In March next year Fonterra Brands will occupy an 11,000 square metre leased, purpose-built facility to replace multiple warehouses in Auckland, from which distribution would be by road, sea and air.
Managing director Leon Clement said the new facility at the airport would consolidate seven warehouses into one, optimising storage and reducing complexity in freight movements.
“A single dispatch point in Auckland for all our dairy products, except ice cream, will greatly improve the efficiency of our North Island supply chain operation.
“For example, instead of supplying a customer order from two or three centres we will be able to supply it from one, reducing movements on busy roads and improving service levels for customers.”
Somewhat lost in the annual reports of Fonterra’s billion-dollar size and reach in export commodities and food service products, the domestic Fonterra Brands is a very steady earner for farmer-shareholders, growing year on year.
In the recent interim results, Oceania was one of the regions in the consumer and food-service business with the largest volume growth.
Components were strong demand for fresh white milk and butter in New Zealand and for UHT milk exports.
For the six months ending January 31, Oceania’s volumes increased by 11% from 868 million litres of milk equivalent to 960m litres compared to the previous corresponding period.
Clement’s predecessor Tim Deane said this time last year that Fonterra Brands’ growth rate exceeded that of the whole NZ fast-moving consumer goods sector.
Its domestic dairy market share was not disclosed but it does have a strong, across-the-board competitor in Goodman Fielder and a number of niche competitors like Lewis Road and Emerald Foods.
Deane identified “massive opportunities for growth” in southeast Asia, the Pacific Islands and also here, in out-of-home consumption, speciality cheeses and yoghurts, where Kiwi per capita volumes were lower than in comparable developed countries.
About half of domestic sales came from the Tip Top ice cream business at Mt Wellington, Auckland, and the rest from Takanini’s fresh dairy products plus cheese plants in Kapiti, Eltham and Palmerston North.
Exports comprised a core range of Anchor products such as milk powders, butter, cheese and UHT milks and creams, plus NZ-origin, consumer-ready products for markets without local co-packers and licensees.
Products made by plants at Takanini and Mt Wellington, Kapiti Coast, Eltham and Palmerston North went to Auckland for storage, consolidation and dispatch, mostly by ship.
Fonterra Brands got involved in a complementary way to the main ingredients and food service businesses in export markets and in pioneering the opportunities if Fonterra didn’t have a prior presence.
On coming into the job Clement said he was impressed by the largest share of its export business, to the Pacific Islands.
“It’s a region we own and have been active in for a long time, encouraging dairy consumption.”
The Pacific contained markets totalling 20 million consumers, half of them residents and the other half tourists.
Anchor brand had either number one or two positions in 18 Pacific Island countries, Clement said.
In the past year Fonterra Brands had launched five new products in the Pacific, including Anchor whole and skim milk UHT, to enhance and grow its market share.
Countries ranged from sophisticated economies with good standards of living like New Caledonia and French Tahiti, where tourists abounded, to the poorest like Papua New Guinea and Vanuatu.
New Caledonia had only 250,000 people, plus as many tourists annually, whereas Papua New Guinea had nearly eight million people and a per capita consumption of 1.6kg dairy products.
“Its economy is growing by 8% annually – offering huge opportunities for milk powders and UHT.”
The more mature markets with already high dairy consumption offered opportunities in food service and ice creams, whereas the poorer markets needed milk powders and UHT products, Clement said.
Competitors in the Pacific tended to be French or other Europeans in the French territories, either Australian or other NZ companies elsewhere and included some local dairy companies.
Fonterra had strong positions in many Pacific markets based on historical ties, good government relations and the exchange of people who knew NZ brands like Anchor, Mainland and Tip Top.
The opportunities in southeast Asia varied according to the starting base, he said.
As economies grew the dairy preferences of Asian people tended to come closer to those of New Zealanders, for example specialty cheese to Thailand.
Fonterra already had established operating companies and so Fonterra Brands had to work collaboratively to provide the “fresh dairy” products on top of the ingredients and food service products.
Changing tastes and the growth of tourism presented great opportunities throughout Asia in the future.
“We do not want to leave any value-add stone unturned,” Clement said, especially where NZ provenance would be welcomed, such as in hotels and restaurants.
“Building sustainable brands in these markets is expensive and we have to be consistent. When we choose to go in, we need a clear proposition that will attract the target market.”
Back home the trend was to more functional benefits with innovations that stemmed from the Fonterra Research and Development Centre in Palmerston North.
For example, enhanced milks with added calcium or protein now made up 8% of the total NZ liquid milk market.
Proprietary probiotics were now part of yoghurts and infant formulas.
“We start with what we call an unmet consumer need and ask can dairy be a solution?”
The big trends were functionality, sourcing or provenance, less sugar and more protein.
