REPOSITIONING the Anchor brand for everyday nutrition and satisfying the demand for food service products are priorities for Fonterra’s new main man in China, Asia, the Middle East and Africa.
Johan Priem was recently made managing director Asia, Middle East and Africa as well as president of Greater China, two crucial roles for Fonterra’s value-added future.
The division has delivered good and quickly growing profits in the past and held the biggest potential demographically for increasing sales.
Priem is a contemporary of chief executive Theo Spierings and a former executive board member of Friesland Campina in the Netherlands with long commercial experience in southeast Asia, both in dairy and the tobacco industry.
Priem has been president of Fonterra’s operations in China since August 2014 and managing director for Asian, Middle East and African brands and food service businesses for a month.
He first drew attention to the big value for Fonterra shareholders and unit-holders sitting in the brands Anlene, Anmum and Anchor – the three As.
Those brands, plus Fernleaf in Malaysia, had great potential throughout southeast Asia and China for more volume growth.
The premium-price, advanced-nutrition brands Anmum and Anlene had been the leaders in the past but now the Anchor everyday nutrition brand would receive more attention, he said.
Anchor would provide the impetus for new customers in southeast Asian markets, followed up by the Anmum and Anlene brands.
“It is the combination of the three brands we can make work harder for us,” Priem said.
“When I was at Friesland Campina I saw Fonterra give Anchor brand less attention in the past 10 years. Now we are using all three brands in our strategy.”
Fonterra brands have leading positions in Malaysia and Sri Lanka and strong positions in China and the other nine ASEAN countries – Indonesia, the Philippines, Vietnam, Singapore, Brunei, Vietnam, Cambodia, Laos and Myanmar.
It had four business models in southeast Asia selling branded and unbranded products made in NZ; blending and packing in two Malaysian plants for export to neighbouring countries, longstanding co-packing relationships in countries like the Philippines and now the new dedicated in-market manufacturing site in Indonesia.
“We apply these different models on the basis of what makes most sense, taking into account product standards, food safety and supply security.”
Fonterra had identified eight key markets worldwide; four existing leadership markets (NZ, Chile, Sri Lanka and Malaysia) and four strategic markets where it was aiming for dominance (Brazil, China, Australia and Indonesia).
Three of the eight were on Priem’s watch — Malaysia, Indonesia and China.
Those markets would get a larger and disproportionate share of total resources.
Fonterra was already the market leader in Malaysia and China and Indonesia were strategic markets with huge growth opportunities.
Indonesia had the biggest population in ASEAN, 255m, and very low per-capita dairy consumption.
The West Java plant throughput would be 12,000 tonnes a year of Anchor, Anlene and Anmum products for the Indonesian market, where the population was expected to grow at 5% a year to 2020.
At a cost of $36m it had been operational since March and had a capacity of 87,000 packs a day.
Priem was particularly enthusiastic about the growth of food service business for Fonterra in Asian markets.
That business grew 11% throughout Asia in the 2013-14 financial year, totalling $2.2 billion of sales.
The main channels were bakeries, quick-service restaurants and hotel and restaurant chains, he said.
Although most of the food service products were unbranded, opportunities had been identified to extend branded Anchor culinary ingredients like UHT cream and mozzarella cheese into consumer-ready packs.
Spierings said in the last annual report that food service demand from Asia outgrew the capacity of NZ plants to deliver – hence the expansions for UHT milk at Waitoa, mozzarella cheese at Clandeboye and cream cheese at Te Rapa.
“In Indonesia, sales volumes were up 20%, driven by market share growth in food service and our brands Anmum, Anlene and Anchor Boneeto.”
Priem said China’s economic slowdown was not affecting sales in all Asian markets.
Because dairy consumption was low and incomes were rising throughout the region, demand for Fonterra’s products continued to grow strongly.
“China’s economic growth may have slowed but the growth in dairy consumption hasn’t and that is true of other markets in Asia, certainly Indonesia.”
Priem conceded multinational competitors like Nestle and Friesland had been active in southeast Asian markets like Indonesia with their own brands for much longer.
“So we are coming from behind in some respects but if you have a breakthrough product like Anlene it is never too late.”
“China’s economic growth may have slowed but the growth in dairy consumption hasn’t and that is true of other markets in Asia, certainly Indonesia.”
Johan Priem
Fonterra
Asked why Fonterra was not interested in dairy food categories like drinking yoghurt and ice cream, Priem said the key leadership and strategic market strategy had selected products and countries in which Fonterra could achieve or maintain number one or two positions.
“Clearly we lead in NZ with Tip Top ice cream but in most ASEAN countries the market leader is Nestle or Unilever.
“We would rather concentrate on food categories in markets where we can lead, not where someone else is entrenched.”
In the low dairy commodity price environment, branded and food service products were the best for the long-term to keep driving revenue and dividends for shareholders.
“In markets where low dairy prices are impacting branded products it means milk is becoming commoditised.
“We prefer brands that keep developing no matter whether milk prices are high or low.
“Low milk prices don’t mean there will be increased demand for brands.”
Priem said he had many reasons to be positive and NZ farmers should continue to believe in the future for brands and food service products in Asian markets.
