LONDON/BEIJING (World News) - The rise of the middle-class Chinese working mother helps explain why Nestle paid nearly $ 12 billion for Pfizer's baby food business and could leave rivals scrambling to catch up.
Across emerging markets, nowhere more than in China, women are increasingly keeping jobs after having children -- a big driving force behind 10 percent annual growth in the $ 30 billion a year baby food industry.
Foreign labels such as SMA, Promil and S-26 Gold, which Nestle will get with the Pfizer deal, have a definite edge. Nestle's products include Nan, Gerber, Lactogen and Nestogen, but are less well known in China.
"I have no choice but to buy foreign brands," said Liu Shuo, 30, who works for a foreign company in Beijing and has a two-year-old. "Chinese milk powder brands always have food safety scandals, I don't trust them."
Baby milk was the foundation of the world's biggest food company, established in 1866 when German pharmacist Henri Nestle introduced a substitute for mothers who could not breast-feed.
Nestle's history of promoting baby milk in emerging countries has not always been a happy one and it was targeted by campaigners for selling milk to African mothers in the 1970s.
But such growth markets are ever more important for brands dependent on changing lifestyles and rising incomes.
Paying more for the Pfizer unit than the $ 10 billion that analysts had expected, Nestle trumped a bid from Danone and Mead Johnson.
The Pfizer nutrition business has 85 percent of its sales in emerging markets, and a quarter of sales in China.
Fuelled by 16 million new births a year, annual growth rates for China's baby formula market have been as high as 20 percent over the last five years. The market is forecast to double to $ 16 billion by 2016.
"The key strategic attraction of the d eal in our view is Pfizer's No. 5 position in the Chinese infant formula market where despite being global No. 1 player in infant formula, Nestle has a relatively weak presence," said analyst Robert Dickinson at brokers Citi.
The Swiss giant is already market leader in milk formula in Latin America, Africa and the Middle East. This brings it the No. 1 spot in Asia with its presence outside China counted too.
Globally, Nestle's baby food market share will rise to 25 percent from 19 percent - although this is likely to fall slightly after sell-offs to ensure regulatory clearance. Mead has 16 percent, Danone 14 percent and Abbott Laboratories 12 percent.
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The focus will now shift to Mead and Danone and how they try to catch up with Nestle.
They will certainly look at Pfizer's businesses in Latin America, South East Asia, Australia and South Africa, which Nestle could well have to sell for anti-trust reasons.
They may also look at No 4 player Abbott Laboratories, planning to split into a pure-play drugs group and another group which would include infant nutrition [nN1E79IOIL].
Danone has said it does not have the firepower for very big deals right now and that could rule out any bid for Mead, which is currently valued at $ 17 billion.
"We would expect Danone to be interested in any potential disposals for anti-trust issues, particularly in Latin America," said Citi's Dickinson.
The Nestle-Pfizer business in China would only have a combined 12 percent market share behind Mead's leading 16 percent and Danone on 14 percent, but that would still be a rise from 10th place and there may be room for expansion.
Analysts looking at China expect the number of middle class households to double to 100 million by 2015.
As Chinese mothers tend to take less maternity leave than Western counterparts, the market growth rates for baby food are higher than those seen with the rise in the number of European and North American working mothers in the 1960s.
The market for locally made products in China suffered from a 2008 scandal over milk products tainted with melamine, allowing groups such as Mead and Danone to take their lead.
Campaigners who have dogged Nestle for decades, accusing it of promoting baby powder to mothers they say would be better off breast feeding, voiced concern at Nestle having an even bigger presence in emerging markets after the deal with Pfizer.
"This renewed focus on growi ng the market for infant formula products is troubling," said Wenonah Hauter at Washington-based Food & Water Watch.
One of the big worries for campaigners has been that mothers might prepare baby formula with unsafe water, although rising incomes in emerging countries mean the market for bottled water is growing fast - and Nestle is global leader there too.
Per capita consumption of baby food remains low in emerging markets so fast growth should continue, said Morgan Stanley analyst Michael Steib, adding that foreign firms will benefit as markets move more towards higher-priced quality products.
And while the expansion of China's middle class will eventually slow in line with the demographics of a stable birth rate and more prosperous society, coming up behind are other giants such as India and Africa. ($ 1 = 0.7571 euros)
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