Fonterra has opened its sixth food application centre in China, responding to growing demand from foodservice customers for knowledge and new ideas on how to use dairy products for new recipes.
Things are cooking in Fonterra’s kitchens
The Shanghai application centre is equipped as a working kitchen. Fonterra’s food application centres are in the four megacities along with Chengdu and now Wuhan. Photo: Neal Wallace

Tapping into China’s 350,000 bakeries, co-op’s foodservice division capitalises on Anchor’s reputation to produce soaring returns.

Fonterra has opened its sixth food application centre in China, responding to growing demand from foodservice customers for knowledge and new ideas on how to use dairy products for new recipes.

The latest food application centre (FAC) was opened in Wuhan in the centre of China, meaning within a three-hour speed train radius, Fonterra can access foodservice customers in 50 cities from an area responsible for generating 20% of China’s GDP.

“That gives us a customer-focused service capability we didn’t have in the past for this region,” said Justin Dai, Fonterra’s vice-president for foodservice, Greater China.

Fonterra employs about 50 chefs across China; they use the six FACs to work with bakery, beverage, dining channel customers and retailers, helping them make best use of its dairy products and working alongside them to develop new goods.

The centres have fully equipped kitchens so chefs and customers can test and  exchange ideas and techniques.

“FACs are a place where we co-create with our customers,” said Dai.

China’s economy has some headwinds, with retail growing just 3.9% for the first half of this year, but Fonterra has defied that trend with an exceptional performance from its foodservice division for the financial year just ended.

 

In Fonterra’s annual result announced last week, EBIT contribution by foodservice for Greater China grew $100 million year on year,  helping the co-operative  achieve an overall 19.6% return on capital for its foodservice business.  Return on capital by channel from ingredients, for example, was 10.2%, and consumer 6.8%.

Dai attributes that performance to Fonterra’s customer-centric foodservice strategy,  innovation-powered New Zealand dairy products, a highly recognised brand, and the capability of staff and their ability to adapt to what has been a fast-evolving market.

China’s restaurant sector has been hit hard by weak economic conditions but bakeries and foodservices have been less so.

Foodservice is a business-to-business structure and that is where the FACs play a central role.

“We invite our customers in and help them with their needs, exchange  insights and ideas and we co-create to develop new applications for meeting the business growth purpose ,” said Dai.

That includes how to better use Fonterra’s Anchor-branded products such as cream, butter, cream cheese and mozzarella .

There are about 350,000 bakeries in China and every quarter since covid, said Dai, about 9% of those have closed, but a similar number of new stores have opened.

“Bakeries are our core channel but the number that have closed have pretty much matched those that have opened.”

Screenshot 2024 10 03 at 12142%20PM
Fonterra regional chef Kelvin Gong works with foodservice customers in the Shanghai food application centre. Photo: Neal Wallace

What is even more remarkable is the sheer size of that customer base, numbering in the tens of thousands across China.

“It is a very fragmented, highly diversified and fast-evolving market.”

Despite that fragmentation and dynamic, Dai said, Fonterra has successfully tapped into the sector.

“We have a strong brand, excellent products,  and  a very focused customer-centric approach.”

China uses a city-tier index system, which reflects a city’s economic performance and development. There are four top-tier megacities – Shanghai, Beijing, Guangzhou and Shenzhen – followed by 15 new Tier 1 cities knocking on the door of megacity status; then 30 Tier 2 cities, 70 Tier 3 and 500 Tier 4.

Fonterra’s FACs are in the four megacities along with Chengdu and now Wuhan.

China is effectively multiple markets in one country and while Fonterra focuses on defending its strong position in Tier 1 and Tier 2 cities while keep expanding its capabilities to penetrate lower tier cities, it has over 140 distributors nationwide ensuring product gets to about 500 cities.

Dai said this is helped by China’s expanding world-class infrastructure network as well as the fast-evolving innovation and consumer needs.

He said international dairy brands remain popular but Fonterra’s Anchor brand has been highly recognised in the China foodservice sector and continues to perform strongly.

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The main entrance to Fonterra’s Shanghai offices. Photo: Neal Wallace

The secret to remaining the leading brand, said Dai, is investing in customer-focused capabilities including the FACs, promoting the fact that New Zealand milk is the world’s best,  continuing to innovate and connect the innovations with customer needs through its sales network but also utilising the digital capabilities that Fonterra is building

That includes the recent release of a smartphone app for customers that provides recipes along with the latest market trends and insight – and links to the most suitable Fonterra product to use for that dish.

Dai said Fonterra received a huge endorsement from the Chinese government earlier this year when Premier Li Qiang, on an official visit to NZ, and NZ Prime Minister Christopher Luxon met at Fonterra’s Auckland office.

“The signal was very clear. Trade is open and running smoothly, it’s the best endorsement we can have.

“Trade is our friend.”

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Fonterra is proceeding with the disposal of its consumer-facing dairy business, with an IPO or sale to a trade buyer put forward as possible options.

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