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.
They consume about 20 billion dairy-topped drinks annually — a lucrative market. Most popular is tea macchiato, a tea blend topped with a whipped cream and cream cheese blend.
Fonterra says sales of its cream and cream cheese to Chinese beverage outlets has risen 500% in two years, hence more production lines at its Waitoa UHT plant.
It recently completed a 1L UHT line and has begun building a second line to make an extra 45 million L for Asia, Middle East and Caribbean markets.
The $35m expansion will make 120 million extra 1L UHT cream packs and add 26 jobs.
Fonterra director global foodservice Grant Watson says Chinese are preferring fresh products and “dairy is really starting to take off... NZ dairy, grass-fed and nutritious”.
The co-op grew its combined consumer and foodservice volumes in Greater China by 48% in the 2016 financial year, it says. It is active in 76 cities and aims to grow that to 160 cities in five years. In China, many dairy products, such as cheese, are consumed mainly with and on other foods, rather than on their own. The co-op’s Anchor Food Professionals division identifies and exploits emerging product trends, such as beverages, hence the tea macchiato.
Modern Chinese tea outlets range in size from large cafés to street-side kiosks. Big brands have huge queues at peak times: a major new café in Shanghai had customers queueing for up to two hours. The growth is especially among young, affluent consumers.
Fonterra chief operating officer global operations Robert Spurway says decisions to expand, based on demand, reflect “the great work our foodservice team are doing in the markets”.
Fonterra’s Waitoa plant now has seven production lines; lines 1, 2 and 6 are dedicated 1L foodservice lines capable of foodservice whipping and cooking creams, and UHT milk. Line 3 is a 200ml pack line handling
Milk For Schools packs. Lines 4 and 8 are 250ml pack lines mostly for children’s milk and organics, and line 7 is for 125ml packs of pineapple flavoured beverage, a favourite in China.
