Fonterra is trying to catch up to rivals such as Nestlé and Coca-Cola Co. by churning out about 300 new prototypes a year for market testing overseas, increasing the number of products to include super-stretchy cheese and quick-reduced cream.
“You can be a little bit reliant [on rising prices] and hubris can set in,” Jacqueline Chow, chief operating officer of Fonterra’s global consumer and food-service business said in an interview at the company’s Auckland headquarters. “Everyone has had to undertake some sort of transformation in the last five years.”
Fonterra’s failure to diversify when milk prices were lofty points to a central conflict in world agricultural markets. Food commodities from rice to coffee are produced, on the whole, by millions of small farms. In Fonterra’s case, 10,500 individual farmers formed the co-op that markets most of New Zealand’s milk.
When it comes to reacting quickly to changing food trends, these farmers often lack capital for developing new products and making the leap from milk and butter to consumer foods with higher margins.
“You can’t suddenly wave a magic wand in 2016 and flick from being a commodity business to a consumer business,” said Keith Woodford, a New Zealand agribusiness expert who has followed Fonterra since inception.
Fonterra’s research campus demonstrates its recent priorities. This labyrinthine web of laboratories joined by tacked-on glass walkways contrasts with the state-of-the-art headquarters executives and office staff moved into this year.
New Zealand scientists first began putting milk under the microscope here on Dairy Farm Road in the 1920s. During World War II they worked out how to remove moisture from cream, allowing it to be shipped to European battlefields without spoiling. In the 1970s they created the world’s first spreadable butter.
Fonterra spends only about 0.4% of its sales revenue on research, compared with roughly 1.5% for most fast-moving consumer-goods companies such as Unilever PLC. It has a research staff of about 300, compared with approximately 6,000 at Nestlé. Nestlé’s global brand portfolio is diverse: It makes everything from KitKat chocolate bars to Nescafé instant coffee and Purina pet food.
Even so, Fonterra’s sales volumes in China rose 48% in the past year, as it pushed into bakeries and restaurants in regional cities with new products such as a cooking cream that comes already reduced, cutting the cooking time for cream-based sauces.
A new super-stretchy mozzarella that matures in six hours versus three months is proving popular. In Beijing, where Fonterra supplies Yum Brands Inc., the owner of KFC and Pizza Hut, Chinese customers regularly gather for pizza-stretching competitions. The record: nearly 9 feet, in a nation where cheese “stretchiness” is regarded among a pie’s most important qualities.
Ms. Chow, who joined the company in 2013 from marketing and innovation roles at Campbell Soup Co. and Kellogg Co., has whittled down Fonterra’s main consumer brands to three from 60.
Fonterra’s consumer and food-service businesses raised global sales volumes by 5% and 15%, respectively, last year. Those figures show Fonterra is “taking share in this space” from rivals, Macquarie analysts said in a research note.
The co-op plans to double the amount of milk it pours into consumer and food-service products to 10 billion liters by 2025.
These products take time, and money, to develop, though. And not all are successful. For a while, the company had its hopes on a medicinal ice cream, but gave that up after clinical trials found no clear evidence it reduced the side effects of chemotherapy.
The new super-stretchy mozzarella cost tens of millions of dollars to develop, including a new factory. However, scientists were forced back to the drawing board after an early version shrank rather than oozed over the pizza when cooked: “Not a very good look when you’re trying to cover your pizza with cheese,” said Mark Malone, Fonterra’s director of research and development. The problem set the project back six months.
“Some [products] will succeed, some will fail. You’ve got to hedge your bets a bit,” Mr. Malone said as he ran through a presentation of recent discoveries in a boardroom named after the Jersey cow.
Source: WSJ
Link: http://www.wsj.com/articles/can-super-stretchy-cheese-boost-fonterra-as-milk-bet-sours-1477994197