Executive Summary
Key insights from the evolving dairy landscape in China:
- Chinese dairy companies are aggressively entering the protein supplement market as traditional liquid milk sales face prolonged decline.
- Mengniu and Yili lead strategic investments, with Mengniu’s Maisheng brand securing nearly RMB 100 million in funding and Yili prioritizing probiotics and protein supplements.
- The liquid protein segment is experiencing explosive growth, with a 478.4% year-on-year increase in 2024 on major e-commerce platforms, signaling early-stage market expansion.
- Demographic shifts, including an aging population and rising sports participation, are driving demand for specialized nutrition products.
- Despite opportunities, dairy firms must overcome challenges like established competition and the need for product differentiation to capture market share.
The Shift from Liquid Milk to Protein Supplements
The Chinese dairy industry is at a pivotal juncture as liquid milk sales continue to stagnate. For two consecutive years, the market has seen declines, pressuring major players to seek new revenue streams. This transition marks the beginning of a fierce protein war among dairy giants, who are repositioning themselves to capitalize on the burgeoning demand for high-protein and functional nutrition products. With consumers increasingly prioritizing health and wellness, companies are leveraging their expertise in dairy-based proteins to expand into adjacent categories.
Industry leaders like Mengniu Dairy (蒙牛乳业) and Yili Group (伊利集团) are at the forefront of this transformation. Their strategic moves include launching new brands, securing funding, and forming partnerships to strengthen their foothold in the protein supplement space. This protein war is not just about capturing market share; it is about redefining the future of dairy in a post-liquid milk era. As one analyst noted, the battle for dominance in this sector is only intensifying, with significant implications for investors and stakeholders.
Market Dynamics Driving the Change
The decline in liquid milk consumption has been attributed to shifting consumer preferences, increased competition from plant-based alternatives, and market saturation. According to recent data, sales of traditional liquid milk products have failed to rebound, impacting the financial performance of leading dairy firms. In response, companies are diversifying into higher-margin segments like protein supplements, which offer better growth prospects. The protein war is thus a strategic response to these market headwinds, enabling dairy firms to tap into the expanding health and wellness trend.
Dairy Giants Enter the Protein Arena
Mengniu Dairy (蒙牛乳业) has made significant strides in the protein supplement market through its internally incubated brand, Maisheng (迈胜). Recently, Maisheng completed an A-round financing of nearly RMB 100 million, led by Xianle Health (仙乐健康) with participation from Gaoling Venture and Mengniu Ventures. This investment will support research and development, product portfolio expansion, and market penetration efforts. Maisheng’s product lineup includes energy gels, electrolyte concentrates, and liquid protein items, targeting the broader sports and fitness nutrition segment.
Yili Group (伊利集团), under the leadership of Chairman Pan Gang (潘刚), has also emphasized its commitment to the protein war. During a recent investor meeting, Pan Gang highlighted that China’s dairy industry is transitioning from volume-driven growth to quality-oriented expansion. Yili plans to prioritize probiotics and protein supplements, anticipating that the domestic adult nutrition market will exceed RMB 300 billion by 2030. This strategic pivot aligns with the company’s goal of achieving structural growth through diversified product offerings.
Expansion Efforts by Other Players
Other dairy companies are following suit. Bright Dairy (光明乳业) introduced several high-protein formulated dairy products in the first half of the year, while Shengyuan Laojuntang (圣元老君堂) launched liquid protein special dietary supplements. These initiatives underscore the industry-wide recognition of the protein war’s significance. As Song Liang (宋亮), an independent dairy analyst, explained, dairy firms possess inherent supply chain advantages in protein production, facilitating their transition into the nutrition sector. However, gaining consumer and channel acceptance remains a critical hurdle.
The Liquid Protein Market Opportunity
The potential of the liquid protein market is substantial, driven by robust growth metrics and evolving consumer needs. A recent White Paper co-published by Tetra Pak, Fonterra, and the China Nutrition and Health Food Association’s Ketogenic Diet Committee projects that the global high-protein market will achieve a compound annual growth rate (CAGR) of 9.6% from 2024 to 2027, with liquid products accounting for 37.7% of the segment. In China, liquid protein represents only 24% of the protein supplement market but is growing rapidly, with a 478.4% year-on-year increase in 2024 on major e-commerce platforms.
Liquid protein products cater to diverse applications, including nutrition for adolescents and the elderly, sports nutrition, and weight management. Milk protein and whey protein, both derived from dairy, are predominant ingredients, creating natural synergies for dairy companies. The protein war is thus fueled by this alignment of supply capabilities and market demand. For more details, refer to the White Paper on liquid protein development.
Demographic and Behavioral Drivers
Several factors are propelling the protein war forward. China’s aging population is increasing demand for nutritional supplements that support healthy aging. Simultaneously, the rise in sports participation is creating opportunities for targeted products. By 2025, the proportion of Chinese citizens regularly engaging in physical exercise is expected to reach 38.5%, or approximately 560 million people. According to QYResearch, the Chinese sports nutrition supplement market is growing at a CAGR of 23.3% over the past five years, far outpacing global rates. These trends highlight the urgency for dairy firms to secure their positions in this competitive landscape.
Competitive Landscape and Challenges
The protein war is not confined to domestic players; international giants like Danone and Nestlé have already established a presence in the liquid protein segment. For instance, Danone’s YoPRO brand in Europe has become a leading high-protein dairy and snack line, appealing to fitness enthusiasts and health-conscious consumers. In China, however, the liquid protein market lacks dominant brands, offering a window of opportunity for local dairy companies. Maisheng’s liquid protein products, for example, generated RMB 13.7 million in sales across platforms in 2024, a staggering 1,179% year-on-year increase.
Despite the optimism, the protein war presents challenges. The protein supplement market in China is not virgin territory; numerous specialized brands already offer protein powders and other products. Dairy entrants must differentiate themselves through innovation and evidence-based research. Song Liang (宋亮) emphasized that success hinges on developing unique functional attributes and building brand credibility. This requires substantial investment in R&D and marketing to educate consumers and secure distribution channels.
Investment Trends in the Sector
Amid a broader cooling in consumer goods investments, the health and nutrition segment has remained vibrant. Data from Qichacha (企查查) shows 27 financing events in this sector in 2024, surpassing last year’s total, with over half occurring in early-stage rounds (Series A and earlier). This investor confidence underscores the protein war’s potential but also raises the stakes for new entrants. Companies must demonstrate clear value propositions to attract funding and sustain growth in a crowded marketplace.
Strategic Implications for the Dairy Industry
The protein war is reshaping the strategic priorities of Chinese dairy firms. Instead of relying solely on traditional milk products, companies are embracing a portfolio approach that includes functional foods and supplements. This shift is essential for mitigating risks associated with liquid milk volatility and capturing higher growth rates in adjacent categories. The protein war also encourages collaboration across the value chain, as seen in Mengniu’s partnership with Xianle Health (仙乐健康), which provides synergies in supply chain management and product development.
For investors, the protein war represents a compelling narrative of adaptation and growth. Monitoring the progress of key players like Mengniu and Yili can offer insights into emerging trends and investment opportunities. Additionally, tracking regulatory developments from bodies like the State Administration for Market Regulation (国家市场监督管理总局) is crucial, as changes in health claim approvals or ingredient standards could impact market dynamics.
Future Outlook and Growth Projections
The protein war is expected to intensify over the coming years, driven by continuous innovation and expanding consumer awareness. The White Paper forecasts sustained growth in the liquid protein segment, with dairy-derived proteins maintaining their dominance. Companies that successfully leverage their dairy heritage while introducing novel formulations are likely to gain a competitive edge. However, the pace of adoption will depend on factors such as pricing, accessibility, and regulatory support.
Navigating the Evolving Dairy Landscape
The protein war among Chinese dairy companies is more than a temporary trend; it is a fundamental realignment of industry strategies in response to changing market conditions. As liquid milk growth plateaus, the focus shifts to high-value segments like protein supplements, where demand is robust and margins are attractive. Dairy firms must balance their legacy strengths with innovative approaches to stay ahead in this competitive arena.
For businesses and investors, the key takeaway is to closely watch the developments in this protein war. Engage with industry reports, attend investor briefings, and consider partnerships with emerging brands to capitalize on this shift. The future of China’s dairy industry will be shaped by those who adeptly navigate this transition, turning challenges into opportunities for sustained growth.