(Yicai) July 9 -- Demand for infant formula in China is rebounding this year, but aggressive subsidy campaigns by major suppliers are capping potential profit growth.

Sales of infant formula products increased year on year in three out of the first five months of this year, according to the latest data from consumer intelligence giant NielsenIQ.

Specifically, sales of first-stage (0–6 months) and second-stage (6–12 months) formulas posted double-digit growth in multiple months. Meanwhile, the decline in sales of third-stage formula (1–3 years old) showed signs of narrowing. Among these, first-stage formula remains the most expensive due to higher production costs.

Nanjing-based baby product retailer Kidswant Children Products has forecast strong earnings growth for the first half. Its net profit is expected to surge by 50 percent to 100 percent year-on-year, reaching between CNY120 million and CNY160 million (USD16.7 million to USD22.3 million). Last year, the company's infant formula revenue hit CNY5.1 billion (USD710.9 million), accounting for 54 percent of its total revenue.

Song Liang, an independent dairy industry analyst, told Yicai that China’s infant formula sale exceeded expectations in the first six months of the year. He attributed this not only to a reversal to an increase in new births last year but also to better-managed distribution strategies aimed at maintaining price stability.

Subsidy Wars

Despite the rebound in demand, profits remain under pressure as leading brands have launched large-scale subsidy programs to capture market share.

In April, China Feihe -- the producer of the Astrobaby brand -- announced it would provide a total of CNY1.2 billion in "birth subsidies" to consumers. This was followed by a similar move from Yili Group, which pledged CNY1.6 billion. To date, five to six brands have rolled out comparable initiatives.

Liang Liang, a maternal and infant product retailer in Shandong province, told Yicai that brands are essentially “giving away milk powder.” Since these campaigns are non-exclusive, expectant mothers can participate in multiple promotions and receive several cans of first-stage formula for free.

An executive at an infant formula company explained that these subsidies are designed to cultivate long-term consumer loyalty, with the hope that parents will continue purchasing second- and third-stage products as their babies grow.

However, these giveaways are weighing on short-term performance. Last week, China Feihe issued a profit warning, projecting declines in both revenue and net profit for the first half, citing the birth subsidy program as the primary cause.

Analyst Song noted that offering subsidies effectively increases sales costs. Moreover, this practice is intensifying market competition and could lead to shifts in market share, which could create more uncertainty for the industry.

Editors: Tang Shihua, Emmi Laine