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.
Backed by $850 million investments in production capacity, the co-op is seeing increasing demand for products used by chefs.
Fonterra’s foodservice business, Anchor Food Professionals, became New Zealand’s sixth-biggest export business, having generated $2b in annual revenue over the past year.
Chief operating officer consumer and food service Lukas Paravacini says that over the past four years Fonterra has invested $850 million in new production capacity for foodservice, $700m of this in NZ.
These expansions are at Waitoa in Waikato for UHT creams, Eltham in Taranaki for slice-on-slice cheese, Clandeboye in Canterbury for extra stretch mozzarella, and Te Rapa in Waikato and Darfield in Canterbury for cream cheese.
“These are helping us to match increasing demand for our products and ensuring we remain on track to meet our annual revenue target of $5b by 2023,” said Paravacini.
He puts the booming business down to changing lifestyles by consumers and Fonterra chefs around the world working with food service providers to help their businesses succeed.
Foodservice is one of the largest industries in the world and encompasses food and beverages consumed in restaurants, cafes and bakeries.
In the US at least 50% of spending on food and beverage is now out of home and in China the market has grown by 30% over the last five years. As a result, the global industry is predicted to be worth US$3 trillion in 2021, Paravacini says.
“We have taken advantage of this eating-out trend and currently Anchor Food Professionals is growing 10 times faster than the global total foodservice market.
“It is part of our strategy of focussing on adding more value to… milk. The gross margin from foodservice is two to three times what we can earn from basic ingredient products,” he says.
Paravacini points to Fonterra working with tea houses in China. There Chinese prefer tea topped with a fluffy blend of cream and cream cheese; consumers queue up to three hours for the tea macchiatos.
Last year the tea houses sold 200 million serves.
Paravacini says the functional superiority of Fonterra cream and cream cheese is allowing the co-op to capture a large part of the market.
