Chief executive Theo Spierings has tasked his foodservice division with 20% compound annual growth, which means total revenue will double in four years.
The expectation for the division’s sales is being backed by the new $120 million UHT plant at Waitoa and boosting plants for different cheese formats in three other locations.
Capacity expansions have been built or are underway for cream cheese at Te Rapa, sliced cheese at Eltham and mozzarella at Clandeboye.
Over the past three years foodservice revenue has grown from $1 billion to $1.6b, without the range of specialised facilities now being built, and now his target is $3.2b by 2020.
Spierings said at the official opening of the Waitoa UHT plant in Waikato that foodservice was a missing link in Fonterra’s processing facilities back in 2011.
When he arrived at Fonterra he observed a shortage of processing capacity for the main foodservice items – cream, cream cheese, mozzarella and sliced cheese.
The foodservice division had previously been told capacity was the limiting factor.
“We have only limited capacity and we can’t produce any more, so increase your prices,” Spierings said the message had been.
“Now we say, keep selling, we will invest in more processing capacity, at Waitoa and elsewhere.”
His value-add strategy, called Turning the Wheel, included all stages from commodities to ingredients, to foodservice and consumer-ready products.
“You can’t jump from ingredients to infant formulas, you have to have all the stages in between.”
The pre-Spierings strategy was two divisions – NZMP for ingredients and Fonterra Brands for all value-added products.
The explosion of quick-service restaurants and takeaway food stores in China and elsewhere in Asia and the Middle East had created unfulfilled demand for commercial-sized cream and cheese products.
Add the growing demand for premium consumer milk in China and Waitoa UHT now has a substantial jumping-off platform.
But to compete successfully against the in-market UHT plants of domestic Chinese dairy companies and resident multinationals like Nestle and Kraft, Fonterra needed premium positioning.
For milk, Spierings explained, that was NZ origin and gold branding to extract 20% premium in hypermarkets.
When Fonterra’s China Farms milk production had grown and a UHT plant was built over there, it would pack the normal Anchor Blue branding and compete with all-comers.
The biggest foodservice item from Waitoa UHT is whipping cream in 1 litre Tetra Paks, now a hot-selling line throughout Asia.
Among about 200 guests at the opening was a big party of Chinese commercial customers, under the watchful eye of Fonterra vice-president China foodservices Esther Chu.
Her strategy to grow foodservice in China is called a “chef-led solution” model, building relationships on trust.
In Shanghai, Fonterra consultant chef Teoh Joo Cheong said the growth of bakery chains like Beijing Holiland Foods Company and Changzhou Daxilai Cake Stores brought opportunities for new recipe development.
The largest of these chains numbered stores in the hundreds.
“These bakeries are investing in machinery to boost their volumes but competition is very keen and they must keep retail price points down,” he said.
The typical cost structure was 30% ingredients, 30% rent and 20% labour, leaving just 20% as margin.
So for an item retailing for six yuan only 1.5 yuan could be spent on the ingredients.
“We provide back-of-house knowledge with new recipes, new technologies and advice on packaging and promotions.
Cheong’s food service ingredients are three types of UHT cream, cream cheese, butter and mozzarella cheese.
He had a role in factory development and product choice at Waitoa.
The competition in China included palm fat substituted for cream. This required quite different product and cooking styles and preparation times, and created a different mouth-feel.
He said Chinese commuters now grabbed bakery items for breakfast while travelling, like cream cheese, lemon juice and sugar inside a ciabatta roll.
Small souffle-style cheesecakes were made fresh at the stores, containing between 25% and 50% Fonterra cream cheese and a wide variety of flavourings.
Cheong also develops recipes for the online bakeries like 21cake.com, now delivering more than 3000 speciality cakes a day by motorbike in Shanghai.
Cheesecakes, for example, ranging from 500g to 2.5kg, were ordered by banks, car companies and other VIP customers at prices between 170 and 400 yuan (NZ$35-$80).
