From 2015 to 2020, A2 Milk (ASX:A2M) grew its market capitalisation from about $200 million to $20 billion. They produce milk. And milk products. Not AI or other high tech wizardry. Just the most generic of products, milk.
Food products are not typically high growth. People do not start eating a lot more than they used to just because a new product comes out. Aside from a small amount of change due to population growth and the trend to eat more protein as wealth increases, the success of one food product normally comes at the expense of another. If you decide to drink A2 milk you substitute it for another brand of milk. You do not double your milk consumption.
Consequently, the success of A2 milk was largely due to great marketing. They were able to exploit a competitive advantage based on the perceived health benefits of the type of milk. All milk actually contains the A2 beta-casein protein, however regular milk also contains the A1 protein. A2 milk is marketed as potentially being gentler on the stomach due to the absence of A1 protein.
Lion Group decided to challenge this marketing competitive advantage. In 2016 they started labelling their milk with the phrase “contains A2 protein”. (At the time they owned Dairy Farmers and Pura fresh milk products.) Whilst this was technically true, the A2 milk company sued Lion for misleading conduct, as the marketing implied this was a point of difference whereas in fact all milk contains the A2 protein. Lion countersued claiming that there was insufficient evidence for the claimed health benefits. In the end the parties settled so the claims were never tested in court.
A2 drinking milk consumption has grown strongly in Australia, and now accounts for 11.5% of all milk sold. However, to understand A2 Milk’s success, you need to understand the demand for baby formula and in particular its appeal to Chinese mothers. Sales to China and other Asia now account for 68% of all revenue, and most of that is to China. 93% of sales to the China and Asia segment are for infant milk formula (IMF).
A2 Milk’s success or otherwise, is largely driven by its ability to sell into China. Overall that has been successful but it has not been without its hiccups. Over the last 4 years the birth rate…
