Is Feihe's growth logic failing?

Cai Gou Business Review ©️ Original Content by the Paid Business Editorial Team

Author | Fei Ma

In 2025, Feihe’s financial report shows: revenue of 18.11B yuan, down 12.7% year-over-year; net profit of 2.09B yuan, down 42.7% year-over-year; gross profit margin of 64.9%, slightly below 2024’s 66.3%. Notably, both revenue and net profit have declined, with revenue returning to 2020 levels and net profit hitting its lowest point since 2018, indicating significant performance pressure.

This painful performance warning ruthlessly signals the temporary end of China’s rapid growth era for infant formula (infant milk powder). Once known for high margins and high growth, Chinese leading dairy company Feihe in 2025 has slammed the brakes. Amid a macro decline in birth rates and intensified industry competition, Feihe is experiencing a profound structural pain.

01 Drastic Shake-up in the Infant Formula Market Base

To understand Feihe’s current predicament, one must face the extreme imbalance in its revenue structure. For a long time, Feihe has been called a “one-legged giant” in the industry, with most of its revenue heavily reliant on a single track closely tied to the birth population.

Financial data provides the most direct feedback: In 2025, Feihe’s infant formula products generated about 15.87 billion yuan, a 16.8% drop from about 19.06 billion yuan in the previous year. The share of this core business in total revenue also fell from 91.9% in 2024 to 87.6%. Moreover, concerns over profitability are evident in this key segment, as the overall gross margin decline directly erodes the company’s net profit margin.

The most direct driver of Feihe’s performance shake-up is the macro decline in birth rates. According to the National Bureau of Statistics, China’s birth rate has fallen from 8.52‰ in 2020 to 5.63‰ in 2025, with about 7.9 million newborns that year. When Feihe’s moat is deeply linked to the “annual decrease in the number of babies,” any industry downturn is amplified exponentially.

However, macro trends cannot fully explain the drastic shake-up in the core business of a leading company. The deeper reason lies in Feihe’s proud high-end strategy, which is facing severe challenges from consumer downgrading. Previously, Feihe broke through with precise positioning and high-end marketing, maintaining its flagship product Xingfei Fan series at prices above 400 yuan per can. But this logic relies on a critical premise: consumers are willing to pay a premium continuously.

Today, that premise is failing. iResearch data shows that in 2025, 74% of domestic infant formula consumers choose products priced below 300 yuan per can, with the 200-299 yuan range accounting for 42.01% — the most core consumer segment. The high pricing of Feihe’s main products is now sharply misaligned with current mainstream consumer demand. When products in the market cannot significantly differentiate in core nutritional content, consumers naturally become desensitized to inflated brand premiums.

In a red ocean of stock competition, the industry inevitably falls into brutal melee. With the full implementation of new national standards, barriers in formula recipes are gradually leveling, leading to severe homogenization and internal competition.

Competitors’ relentless encroachment has shaken Feihe’s leading position. In the first half of 2025, Yili announced its retail market share of infant milk powder (including goat milk) reached 18.1%, ranking first nationwide; while Feihe emphasizes it is “the number one in omnichannel sales and market share.” Behind this subtle discrepancy lies an undeniable leadership position that is no longer as stable amid fierce market share battles.

02 High Sales Expenses and Channel Challenges

Facing declining core business, Feihe attempts to rescue through high-intensity channel investment and brand promotion, but this traditional approach seems to be losing effectiveness.

Financials show that Feihe’s sales and distribution expenses in 2025 reached 7.16B yuan, nearly unchanged from the previous year. But against a backdrop of a 12.7% revenue decline, its sales expense ratio soared from 34.6% to 39.5%. This means that for every 100 yuan of products sold, nearly 40 yuan is spent on marketing and promotions. Compared to peers—Mengniu’s sales expense ratio is about 26.3%, Ausnutria around 25%—Feihe’s marketing costs are notably high.

To maintain brand awareness, Feihe held over 700k offline face-to-face seminars in 2025 (such as “Mom’s Love” events, carnivals, etc.), averaging over 1,900 sessions daily. However, such high-frequency investments have not successfully translated into growth, with diminishing marginal returns on marketing efforts.

Meanwhile, inventory issues are emerging. By the end of 2025, Feihe’s inventory reached 700k yuan, a significant increase from 2.15 billion yuan a year earlier. Inventory turnover days worsened from 69 days in 2020 to over 130 days now, indicating a serious slowdown in channel digestion capacity.

Feihe relies heavily on offline channels, with 73.3% of its dairy product revenue generated from offline sales in 2025. Yet, its offline retail network shrank from over 110k outlets in 2020 to 70k in 2025, a nearly 30% reduction. The shrinking channel network directly weakens its consumer reach.

More worryingly, brand trust is eroding. On platforms like Black Cat Complaint, reports of foreign objects (such as plastic, paper pieces, or flocculent matter) found in Feihe milk powder are frequent. For a high-end product claiming to be “more suitable for Chinese babies” and priced far above peers, frequent quality complaints and negative after-sales responses are eroding consumer trust. In response, Feihe launched the world’s first milk powder fresh raw material traceability system at the end of 2025, attempting to restore consumer confidence through full supply chain transparency.

03 Betting on “Full Lifecycle” and “Lactoprotein Technology”

With core business under pressure, Feihe must quickly find new engines to drive growth. The transformation from “infant formula leader” to “full-age nutrition leader” has become an urgent task.

Amid the grim financials, non-infant formula business shows a bright spot. In 2025, revenue from “other dairy products,” including adult milk, liquid milk, rice cereal, and complementary foods, reached about 2.06 billion yuan, a remarkable 36.1% increase despite the downturn, accounting for 11.4% of total revenue.

Feihe is trying to shed the “infant formula only” label. In the adult nutrition sector, it launched Aiben small-molecule lactoprotein supplements targeting middle-aged and elderly populations for muscle and bone health; in the youth segment, products like “Love Eating Vegetables Cheese” have won the World Dairy Innovation Award. However, this transformation is still in the nurturing stage. Although these new businesses are growing rapidly, their gross profit margins are extremely low (around 1%), contributing minimally to overall profits and unable to offset the huge decline in core infant formula sales in the short term.

To establish a differentiated advantage in full-lifecycle nutrition, Feihe is focusing on “advanced lactoprotein processing technology.” For a long time, high-end lactoprotein raw materials like lactoferrin have been monopolized by foreign companies.

In early 2025, Feihe officially launched its globally leading “Lactoprotein Fresh Extraction Technology,” which revolutionizes traditional cheese production processes, enabling precise extraction and activation of multiple active protein components directly from its own high-quality fresh milk. This breakthrough not only achieved commercialized self-produced lactoferrin, de-salted whey protein, and 11 other key lactoproteins, breaking foreign monopolies, but also significantly enhanced the bioactive nutrients (like N-glycans) and absorption rates of Feihe products compared to ordinary milk powder. This bottom-up technological innovation is the core confidence for Feihe’s future international competition and full-age product expansion.

In the context of domestic market saturation, overseas expansion becomes an inevitable choice. In the first half of 2025, Feihe’s overseas revenue was about 110 million yuan, making key progress. In North America, its Kingston factory in Canada obtained the first local infant formula production license and was officially put into production, with products available in over 1,500 large supermarkets; in Southeast Asia, Feihe launched high-end pure fresh milk formula in the Philippines and plans to expand to Vietnam, Indonesia, and other potential markets. From “product export” to “technology export,” Feihe is attempting to replicate its mature domestic full supply chain model globally.

04 Can Real Cash Block Market Anxiety?

Faced with declining performance and mounting capital market pressure, Feihe’s management has shown strong determination to defend the stock. In the second half of 2025, Feihe repurchased nearly 260 million shares at about HKD 1.1 billion. Meanwhile, the board proposed a final dividend, with total annual payout around 2 billion yuan, approaching a 96% payout ratio.

Based on the current stock price, the dividend yield is about 5.5%, far above the average of Hong Kong-listed dairy peers. However, this “cash-out” dividend has raised market concerns: at a time when the company urgently needs funds for full-lifecycle nutrition transformation, R&D, and overseas expansion, distributing almost all profits seems inconsistent. Is this a sincere return to shareholders, or a final act of generosity amid declining profits?

Since peaking at a market value of over HKD 2.51B in 2021, Feihe’s market cap has evaporated over HKD 110k, with a stock price decline of over 80%. Behind the market’s “foot voting” is deep anxiety over its single-business structure and future growth potential.

05 The Race to Rebuild Growth Logic

China’s Feihe’s 2025 is a microcosm of the painful transition from “scale expansion” to “value deepening,” with profits plunging over 40% and core business shrinking, all signaling the end of old dividends. The company’s predicament is fundamentally tied to the macro trend of “two million fewer births per year,” reflecting a structural challenge.

However, as the leader in domestic dairy, Feihe still has trump cards: abundant cash flow, strong brand recognition, leading lactoprotein extraction technology, and full supply chain control—all assets for cycling through periods of difficulty. In a stock-saturated era, Feihe’s breakthrough cannot rely on simply “抢份额” (抢 market share), but must fundamentally rebuild its growth logic: from “single infant formula flagship” to “full-lifecycle nutrition + high value-added products + refined operations.”

How to stabilize the infant formula base, repair channels and consumer trust, while accelerating the comprehensive explosion of the second growth curve, will be the critical survival challenge for Feihe in the coming years. This transformation has only just begun to reach the deep water zone.

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