The Dual Dilemma of the Dairy Industry

China’s dairy industry stands at a crossroads of transformation and upgrading. Influenced by cyclical factors and improvements in production efficiency, China’s raw milk output has continued to grow in recent years. Data from the National Bureau of Statistics and the Ministry of Agriculture and Rural Affairs show that, compared to 2018, raw milk production in 2024 increased by 31.6%, while milk production efficiency rose by 11.7%. However, on the demand side, per capita dairy consumption in 2024 grew by only 3.3% compared to 2018. This rapid growth in upstream supply, coupled with relatively stable downstream demand, has led to a situation of oversupply in the dairy industry.

Under this supply-demand imbalance, national policies have begun addressing overcapacity from the supply side and promoting the use of raw milk in products. However, for dairy manufacturers, the fundamental issue remains how to stimulate consumption demand.

The Dual Engines of Breakthrough

1. Volume Breakthrough

How to boost dairy consumption? NielsenIQ believes it requires efforts from both “volume” and “value” perspectives.

From the “volume” perspective:

• Business (B-end): In 2024, China’s catering revenue reached ¥5.618 trillion (up 5.3%), and the ready-to-drink tea market exceeded ¥350 billion, highlighting the vast potential of B2B demand in boosting dairy consumption.
• Expanding consumer base: China has approximately 310 million lactose-intolerant people, yet lactose-free/low-lactose products account for less than 3% of pure milk sales. Manufacturers urgently need to innovate products and educate consumers.
• Exploring overseas markets: Southeast Asia, with its strong market size, growth potential, and moderate market concentration, is a promising target for expansion.
• Increasing consumption frequency and purchase volume:
  • Consumer (C-end): Refining consumption scenarios (e.g., fitness, meal replacement, outdoor activities) can reshape the market, though current niche products remain underdeveloped.
  • Business (B-end): In 2024, China’s catering revenue reached ¥5.618 trillion (up 5.3%), and the ready-to-drink tea market exceeded ¥350 billion, highlighting the vast potential of B2B demand in boosting dairy consumption.

2. Value Leap

From the “value” perspective, amid cautious consumer spending, manufacturers must meet both physical and emotional needs to create premium pricing power.

• Physical needs: High-quality milk, advanced probiotics, and specialized functional products continue to drive premiumization. For example, while pure milk sales fell 8.6% YoY in 2024, organic pure milk and A2 milk grew 0.2% and 5.7%, respectively, with prices 60%+ higher than regular pure milk.
• Emotional value: Dairy products that offer social-sharing appeal (e.g., cultural-themed ice cream) or sensory/relaxation benefits (e.g., burst-bead yogurt, “goodnight milk”) tap into Gen Z’s willingness to pay for happiness and emotional satisfaction.

Breakthrough Strategies for SMEs

For local and emerging dairy players, how can they thrive in a market dominated by giants? NielsenIQ’s analysis of successful cases suggests four strategic directions:

1. “Focus”: Deep specialization in niche verticals.
2. “Speed”: Leveraging local supply chain advantages for faster delivery (e.g., fresh dairy).
3. “Innovation”: Disrupting through product, scenario, and marketing creativity.
4. “Expansion”: Scaling from regional to national or diversifying across dairy subcategories.

Survival & Growth Tactics

• “Hold Your Ground”
  • Target long-tail demands ignored by big players (low-scale, fast-response needs).
  • Use “guerrilla patenting” (rapid, incremental IP filings) to delay copycats.
  • Build regional brand-category associations to resist big-brand encroachment.

• “Go the Distance”
  • Transfer core competencies (e.g., from yogurt to fresh milk).
  • Set category standards (e.g., coffee shop-exclusive milk).

Conclusion: Long-Termism in Navigating Cycles

This industry transformation, rooted in supply-demand imbalance, is driving a dual-engine model of “demand-side reform + supply-side upgrade.” Long-term success requires balancing supply and demand, while short-term strategies must focus on expanding demand via volume, value, and proven tactics.

With the top 10 players holding 65%+ market share in offline and traditional e-commerce, differentiation is key. Whether through regional freshness advantages or asymmetric competition in new consumption scenarios, winning demands a deep grasp of market dynamics and growth principles.