22 May 2024 What's behind Fonterra's decision to sell its consumer brands

Fonterra caught the business world by surprise last week with plans to sell off its consumer brands and businesses – including supermarket mainstays such as Anchor, Fresh'n Fruity and Mainland. The move has been described as the “most dramatic major structural change” in the company’s 23-year history.

There are several possible explanations for this shift in direction for the dairy giant.

Consumer markets have long been a cornerstone of Fonterra’s business strategy. In 2023, the cooperative reported NZ$3.3 billion in revenue earnings from its consumer brands. This benefited Fonterra and farmers alike.

Fonterra now hopes to use the sale of its consumer brands to invest in the business-to-business side of the company. Economic conditions may have played a part in the decision – but it is clearly not the only reason.

High inflation and low economic growth have put pressure on food brands, both in New Zealand and globally. This has been reflected in the performance of the consumer side of Fonterra’s business, which lost $164 million after tax in 2023.

That said, the ongoing visibility and growth of Fonterra’s brands in emerging economies such as Sri Lanka, China and Southeast Asia, and improved performance in this financial year, seem to indicate all is not lost with the consumer market.

Branding the essentials

One of the fundamental challenges for Fonterra is the nature of what they sell. Core products such as milk, butter and cheese are seen as commodities by consumers. Shoppers generally believe there is little difference in quality between generic or supermarket labels and branded alternatives.

When finances are tight, purchasing decisions will be driven by price. To maintain (and justify) higher prices, branded products need to continually communicate their value and brand story.

Read the full article published on The Conversation website by Professor Alan Renwick and Associate Professor David Dean … here >>>

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