By cutting out the middle-men in the domestic infant formula supply chain the disruptors hope to set a new trend that ultimately brings the amount Chinese parents pay for infant formula down to a "global price", making the product more affordable.
Earlier plays to undercut the established infant formula brands by marketing high-quality foreign product imported directly through online shopping mall Taobao have been slow to take off, although about one-third of all infant formula sold in China is via online.
But this time around the upcoming launch has been preceded by a stealthy marketing campaign which cleverly builds on the sense of unfairness that Chinese parents feel at having to pay as much as three to four times the price for a can of imported infant formula in their supermarkets than that paid by parents from New Zealand and elsewhere in the countries of origin.
The scene-setting advertising campaign has been direct but poignant.
The Chinese Business Journal reports it began with a focus on the unfairness ("unequal treatment" were the words used) felt by Chinese parents at the price they face for this essential product to feed their one-child when they go to work. The advertisements touched on the pain that the Chinese have felt over the scandals which focused attention on the low quality of their own domestic brands; talked about the risk of buying directly from overseas and concluding with a "Say No" message to unequal treatment and presaging the launch of a subversive price to smash the unfair treatment and bring about a new global price.
The Chinese Business Journal also confirmed in an interview with Sichuan-based New Hope that it was behind the advertising.
Herald inquiries suggest as many as 50 domestic and foreign media have been invited to the Beijing launch, which is expected to be attended by New Hope Group founder and billionaire Liu Yonghao. New Hope Group is a major livestock and feed company in China with annual revenues of more than US$20 billion.
Synlait chief executive John Penno told this columnist yesterday that Liu was very fond of online marketing. He poached executives from established rivals Beingmate, Mead Johnson and Danone to set up New Hope's nutritional foods wing to crack the infant formula market.
For Synlait's part, its 25 per cent stake in New Hope Nutritional Foods enables it to play in the B2B market which it prefers alongside disruptive companies including A2.
Synlait is also building another B2B position outside of Asia. But Penno says it's too early to reveal that play.
The new brand - Akarola - will be made by Synlait in New Zealand and packed and shipped from Canterbury.
New Hope is leaving nothing to chance.
The advertising campaign also features a world map showing what consumer prices are elsewhere. It also includes copies of Synlait's certificate of incorporation and various certificates of registration to prove that the new brand is being made and distributed through a secure supply chain.
New Hope and Synlait will be expecting the emotive nature of the advertising and vast media attention will assist them to disrupt the market.
Chinese estimates suggest that the FOB price for imported formula is only 20-25 per cent of the retail price. This suggests that the opportunity for a disruptive play could well capture Chinese parents' attention but it will take a long time for the online market to develop to the point where it becomes the predominant sales channel.
For its part, New Hope already markets a NZ brand - Akara - in China which again is manufactured and packaged by Synlait.
But the integrated supply chain play is a new one.
In essence, taking milk from Synlait Farms (its significant shareholder is Shanghai Pengxin), using it to make product at Synlait Milk (its significant shareholder is Bright Dairy) then distributing the new brand Akarola through a secure supply chain directly to consumers.
The attraction of the new brand is obvious from the respective price points.
Akara can be imported directly through Taobao at 350RMB plus; Akarola will sell at less than 100RMB on RD.com.
It is obvious that the Chinese Government - which has already spearheaded the consolidation of the dairy industry within China - backs this new move.
The upshot of New Hope's manoeuvring is the first steps towards the restoration of a new order where Chinese consumers don't pay extraordinary amounts for baby formula.
From a New Zealand perspective baby formula manufacturers will be prompted to explore similar methods to cut out the Chinese middle-men. But New Hope and Synlait have stolen a march.
