Eight years ago, Mengniu Dairy suffered a net loss of 750 million yuan, marking its first net loss in history.

At that time, Mengniu faced its greatest challenges in the post-Niu Gensheng era.

Fortunately, Lu Minfang, who was appointed to lead during the crisis, turned the tide through a series of reforms, and Mengniu quickly overcame its difficulties. In 2017, Mengniu returned to profitability, earning 2.048 billion yuan that year. In the following two years, Mengniu's profits rose to 3.043 billion yuan and 4.105 billion yuan, respectively, showing steady growth.

There is no denying that Lu Minfang played a crucial role in Mengniu's recovery over the years. However, it is lamentable that even Lu Minfang, the "hero," could not escape the fate of being replaced.

At the end of March, Mengniu disclosed its 2023 financial report, reporting annual revenue of 98.624 billion yuan, a year-on-year increase of 6.51%, and a net profit of 4.809 billion yuan, a year-on-year decline of 9.31%. Along with the earnings release, Mengniu announced a significant personnel change—Gao Fei, a "veteran" of Mengniu, would replace Lu Minfang as the company's new president.

Fate is like a boomerang. Seven years ago, Mengniu's performance declined, and Lu Minfang was appointed to replace Sun Yiping. Now, with Mengniu's performance slipping again, Lu Minfang has been replaced by Gao Fei.

Falling Back into Growth Difficulties

Mengniu's growth bottleneck is already a well-known issue.

As early as 2020, Mengniu experienced a decline in net profit—earning 3.525 billion yuan that year, a year-on-year drop of 14.14%.

However, given the exceptional circumstances of that year, the decline in net profit was understandable. But this year's decline leaves little room for excuses.

The financial report shows that Mengniu's net profit decline is largely due to a surge in advertising expenses.

In 2023, Mengniu's sales and distribution expenses reached 25.192 billion yuan, an increase of 2.845 billion yuan compared to 22.347 billion yuan in 2022. Notably, Mengniu's advertising expenses in 2023 rose by nearly 2 billion yuan from 5.495 billion yuan in 2022, a staggering increase of 36.9%. In 2020 and 2021, Mengniu's product and brand promotion and marketing expenses were 6.803 billion yuan and 7.208 billion yuan, respectively. Cumulatively, Mengniu has invested approximately 27 billion yuan in advertising over the past four years.

In fact, the dairy industry has long relied on marketing to drive growth. Industry leader Yili also reported high sales expenses of 17.197 billion yuan in the first nine months of 2023. However, Yili's net profit grew by 16.36% during the same period, indicating that its marketing expenses did not squeeze profits. Compared to Mengniu, Yili's financial situation is much more optimistic.

Currently, Mengniu Dairy faces significant challenges in overcoming its growth bottleneck. Generally, there are two ways to drive performance growth—either increase sales spending and advertising or develop new products and diversify. The former has already been discussed above, so we won't elaborate further. As for diversification, Mengniu has attempted it but without much success.

In terms of product structure, Mengniu's main revenue still comes from liquid milk products, which accounted for 82.071 billion yuan in 2023, or 83.22% of total revenue. Other product lines, such as ice cream, cheese, and 奶粉， generated much lower revenues of 6.026 billion yuan, 4.357 billion yuan, and 3.802 billion yuan in 2023, accounting for 6.11%, 4.42%, and 3.85% of total revenue, respectively. It's worth noting that the liquid milk market has already peaked. Over the past few years, Mengniu has made significant efforts in cheese and 奶粉， but these have not become its second growth curve.

Perhaps due to concerns about the future, Mengniu's stock performance has been disappointing. As of April 17, Mengniu's stock closed at HK$15.28 per share, with a total market capitalization of just HK$60.1 billion. Compared to its peak of HK$52.632 per share, Mengniu's stock price has fallen by over 70%, wiping out more than HK$146 billion in market value, equivalent to over RMB 135 billion.

The Hidden Risks Behind 8.9 Billion in Goodwill

In addition to its growth difficulties, Mengniu faces a significant potential crisis in its 逐年攀升的商誉。

According to the financial report, Mengniu Dairy's goodwill in 2023 was 8.952 billion yuan, nearly double the 4.858 billion yuan recorded two years ago.

The surge in goodwill is largely attributed to 频繁的收购. In recent years, Mengniu has completed several major strategic investments, including Modern Dairy, China Shengmu, and Miaokelan Duo. It also acquired Australian 奶粉 brand Bellamy for AUD 1.46 billion. According to media calculations, Mengniu has spent over RMB 10 billion on acquisitions since 2017.

However, these investments and acquisitions have not yielded the expected results and have even dragged down Mengniu's development. For example, the heavily invested Bellamy saw goodwill impairments of RMB 620 million and RMB 742 million in 2021 and 2022, respectively. Similarly, cheese giant Miaokelan Duo, which Mengniu spent nearly RMB 4 billion to acquire a controlling stake in, is now facing a "double whammy" of declining performance and stock price. As of April 16, Miaokelan Duo's stock price was just RMB 11.79, far below its peak of RMB 84.5.

Compared to Yili, which relies mainly on organic growth, Mengniu has pursued growth through external acquisitions. However, with recent acquisitions underperforming, Mengniu now finds itself in a difficult position.

On March 26, alongside the earnings release, Mengniu announced another significant personnel change—"veteran" Gao Fei would replace Lu Minfang as the new president. Clearly, Mengniu has lost confidence in Lu Minfang and hopes fresh leadership can restore growth. According to media reports, Gao Fei joined Mengniu at its founding in 1999. Now 47, he has held key positions such as regional sales and marketing manager, center manager, sales general manager, marketing general manager, senior vice president, and head of the 常温事业部， making him highly familiar with Mengniu.

Additionally, Gao Fei has deep experience in the dairy industry, having led the development of Mengniu's sales system and spearheaded the launch of the premium brand "Telunsu," which pioneered China's 高端奶制品 market.

From media reports, Gao Fei is also an industry veteran. However, the challenges Mengniu faces are complex—internally, growth bottlenecks have emerged; externally, acquired companies have underperformed. Moreover, the gap between Mengniu and Yili continues to widen. It won't be easy for Gao Fei to lead Mengniu out of its 困境。