Why Fonterra accepted defeat in the dairy aisle
OPINION: Fonterra's sale of its consumer dairy business to Lactalis is a clear sign of the co-operative’s failure to compete in the branded consumer market.
This follows a flying start to its joint venture, Fonterra Future Dairy, with Indian retail giant Future Group, launched June this year.
Within five months of launch, the Dreamery brand products are building an impressive market share: milkshake 16%, curd 10% and toned (flavoured) milk 6%.
Fonterra Future Dairy chairman and the co-op managing director Sri Lanka and Indian subcontinent, Sunil Sethi, says consumer demand for dairy in India over the next seven years is expected to increase by 82 billion litres.
The value added dairy sector will grow 50% faster than the dairy sector in the next seven years.
”India consumes 170 billion litres of milk every year ... the opportunity is huge,” Sethi said.
Fonterra has also launched its Anchor Food Professionals, targeting high end hotels and restaurants.
Sethi says Fonterra’s joint venture in India is “capital light” but based on profitability and growth. The co-op hopes to meet the $1b target in 7-10 years.
Sethi was in Auckland last week with Future Group executives to brief the board on progress. He told journalists the growth in value added dairy is driven by evolving food habits.
More Indians are now moving into packaged foods, spurred by changes in lifestyle and for convenience.
“They also tend to trust packaged foods as opposed to unpackaged foods.”
More Indians are also comfortable buying cottage cheese and yoghurt from a store, rather than consuming home-made products.
“Fifteen years ago if I were to get curd from the market that would have meant disrespect for my mother and grandmother, almost implying they don’t know how to cook.
“But today people get curds delivered to their homes: the trend of moving away from home-made dairy to getting it from outside is a big driver.”
Dreamery products are now available in about 3000 general stores in the key cities Mumbai, Pune, Bangalore and Hyderabad.
Although made from milk sourced from Indian dairy farms, the product packaging highlights Fonterra’s 130 years of dairy expertise.
Milk is purchased from chilling stations and tested twice: once at the chilling station and then at the processing plant gate.
Fonterra Future Dairy products are made by Schreiber Dynamix, a third party milk processor in India for many.
Milk in India
• 25% of food spending attributed to dairy
• 40% of people are vegetarian; dairy considered key source of protein
• Value of dairy is unchallenged due to its importance in Hindu mythology and scriptures
