Nestle’s entry into A2 milk nutrition creates short-term challenges for a2 Milk Co

Nestle has recently launched an A2 baby nutrition product in China under its Illuma brand. The announcement brings anxiety to earlier but smaller entrants like New Zealand dairy firms a2 Milk Co.and Synlait, which market similar products in China.
Swiss-based Nestle said the launch of the Illuma Atwo Stage 3 formula in China was in response to a ‘rapidly growing and constantly changing consumer market’. The Illuma brand falls under Nestle's Wyeth Nutrition umbrella.
A Nestle company spokesperson said, “The new Illuma Atwo is the first infant formula in the industry to combine a major saturated fatty acid in human milk and A2 type beta-casein, designed to support babies`digestive comfort.” The product is now available across China in stages 1-4.
a2 Milk Co. has grown rapidly to become one of New Zealand's largest companies by market capitalisation, with the key factor for its success being its record sales in infant formula in China. The New Zealand-based company's dairy and infant-formula products do not contain the A1 beta casein protein, said to cause digestive problems for some consumers.
Despite the new challenge, a2 Milk Chief Executive Geoffrey Babidge said his dairy company will not be hurt instead will stand to benefit from it. “We’ve got a very significant global company in the form of Nestle putting their toe in the water. That represents a very strong endorsement of the a1 protein free proposition, which in our view, will create more interest and, in fact, build the category and we’re positive about that,” said Geoffrey.
a2 Milk has a competitive advantage in that it focuses only on supplying infant formula with a2 protein, whereas the newcomers have a wide range of product portfolio, which make it challenging for them to position themselves effectively in this niche market. Babidge said, “We have got the first mover advantage; the strong brand position; the understanding of the science; the unique intellectual property and those things are unique attributes for our company.”
Nevertheless, all infant formula producers stand to benefit from the US$20 billion infant formula market in China which is still expanding. Apart from China, a2 Milk is also launching its products in the US shortly, and it is also looking at other markets in ASEAN.