Chinese infant formula group Emerald Dairy is planning to treble its annual sales through a focus on provincial “tier-three and tier-four” cities in the country, the company’s CFO has told just-food.

The US-listed company, which posted its first-quarter results today (18 May), generated revenues of US$45m in 2009 but wants to drive sales further, Shu Kaneko said.

Kaneko said Emerald wants to expand production to meet rising demand for branded infant formula among ever-more affluent consumers outside China’s biggest cities.

Speaking from an investment conference in London, Kaneko said Emerald, which has two production facilities in China’s Heilongjiang province, is boosting capacity at the newest of the two plants – with the aim of taking annual revenues to $145m.

The first of two production lines in the plant should be up and running next month; the second line should be operational by June 2011. Each production line should add $50m to Emerald’s sales, Kaneko said.

He said infant-formula sales were growing at 23% a year in China and claimed demand for the products in the country’s fledgling cities would continue to rise in line with higher incomes.

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By GlobalData

“The main driver [of the infant-formula market] will be affordability. China’s GDP has been growing at 8-9% a year for the past decade or two. As the GDP grows, so household income grows, so the affordability of households to buy infant milk powder will grow as well,” Kaneko told just-food.

Kaneko said Emerald’s focus is on “tier-three and tier-four” cities China, which are less economically developed than the country’s “tier-one or tier-two” cities.

However, Kaneko said Emerald wanted to avoid the major Chinese cities where international infant-formula brands dominated the market. He also claimed Emerald expects demand for infant formula to grow fastest in the more provincial areas of the country.

“The big cities – we’re talking about Beijing, Shanghai, with a 20m population – is where the most international brands are strong. That market is very crowded, very competitive. We do not want to compete against the international brands,” Kaneko said.

“We put our focus on tier three and tier four. The majority of newborn babies are in tier-three and tier-four cities. The tier-three and tier-four cities are less mature and the growth rate is much higher than tier-one and tier-two cities. That’s a huge market for us.”