Fonterra Plans to Sell Consumer Brands Division: Market Expectations and Forecasts
Source: The DairyNews
On May 16, Fonterra, the largest dairy cooperative, announced its intention to sell its consumer brands division, which includes the production of well-known brands such as Anchor, Fresh'n Fruity, and Mainland.
This move could represent one of the most significant structural changes in the company's history over the past 23 years.
In 2023, the cooperative reported revenues of 3.3 billion New Zealand dollars from its consumer brands. Fonterra now hopes to use the proceeds from the sale to invest in the business development of the company. Analysts note that high inflation and slow economic growth have put pressure on food brands both in New Zealand and globally. This has impacted Fonterra's consumer segment, which posted a loss of 164 million dollars after taxes in 2023. Despite this, Fonterra's consumer brands maintain high recognition in regions such as Southeast Asia, China, and Sri Lanka. However, maintaining and enhancing the value of B2C brands requires continuous investment. If investments are directed towards other business areas, there is an increased risk that the brands may lose value, especially in a highly competitive environment.
Farmers of the cooperative could potentially earn up to 3.4 billion dollars from the sale of Fonterra's consumer business. The funds obtained are intended to be used to enhance the production of high-quality ingredients for the foodservice industry.
However, losing iconic brands in both domestic and international markets carries risks. Some experts believe that Fonterra is essentially becoming an ingredient supplier, dependent on other companies' strategies. Another market risk mentioned is the potential increase in consumer prices for the products of brands that may be sold to a new investor.
According to Massey University marketing professor Bodo Lang, there are significant drawbacks to Fonterra’s proposed divestiture. Lang expressed concerns that selling these brands, possibly to an overseas conglomerate focused primarily on profit, could lead to higher dairy product prices for New Zealand consumers. He also warned of the potential loss of the cooperative's "face," as these brands are integral to Fonterra's domestic identity and success.
Nevertheless, regulatory bodies in the country will continue to work to combat potential monopolies. Fonterra representatives noted that they conducted a thorough analysis before making the decision.
“We conducted a strategic review that reinforced the role of our core business. This involves working with farmers to ensure stable milk supply and efficient production of valued products, while also delivering high returns to our shareholder farmers and unit holders,” said Chairman Peter McBride.
“We believe we can further enhance the cooperative's value by focusing on becoming a B2B dairy supplier, working closely with clients through our high-quality ingredients and foodservice channels. In this context, we are exploring the sale of our global consumer business as well as our integrated companies Fonterra Oceania and Fonterra Sri Lanka,” commented CEO Miles Hurrell.
“The sale of these assets would help create a simpler and more efficient cooperative, focused on producing core ingredients and foodservice products and excelling at what we do best,” said Mr. Hurrell.
“Although these are excellent businesses showing strong performance and potential for further development, owning them is not essential for Fonterra's primary function of collecting, processing, and selling milk. We prioritize the production of ingredients and foodservice products,” Hurrell noted, emphasizing that attracting investment would benefit the consumer division.
With substantial capital in the market—Macquarie Group reported a global reserve of approximately $US2.59 trillion at the end of last year—private equity firms are expected to closely scrutinize Fonterra's offer.
Prashant Tripathi, Founder & Director of Market Development at the consulting company JORDBRUKARE, told Dairynews.today: “I think this will come to reality; it will change the region's dynamics, which Fonterra will call an exit. For example, the Sri Lankan exit could mean a potential consolidation in the sector and a better opportunity for its competition and any new entrant.”
Torsten Hemme, global dairy expert and founder of the analytical network IFCN, noted: “it looks that in the future bigger is not the top priority of some processors anymore.”
More news
In 2023, the cooperative reported revenues of 3.3 billion New Zealand dollars from its consumer brands. Fonterra now hopes to use the proceeds from the sale to invest in the business development of the company. Analysts note that high inflation and slow economic growth have put pressure on food brands both in New Zealand and globally. This has impacted Fonterra's consumer segment, which posted a loss of 164 million dollars after taxes in 2023. Despite this, Fonterra's consumer brands maintain high recognition in regions such as Southeast Asia, China, and Sri Lanka. However, maintaining and enhancing the value of B2C brands requires continuous investment. If investments are directed towards other business areas, there is an increased risk that the brands may lose value, especially in a highly competitive environment.
Farmers of the cooperative could potentially earn up to 3.4 billion dollars from the sale of Fonterra's consumer business. The funds obtained are intended to be used to enhance the production of high-quality ingredients for the foodservice industry.
However, losing iconic brands in both domestic and international markets carries risks. Some experts believe that Fonterra is essentially becoming an ingredient supplier, dependent on other companies' strategies. Another market risk mentioned is the potential increase in consumer prices for the products of brands that may be sold to a new investor.
According to Massey University marketing professor Bodo Lang, there are significant drawbacks to Fonterra’s proposed divestiture. Lang expressed concerns that selling these brands, possibly to an overseas conglomerate focused primarily on profit, could lead to higher dairy product prices for New Zealand consumers. He also warned of the potential loss of the cooperative's "face," as these brands are integral to Fonterra's domestic identity and success.
Nevertheless, regulatory bodies in the country will continue to work to combat potential monopolies. Fonterra representatives noted that they conducted a thorough analysis before making the decision.
“We conducted a strategic review that reinforced the role of our core business. This involves working with farmers to ensure stable milk supply and efficient production of valued products, while also delivering high returns to our shareholder farmers and unit holders,” said Chairman Peter McBride.
“We believe we can further enhance the cooperative's value by focusing on becoming a B2B dairy supplier, working closely with clients through our high-quality ingredients and foodservice channels. In this context, we are exploring the sale of our global consumer business as well as our integrated companies Fonterra Oceania and Fonterra Sri Lanka,” commented CEO Miles Hurrell.
“The sale of these assets would help create a simpler and more efficient cooperative, focused on producing core ingredients and foodservice products and excelling at what we do best,” said Mr. Hurrell.
“Although these are excellent businesses showing strong performance and potential for further development, owning them is not essential for Fonterra's primary function of collecting, processing, and selling milk. We prioritize the production of ingredients and foodservice products,” Hurrell noted, emphasizing that attracting investment would benefit the consumer division.
With substantial capital in the market—Macquarie Group reported a global reserve of approximately $US2.59 trillion at the end of last year—private equity firms are expected to closely scrutinize Fonterra's offer.
Prashant Tripathi, Founder & Director of Market Development at the consulting company JORDBRUKARE, told Dairynews.today: “I think this will come to reality; it will change the region's dynamics, which Fonterra will call an exit. For example, the Sri Lankan exit could mean a potential consolidation in the sector and a better opportunity for its competition and any new entrant.”
Torsten Hemme, global dairy expert and founder of the analytical network IFCN, noted: “it looks that in the future bigger is not the top priority of some processors anymore.”
More news
Key News of the Week
