The a2 Milk Co. is an alternative dairy business with a basis in Australia and New Zealand.- Strong resonation of its infant formula product has fueled high revenue growth.
- Significant part of sales made in Australia ultimately end up in China.
- Regulatory changes and competitive dynamics in Chinese formula market create lots of uncertainty.
The a2 Milk Co. is an alternative dairy business with a basis in Australia and New Zealand.The a2 Milk Co. (OTCPK:ACOPF) is a New Zealand company with a listing on both the New Zealand and Australian stock markets. It was founded in 2000 to market the intellectual property portfolio developed with regards to the A2 beta-casein protein. The science behind its marketing is somewhat complicated, but the general idea is that the company’s milk products are supposed to be easier to digest for humans than regular milk. The difference between A2 milk and regular milk is that A2 milk contains only the A2 beta-casein protein, whereas regular milk also contains the A1 beta-casein protein. The A2 beta-casein is supposedly the original protein gene in dairy cattle, whereas the A1 beta-casein protein is a genetic mutation that happened thousands of years ago. The relatively small difference between the two (one amino acid apparently) is said to affect human digestion of cow’s milk. The science behind its product is not without controversy; there is no scientific consensus on whether its product actually has a different effect on the human digestive system. But the most important part from a business perspective is whether it actually sells. And the answer to that question is a clear yes.
Whereas in the early days, the company marketed genetics tests and licensed its patents, the company nowadays sells its own branded milk in several markets. The company’s estimate is that it has about 9.3% value share of the Australian branded fresh milk market, for instance. A2 milk’s success in Australia can be traced back at least in part to the publication of a book called Devil in the Milk by Keith Woodford in 2007, in which a case is made that certain common illnesses like diabetes and heart disease are related to consumption of the A1 protein present in cow’s milk. The opinion formulated in the book is hardly the only one, or the first, to question milk’s role as a food staple, but its use of the A2 versus A1 distinction was a new argument in the discussion. Whether the argument has a basis in facts remains to be seen, but I believe the longevity of the discussion at least indicates the existence of an issue many consumers have with milk. In my opinion, if there is a market for such an alternative milk product in Australia there is likely to be a market elsewhere. A2 is currently in the early stages of roll-out in the US and has a modest presence in the UK. Its aim is to expand retail distribution in its current markets as well as enter new markets and product categories over time. The company is still in the early stages of executing that strategy.
Source: Seeking Alpha
