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.
The co-operative is turning to innovation and fostering closer relationships with large-scale industrial kitchen operators to maintain its foothold in the food service sector.
Fonterra says 80% of the world’s food service businesses were forced to shut down overnight and most are still in and out of lockdowns.
Global director foodservice Paul Harvey says those who survived are the ones designed for delivery and takeout.
He says, in the US alone, 700,000 restaurants were forced to close. Starbucks reported a 46% slump in second quarter earnings and McDonalds temporarily closed 25% of its stores.
Covid also paralysed key tourism markets like Sri Lanka, Thailand and Vietnam – key foodservice markets for Fonterra.
Harvey says there are some signs of recovery; Fonterra’s China food service is back up.
“Covid has provided significant shock to the food service industry but we are starting to see symbols of hope,” he says.
Fonterra chief executive officer Asia Pacific Judith Swales says despite the global pandemic, the co-op’s food service business is doing well.
“It’s not all gloom and doom. Food service remains a hugely successful business for us,” she says.
For the 2019-20 financial year, Fonterra’s food service earnings before tax was 14%, an increase of $25m. But Swales says the co-operative will need to change its food service strategy to meet “some interesting trends”.
She says trends accelerated through Covid include: how food is prepared in stores, how customers are starting to engage with their suppliers and how consumers are purchasing food.
Swales says customers are simplifying menus and staff numbers are being reduced in kitchens.
She says many restaurants are shedding staff to manage costs and outsourcing food preparation to industrial kitchens.
“The good news for us is that we are well connected to these industrial scale kitchens.”
Swales says Fonterra must also ensure that its food service products are fit for delivery and takeouts.
For example, its mozzarella innovation must ensure that pizzas are piping hot and cheese still “stretchy” when the deliveries arrive home.
“When you go to a restaurant you’ve got about 30 seconds between the kitchen and the table. When the pizzas are going home, it might be half an hour.”
Swales says for Fonterra’s food service business it’s about growing market share by embracing change, thinking differently and putting “ourselves in our customers’ shoes”.
