Abbott to Gradually Exit China's Infant and Children's Nutrition Market Amid Declining Market Share

Our Staff Reporter Xu Jie, Intern Reporter Li Jing

On December 14th at noon, Abbott announced that its nutrition business would undergo adjustments, focusing on the development of medical nutrition products. The company will gradually cease operations and sales of infant and child nutrition products in the Chinese market.

In this regard, Abbott's staff told the Securities Daily reporter that everything shall be subject to the announcement, but other businesses of Abbott in China will not be affected.

"Abbott's Exit from the Chinese Market is Inevitable." Senior researcher Zhu Danpeng from the China Food Industry Research Institute told the Securities Daily that Abbott’s overall development in recent years has been far from ideal, which is closely related to its overall operational system, food safety issues, and the speed of innovation and iteration in the Chinese market. As China's birth rate continues to decline, the overall market capacity is further compressed, making the situation even more challenging for Abbott, which has already underperformed in China. Therefore, Abbott’s decision to exit the Chinese market now is a wise choice.

    Gradually Exit the Chinese Infant Formula Market Within a Year

According to an announcement released by Abbott, over the past few years, Abbott has participated in fierce competition in China's rapidly changing market. However, consumer demand for infant and child nutrition products is evolving. Based on the above, Abbott has decided to focus more on its growing medical nutrition business and gradually cease operations and sales of infant and child nutrition products in the Chinese market. Abbott also noted that scientific awareness of nutritional supplementation among adults in mainland China is increasing, and the company will continue to provide innovative medical nutrition products.

Abbott also mentioned that consumers can still purchase and use Abbott products through various online and offline channels, with access to corresponding customer service support. Over the next year, Abbott will collaborate with relevant parties to gradually phase out its infant and children's nutrition business in the Chinese market.

According to Abbott's official website, the main infant nutrition products currently sold in mainland China include: Abbott Platinum Optimum Embrace® series, Abbott Classic Embrace series, Abbott Gold Similac Total Comfort®, Abbott Similac Total Comfort series, Abbott Dual Bliss series, Pure Bliss Organic series, Pure Bliss Blue Can series, Pure Bliss Gentle Care series, Abbott PediaSure Junior®, Abbott Sensitive® series, Abbott Premature Infant series, and other 11 series of products. Among them, the best-selling product is Abbott Platinum Optimum Embrace European original imported infant and children milk powder Stage 3 (900g*2 cans for ages 1-3), with over 400 people having made purchases.

The official customer service of Abbott's Tmall flagship store stated that currently, the store is operating normally, and customers can feel assured to purchase Abbott's infant, toddler, and children’s nutritional products.

Abbott emphasized that its cross-border e-commerce platform remains unaffected and will continue to operate, providing Abbott infant, toddler, and children's nutrition products to Chinese consumers from the global market to help them access the nutritional support needed for health. Additionally, Abbott’s other businesses in China, including diagnostics, medical devices, and pharmaceuticals, remain unaffected.

"Our long-term investment in the Chinese market remains unchanged, and we will continue to focus on delivering cutting-edge technologies that transform lives, maintaining our leading position in the industry while striving to meet China's growing healthcare needs," Abbott said.

    Product quality issues occur frequently

In recent years, faced with fierce market competition, Abbott's milk powder market share in China has shown a downward trend. According to Euromonitor data, based on the retail sales of milk powder in China, Abbott's market share from 2019 to 2021 was 4.9%, 4.1%, and 3.6%, respectively. This year, Abbott's milk powder business may further decline to 3.1%.

"Abbott has not been very successful in its market promotion plans in recent years. The instability in the first- and second-tier markets has led to its brand being eroded, and as the earliest foreign brand to advance into the third- and fourth-tier markets, Abbott has not made much progress, resulting in a continuous decline in market share," Song Liang, a Chinese dairy industry analyst, told the Securities Daily.

Notably, in addition to the shrinking market share, Abbott's infant formula has also encountered related quality and safety issues recently.

In May 2021, a batch of Abbott's Stage 1 infant formula was found to contain "an extremely small amount of vanillin." According to China's national regulations on food additives, infant formula food for babies aged 0 to 6 months must not contain any food flavorings. As a result, Abbott was penalized by the Shanghai Market Supervision Bureau, with illegal earnings of 3.437 million yuan confiscated and a fine of 9.093 million yuan imposed.

On February 17 this year, Abbott Laboratories recalled multiple batches of infant formula produced at its Sturgis, Michigan factory due to the risk of contamination with Cronobacter sakazakii and other bacteria. The General Administration of Customs of China also issued an alert, advising consumers "not to purchase through any channels" and "immediately stop consuming" certain batches of Abbott's infant formula.

Although Abbott urgently clarified that the involved products were not imported into China through general trade, this incident also affected consumers' purchasing confidence.

According to Abbott's financial report, the company's revenue in the third quarter of this year was $10.4 billion, a year-on-year decrease of 4.8%; net profit was $1.435 billion, a year-on-year decrease of 31.7%. Among this, the nutrition business revenue was $1.795 billion, a year-on-year decrease of 14.9%, making it the segment with the largest decline among Abbott's four major businesses.

From the financial report, it is evident that the poor performance of the nutrition business is mainly attributed to infant nutrition products, which generated only $827 million in revenue during the reporting period, a year-on-year decrease of 24.8%. The reason was the suspension of production of certain infant formula products manufactured at Abbott's Sturgis facility in Michigan, which negatively impacted the total sales of global and pediatric nutrition products. Meanwhile, adult nutrition product revenue fell by 4% year-on-year to $968 million.

"Abbott has had too much negative information in recent years, causing significant damage to its brand perception among Chinese consumers. This year's infant formula safety incident had a major impact on Abbott's formula registration in China, which is also an important reason forcing Abbott to exit the Chinese market," said Song Liang.

Discussing whether Abbott's exit will impact the competitive landscape of China's infant formula market, Song Liang further analyzed, "At present, the market concentration of leading infant formula brands has further increased. Abbott's exit will have little effect on the overall market because its market share is very low. Moreover, Abbott's withdrawal does not indicate a loss of confidence in China's infant formula market by foreign companies, as other infant formula enterprises are experiencing growth in performance."

(Edited by Bai Baoyu)