The company, which has dropped from the leading national dairy in terms of sales revenue in 2001 to number four by 2005, said it focused on marketing two of its yoghurt brands, Bright AB100 and Danone Bio, during the summer months, traditionally the peak consumption period for yoghurts in China.
The marketing investment helped it lift operating income by 7.2 per cent over the previous year's quarter to CNY1.931 billion.
However net profits are still in decline, as climbing raw material costs and additional sales and marketing spend eats into margins. Raw milk prices rose by around 6 per cent during the first six months of the year based on a government procurement decision and dairies are under pressure to sell higher margin products.
Bright has also been forced to spend more on marketing to improve its brand image, after a scandal in Zhengzhou last year when local media reported that the firm's Zhengzhou subsidiary was reprocessing expired milk.
The company reported a net profit of CNY40.34 million, a drop of 20.1 per cent on the same quarter of last year. For the year to September, the firm's net profit has now decreased by 35 per cent over the prior year.
A new report on China's dairy market by Rabobank suggests however that by investing in its yoghurt brands, Bright is on the right track.
"The market is becoming more sophisticated with consumers moving from milk powder to UHT milk; increasing consumption of higher end dairy products such as yoghurt and cheese; modern retail chains improving distribution and choice; and, Chinese consumers becoming more brand conscious to ensure quality and food safety," said author Lillian Lou.
Rabobank is predicting another eight to ten years of strong growth in the Chinese dairy market, helped by improvements in the domestic supply of raw milk and expanding retail channels. Dairy industry sales, worth $11 billion in 2005, have already grown by a compound annual growth rate of 30 per cent since 2001.