Saturday, March 30, 2024

Winning supply chain

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Fonterra in China has a winning business model with four integrated parts unmatched by other foreign companies, newly appointed managing director for Greater China, Christina Zhu says.
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She told the annual meeting of the co-operative, held at the Waitoa, Waikato processing site, the integrated supply chain would unlock huge value when fully connected up.
Fonterra intended to double its annual revenue in China to $10 billion by 2020.
It forecast Fonterra ingredient imports from New Zealand and Australia would rise from $3.5b in 2014 to $6b and that foodservice and consumer products would each become $2b business units.
Recently promoted from vice-president of ingredient sales to managing director, Zhu was brought to NZ to present a segment of the annual meeting and to be introduced to farmer-shareholders.
She said the four businesses in China – ingredients importing, consumer and foodservice, International Farming and the Beingmate joint venture – complemented each other and built the powerful, integrated model that gave Fonterra an advantage.
Consumer and foodservice sales grew 38% in volume in the 2015 financial year and earnings before interest and tax were up 400% to $45 million.
Foodservice sales extended to 13 more cities – now more than 40 in total – and the Anchor kids UHT milk range was launched.
“The higher earnings were also a result of the base cost price of milk but they also show our ability to capitalise on the strong brand equity in China.
“We have set challenging targets in the 2016 financial year and in the first quarter we got off to a very good start.”
Consumer goods would be sold primarily through e-commerce sites, because of their ability to reach much further than tier one and two cities into areas where western-style retail stores and cool chains were not yet built.
Online commerce was set to grow at 20% annually, compounded until 2020.
“We are only starting in brand business in China, so that enables us to be nimble and act fast in e-commerce when changes in the market occur.
“And we have premium brand positions supported by NZ origin.
“Online sales of Anchor products are growing 10% faster than off-line, 46% versus 36% annual growth.”
Zhu said Fonterra China would use its foodservice and quick service restaurant relationships to place Anchor UHT in bakeries and restaurants.
“This cross-selling of premium brands is an excellent example of the strength of our business integration in China.”
Huge foodservice opportunities existed in the “fat middle” below the peak restaurants and bakeries currently served, she said.
At present they used low-quality dairy, dairy-mix or non-dairy products.
Chief executive Theo Spierings said domestic milk production and processing would be needed for such major expansion, leaving the premium foodservice business to NZ products.
Foodservice in China was Fonterra’s crown jewel, being a dairy business segment in which it was well ahead of any rivals and enjoyed between 40% and 80% market share, depending on category, in the 40-plus cities.
Partnerships were a key part of Fonterra’s China strategy, Zhu said.
The Beingmate joint venture in the Darnum plant, Victoria, connected global milk pools in a strategic way: NZ milk powder, Darnum nutritionals, European whey and access to the fast-growing Chinese infant formula market ($18b a year) through the domestic market leader, along with Anmum distribution.
“Fonterra wants to access the world’s biggest infant formula market and it wants to work with market leaders.
“We need to work with partners that have the reputation and reach and share our food safety values; Beingmate is the right fit.”
However, Beingmate and other infant formula companies had experienced a very tough year, with many challenges and some chaos in regulatory requirements.
It had responded and its earnings had recovered towards the end of 2015, Zhu said.
“The winners in China are not those with the deepest pockets and the biggest in terms of size, although that does help.
“Winning companies stay tuned to customer and consumer needs, maintain strong partnerships, and stay focused on the game plan.”
China was the number one market for Fonterra, accounting for 25-30% of total revenue, Spierings added.
To a suggestion that Fonterra was over-reliant on China, he said China was like 20-plus countries in one.
Also, the growth strategy emphasised Southeast Asia and Latin America, not just China.
“We recently took control over the Brazilian joint venture with Nestle and we have a strong footprint in Southeast Asia.”

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