Core Viewpoint - The domestic dairy industry is shifting its focus towards lower-tier markets and functional product transformation after experiencing a slowdown in growth during 2024, with signs of recovery emerging in early 2025 [1][6]. Industry Performance - The top three dairy companies, Yili, Mengniu, and Bright Dairy, reported annual revenues of 115.8 billion, 88.67 billion, and 24.28 billion respectively for 2024, reflecting a year-on-year decline of 8%-10% [4]. - The performance fluctuations were primarily concentrated in the second and third quarters of 2024, with revenue declines narrowing in the fourth quarter and showing significant improvement in the first quarter of 2025 [5]. Strategic Adjustments - Yili's management implemented a series of measures, including promotional activities and inventory reduction, which contributed to market recovery by the third quarter of 2024 and a healthy market state by the 2025 Spring Festival [5][6]. - In Q1 2025, Yili achieved total operating revenue of 33.02 billion, a year-on-year increase of 1.4%, and a net profit of 4.63 billion, up 24.2% [5]. Market Trends - The dairy consumption growth rate has been declining for two consecutive years, influenced by both upstream and downstream market fluctuations [6]. - The current market dynamics are creating new opportunities, particularly in lower-tier cities where consumer demand for dairy products is increasing due to rising education and income levels [7]. Functional Transformation - Major dairy companies are adjusting their strategies to pursue functional product transformation for new growth [8]. - Mengniu is adopting a dual-track strategy focusing on deep processing and exploring new markets in specialized nutrition and functional nutrition [9]. - Bright Dairy announced its commitment to functional transformation by launching new products targeting specific nutritional needs [10]. Consumer Behavior Changes - The shift in consumer demographics is leading to a mismatch between new rational and personalized demands and traditional supply models [7]. - The per capita consumption of functional dairy products in China is still relatively low compared to developed countries, indicating significant growth potential [10].