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.
Fonterra chief operating officer global consumer and foodservice Lukas Paravacini says the co-op is embracing e-commerce and traditional brick-and-mortar as its sales strategy.
Speaking at a recent New Zealand China Business Council conference in Auckland, Paravacini outlined lessons Fonterra has learned over the last five years while building a $3.4 billion business in China.
“We have a strategy for our consumer business in China that gives us opportunities online and offline,” he says.
About 55% of the co-op’s consumer business in China is online; Fonterra has arrangements with two big digital players, Alibaba and Tencent.
Fonterra’s Anchor UHT milk is also available in 13,500 stores throughout China.
“Our strategy is online and offline; we don’t have our eggs all in one basket -- and it is working,” says Paravacini.
Anchor milk is the top imported UHT brand offline and online.
Paravacini says it’s “an incredible success story: we are in the top five beverage of Alibaba’s Tmall flagship store,” he says.
“This is putting Anchor among the top consumer brands in China next to the big players who have been operating in China for years.”
Internet use in China is booming: 770 million Chinese use the internet and last year 300 million people ordered meal deliveries online worth US$32b.
Interestingly, only 2% of total fresh food, by value, is sold online and 4% is packaged food.
Fonterra’s dairy products fall in these two categories.
Paravacini says food safety is very important to Chinese consumers. “They still want to touch and feel their food before they buy it.”
Fresh food sales in China topped $25b and remain a fast-growing category; large digital players are seeking growth opportunities.
Paravacini says e-commerce is driving the co-op’s growth in China and is an opportunity all NZ businesses must seize.
He says the co-op is using digital technology sales, branding and direct consumer engagement. But digital is more than just sales; Fonterra uses online consumer data to drive sales and digitalise its business.
Paravacini says Chinese consumers love NZ products and will pay a premium for products they can trust.
