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Mead Johnson’s Path forward in China—amid Challenges

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Mead Johnson’s strategy in China

Chinese consumers intend to buy imported and super-high-premium products. In China, the super-high-premium segment and import premium products account for approximately 20% and 35%, respectively, of the total baby food market.

Mead Johnson Nutrition (MJN) has thus introduced many new products in past 12 months and started a fully imported range in May 2015. The company has been developing a super-high-premium product mix for China region. It plans to bring the only product with superior science in the Chinese market, as Chinese consumers are probably the most demanding consumers in the world for high-quality infant and children nutritional product.

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Mead Johnson’s other challenges in China

The Chinese market is currently under-regulated and generally permits large-scale importation and retailing via e-commerce of non-compliant, non-duty-paying products from Europe that get sold at a significant discount. Mead Johnson believes that this scenario will not last more than another two years, as the Chinese government has been discussing setting the regulations.

However, Mead Johnson’s portfolio has lowered its prices in China in response to low-priced infant formula from Europe and lower dairy prices.

Price discounting and economic slowdown

Price discounting is common in China at both the wholesale and the retail level. For this reason, Mead Johnson has not witnessed an increase in the consumption of its infant formula products in this region, even after its continued price reductions.

Recently, the company’s sales in China have actually declined due to the slowdown in the economy. Mead Johnson’s biggest competitor in the baby food industry (XLP), Nestlé (NSRGY), lowered its outlook for 4Q15, ending December 31, 2015, amid the low demand in China.

By contrast, Unilever (UN) has said that its full-year sales growth will be near the top end of its forecast. In its September-quarter ending results, Danone reported an 11% increase in infant nutrition sales due to increased import of its European brands to China market. Calendar 2015 was also a challenging year for Mead Johnson, as the nutrition category is not expected to show much growth in 2015 due to the economic headwinds.

MJN has a weight of 0.09% in the iShares Russell 1000 Growth ETF (IWF), a growth-oriented ETF. For more analysis, check out Market Realist’s Consumer Staples page.

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