Mengniu's Winter Philosophy

Ask AI · Does Mengniu’s profit surge depend on short-term cost cuts?

In China’s dairy industry in 2025, it’s destined to become a year that will be etched into industry memory.

In this year, raw milk prices went through a long downcycle. The contradictions caused by an imbalance between supply and demand spread from upstream ranches all the way to the terminal shelves, and the market has officially entered a new cycle focused on deepening penetration of existing stock.

According to data from Euromonitor, China’s liquid milk industry has fallen from the high-speed growth of the past decade into an adjustment period. From 2022 to 2024, the compound annual growth rate dropped to -4.2%. In September 2025, sales across the full channels of dairy products also fell by 16.8% year over year.

Amid the ups and downs of the cycle, on March 25, 2026, Mengniu Dairy released its 2025 performance results.

The financial report shows that in 2025, Mengniu’s revenue reached 82.24 billion yuan, down 7.3% year over year, indicating contraction. Operating profit, however, maintained a certain level of resilience, reaching 6.56 billion yuan, with a gross margin of 39.9%. Free cash flow was 6.3 billion yuan, and all three indicators hit the highest levels in history.

Notably, despite revenue declining, the profit attributable to the company’s equity holders surged 1378.9% year over year to 1.5454 billion yuan.

Generally speaking, when a company is in a downcycle for the industry, profits face significant pressure. However, Mengniu maintained its “blood-making” capability through extreme cost control and structural optimization, squeezing out real money.

1. The difficult game of fighting for stock

Liquid milk is Mengniu’s core business segment and the focus of market attention.

At the mid-year performance meeting in August 2025, Mengniu CEO Gao Fei said frankly that the incremental pressure facing the company’s liquid milk business—especially the ambient-temperature business—remains prominent: “A full recovery still needs time.”

This judgment was validated by Mengniu’s full-year performance. The financial report shows that Mengniu’s liquid milk revenue fell from 73.07B yuan in 2024 to 64.94B yuan, a year-on-year decline of 11.1%, far exceeding the group’s total revenue decline of 7.3%.

Liquid milk is the revenue “trump card” for Mengniu—a foundation that has supported the company and Yili in a duopoly standing side by side for more than two decades.

In 2025, China’s liquid milk industry faced triple pressures: weakening demand, falling prices, and channel changes. The market officially moved from the penetration-and-expansion stage into a new cycle of deep cultivation of existing stock.

NielsenIQ data shows that in 2025, growth across full channels for dairy products was -8.6%, and terminal demand remained weak.

Against this backdrop, major dairy companies have been fighting for market share through promotions, buy-and-get offers, and similar tactics.

To hold market share, Mengniu also had to trade price cuts to secure stock. At the 2025 financial results meeting, Gao Fei said, “Prices declined by about 3%.” Among them, Mengniu’s Guralis breakfast milk directly adjusted its pricing, with promotional discounts of nearly 15%. Tetra Pak also proactively cut prices to respond to market pressure.

The effect of price cuts on boosting sales has not been optimistic. In the first half of 2025, Mengniu’s liquid milk revenue fell 11.2% year over year; in the second half, the decline narrowed. Overall for the full year, the trend of both volume and price falling still persists.

The ongoing price war has also amplified Mengniu’s characteristic of having a relatively single product structure.

For a long time, ambient-temperature white milk and ambient-temperature yogurt have been Mengniu’s main products in its liquid milk business. Tetra Pak’s flagship “super single” accounts for more than half. When the market environment is favorable, a business structure that is highly dependent on a single product category and a single brand often allows Mengniu to concentrate resources more quickly on brand investment and channel building, achieving scale expansion at lower marginal costs.

But once the industry enters a stock-based competition stage—when consumer demand becomes more diversified and more segmented—the growth bottlenecks of a single category are likely to become visible. Especially when a core flagship product faces a price war, how to maintain profits and stabilize share will be a challenging balancing problem.

Under this logic, in the second half of 2025, Mengniu’s proactive price-cutting strategy was one it “had to keep up with.” In the short term it stabilized market share, but it also directly affected the company’s gross margin performance. In the second half of 2025, Mengniu’s gross margin fell by 0.88 percentage points year over year.

From a long-term perspective, if the pricing power of a core flagship product is weakened by market competition, the company’s “moat” for profitability will also become unstable.

In response, in 2025 Mengniu accelerated product-structure adjustments, advancing product innovation around its three-tier strategic goals: “Drink milk, drink better milk, and drink the right milk.”

For example, targeting the roughly 660 million people in China who are lactose intolerant and those with suspected lactose intolerance, Mengniu launched a “soft milk” series. Using EHT enzymatic hydrolysis technology, it breaks down lactose so that nutrient molecules become 47% smaller, making them easier to absorb. With the positioning of “Can’t drink milk? Try soft milk,” Mengniu aimed to create a brand-new consumer track.

In the high-end market, on the occasion of its 20th anniversary, Tetra Pak launched its strategic benchmark product “Shajin Taihai Desert · Organic Pure Milk,” building the “Grass-Raised Milk” full industrial chain and obtaining dual organic certifications from China and the European Union, aiming to solidify its leading position in the high-end ambient milk market.

Product innovation like this also means that, following adjustments in its liquid milk business, Mengniu is shifting from pure price competition to value competition.

However, the scale effect of new products has not yet fully emerged. It will still take time to get out of reliance on a single product category. During the transition period, whether Mengniu can achieve a stabilization and rebound at the overall revenue level remains to be seen.

It is worth noting that in 2025, the gap between Mengniu and its old rival Yili is widening further.

As China’s two dairy giants, these two companies together account for more than 80% of the ambient milk market. According to data from Huatai Securities, in 2023 the CR2 of the ambient white milk market was 87%. Of that, Yili accounted for 48% and Mengniu accounted for 39%.

Against the backdrop of overall industry pressure in 2025, Mengniu and Yili have also shown different degrees of resilience in their liquid milk businesses.

In the first half of 2025, Mengniu’s liquid milk revenue fell 11.2% year over year to 32.19B yuan, while in the same period Yili’s liquid milk revenue only slightly declined by about 2.1% year over year to 36.13 billion yuan. On a full-year basis, Yili’s liquid milk revenue in the first three quarters of 2025 fell 4.44% year over year to 54.94B yuan, with a clearly smaller decline than Mengniu’s.

Yili’s business layout is no longer dominated by liquid milk alone; the share of liquid milk has dropped to around 60%. Meanwhile, supported by the second growth curve from milk powder, Yili has also, to some extent, delayed the impact on its performance from the decline in liquid milk.

By contrast, more than 81% of Mengniu’s revenue still depends on liquid milk. This means that when the liquid milk market fluctuates, Mengniu lacks a sufficiently strong second growth curve to act as a performance buffer.

2. What caused Mengniu’s profit surge?

Despite revenue pressure, Mengniu’s profit-side performance in 2025 is quite impressive. Full-year net profit attributable to the company was 1.55B yuan, up 1378.9% year over year.

Mengniu’s low profit base in 2024 paved the way for a violent rise in profit in 2025. In 2024, Mengniu’s net profit attributable to the company was only 104 million yuan, because in that year the company recognized asset impairment of as much as 4.0 billion yuan.

Although in 2025 Mengniu still recognized asset impairments of 2.2 billion to 2.4 billion yuan, mainly used to deal with historical issues such as disposing of certain idle facilities, accounts receivable, and channel inventory. But compared with the 4.0 billion yuan in 2024, this figure is clearly lower. With gains and losses on entry and exit, the company also released about 1.6 to 1.8 billion yuan of profit space.

In addition, Mengniu’s expense control also showed effectiveness in 2025. In 2025, Mengniu’s selling and distribution expenses and dealer expenses decreased 6.4% year over year to 21.61B yuan, and administrative expenses fell 1.9% to 4.15 billion yuan. Together, these two expense items saved Mengniu more than 1.4 billion yuan.

Digitalization across the whole industrial chain and leaner operations have become key drivers, and this is also why the “digital intelligence” transformation mentioned repeatedly in Mengniu’s financial reports truly began to release dividends in 2025.

On the upstream ranching side, Mengniu, together with joint venture companies such as Modern Dairy, has comprehensively advanced upgrades to eight major structures, including “cattle herd structure, feeding structure, and seed/variety structure,” helping partner ranches improve their ability to withstand risks.

On the production side, Mengniu’s Wuhan plant was recognized as the “single cold yogurt plant with the largest production capacity in the world,” thanks to its world-class digital intelligence flexible production lines and supply chain system. It has become a benchmark among Mengniu’s “one south, one north” digital intelligence factories in China, alongside the Ningxia Lingtai plant.

Data shows that during the “14th Five-Year Plan” period, the average milk yield per dairy cow across Mengniu’s partner ranches increased from 16 kilograms to 35 kilograms, while the average cost of producing per kilogram of milk at the ranches decreased by nearly 0.2 yuan.

Through this series of digital intelligence measures, Mengniu not only optimized the cattle herd structure, but also promoted full-chain cost optimization from procurement, production, logistics, and sales, achieving year-over-year declines in selling and administrative expenses.

However, if cost reductions compress R&D investment or market expansion expenses too much, they could weaken the company’s long-term competitiveness. From the financial report, Mengniu’s spending on R&D and innovation has not shrunk. Yet with continued strict control of expenses, the company still needs to balance short-term profit with long-term growth.

Moreover, Mengniu’s high profit growth mainly relies on tightening the cost side rather than opening the revenue side.

The financial report shows that in 2025, Mengniu’s operating profit margin decreased slightly from 8.2% to 8.0%. This means that although Mengniu’s net profit rose sharply due to the reduction in asset impairments, the profitability of its core business actually deteriorated.

When revenue declines, the benefits of economies of scale are weakened. If fixed costs cannot be compressed on a comparable basis year over year, the operating profit margin will also face pressure. If in the future raw milk prices rise cyclically, or if maintaining market share requires increasing marketing investment, Mengniu’s profit performance will face pressure from both sides.

Mengniu’s profit recovery is more the result of taking away rather than adding—reducing impairments, lowering costs, and cutting expenses through a three-pronged comprehensive effort to sustain more outward prosperity. As for internal drivers such as growth in the core business and improvement in profitability, their priority is relatively lower.

Whether it’s additions or subtractions isn’t about right or wrong. It’s about how to find a more balanced growth model across both the short term and the long term.

The good news is that alongside the profit recovery, Mengniu’s cash flow situation has started to improve. The financial report shows that in 2025, Mengniu’s full-year operating cash flow reached 8.75 billion yuan, and free cash flow was 6.3 billion yuan. Both indicators reached the highest levels in history.

In an industry downturn, the strong growth of operating cash flow also proves that Mengniu’s business model still has the “blood-making” capability to get through cycles. This is also one reason why, even with revenue declining, the capital market is still willing to respond positively to Mengniu.

3. Don’t panic at the low point

At the starting point of 2026, Mengniu attempts to shift from defense to offense through a series of strategic adjustments and operational optimizations.

At the strategic level, Mengniu is promoting a layout of “One Body, Two Wings”: “One Body” refers to core businesses such as ambient-temperature, low-temperature, fresh milk, milk powder, cheese, and ice cream. “Two Wings” refers to innovative businesses and international businesses.

From the financial report, in 2025 within the “One Body” segment, fresh milk, milk powder, cheese, and domestic ice cream all achieved double-digit growth. In particular, the cheese segment, through deep collaboration with Miyoko Lande, grew by more than 20% for the full year.

On the channel side, facing extreme fragmentation of consumption scenarios, Mengniu no longer tries to use one product to cover all channels. Instead, it customizes products for different channels. For example, in membership stores such as Sam’s and Hema, Mengniu has best-selling products like “Guanyi Milk Breakfast 8 AM 8-ton-ton containers.” In the snack discount track, Mengniu works with partners such as “Mingming Very Busy” and “Want To Come” to offer customized small-pack options. In the foodservice channel, Mengniu has dedicated products for coffee shops and hotel breakfasts.

By matching channels precisely, Mengniu has improved the product sell-through rate, and enabled its product matrix to reach consumers across different groups efficiently—making the shift from “people find the products” to “the products find the people.”

In 2026, the double tailwinds from both policy and the market undoubtedly give Mengniu more room for imagination. Document No. 1 clearly calls for promoting dairy consumption, and the Ministry of Agriculture has urged the “Nation should drink more milk.” Currently, per capita milk consumption in China is only one-third of the world level, meaning huge industry potential. Meanwhile, with supply and demand for raw milk moving toward balance and signals that prices are stabilizing becoming evident, expectations of a cyclical industry recovery are increasing.

The biggest variable lies in the timing of the industry’s recovery. A special feature of this dairy cycle is that the expansion players are mostly large-scale ranch operators. With ample cash flow reserves, they can maintain operations during industry low points, making the capacity clearing speed significantly slower than in previous cycles.

This means that 2026 for Mengniu could be either the eve of an industry turning point or the key year for deepening adjustments. When a full industry recovery truly comes, more than blindly acting, it will be even more valuable to stay坚定 in itself.

At this earnings release meeting, Gao Fei talked about “getting out of involution”—no longer pursuing growth in scale alone, but proactively adjusting asset quality, optimizing the business structure, and stepping up efforts in high-value-added areas during the downcycle, to prepare for the next round of growth after the industry recovers.

When the turning point truly arrives, companies that complete self-evolution in the low point often can sense changes in the wind direction first.