. a2MC has demonstrated that it has near-impeccable timing as far as the introduction of its infant formulae and milks are concerned. They will be hoping to continue this success in the South Korean infant formula space.”
The a2MC product range will be sourced from Australia and New Zealand, with nutritional products produced by the company’s key supply partner, Synlait Milk. Initial sales are expected to commence during the second half of 2018.
Analysts available for comment. Please contact the GlobalData Press Office at firstname.lastname@example.org.