The infant formula category in South Korea has a slightly unusual profile in that – unlike China for example – multinationals have struggled to make headway. Parents in the country appear to be more than satisfied by the offerings of the country’s top two suppliers, namely Namyang and Maeil. These two companies have traditionally enjoyed a dominant position and indeed for many years held a near monopoly on baby milk sales.

But in a highly interesting development, New Zealand’s A2 milk company has just announced a tie-up with South Korea’s Yuhan Corp. Although the latter is better known as a pharmaceutical company, according to A2 it has consumer “capabilities”.  As a result Yuhan will distribute A2’s fresh milk and infant formula brands within the country.

Like China, South Korea has also 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.

In July 2009, sales of Maeil milks were hit after the company was forced to recall product contaminated with enterobacter sakazakii. Maeil was hit again in March 2011 when the National Veterinary Research and Quarantine Service (NVRQS) found that a sample of Absolute Premium 2 was contaminated with staphylococcus aureus bacteria, although in subsequent tests by 11 independent institutes no further samples were found to be affected. In August 2012 two stages of Namyang’s Imperial XO’s formula were found to have iodine content below the international requirement, although this constituted no health risk, according to the Center for Food Safety. In 2013, a dead frog was found in one can of Namyang’s Imperial XO.

Entering the South Korean market

Despite this, the only real impact seems to be that Namyang’s share is currently somewhat lower than in 2010/12, and as a result, Namyang’s lead over Maeil has been reduced in both volume and value terms. Compare this to the Chinese market, where a series of contamination scares – of which the most notable was the melamine scandal a decade ago which led to a number of infant deaths – turned the industry on its head. While domestic Chinese manufacturers had historically dominated the market, currently it is the multinationals with their reputation for ‘safer’ formulae that control the category.

Sales of baby milks in South Korea have in any case 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, while in current price terms the rise has been just 4.5%.  Forecasts are for this generally depressing trend to continue. So why has A2 – currently on a huge sales roll in a growing Chinese market – picked the depressed South Korea as its latest export expansion? And why Yuhan rather than another formula producer?

Traditionally 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, with most commentators believing that the old guard need to wake up to the fact that there will be increased competition; if they don’t they will be left lagging behind.

Yuhan – regarded as a mid-sized competitor – has taken this on board and has been actively expanding its corporate reach in recent years. This represents a major move outside its traditional portfolio, however, and may represent an indication of its expansion ambitions. A2 has already established its credentials in Asia – the A2 milk-based products providing a less costly version than the specialist infant formulas for those who find it hard to digest lactose. South Korea’s consumers have increasingly demonstrated that they are becoming keen on a bargain, so the time appears ripe for A2 to cash in.

For A2 the choice of Yuhan is also easily understandable given that this is not its first venture into South Korea – a previous distribution tie-up with Purmil (previously Lotte Dairy) ended with the latter pulling the product  in 2008 only a year after launching it, with a subsequent messy lawsuit finally settled only in 2011. It seems A2 believes that the lack of direct competition may make Yuhan more prepared to stick to the new agreement.

A2 has demonstrated that it has near impeccable timing as far as the introduction of its infant formulae and milks are concerned. That is up until now, but only time will tell.

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