Fonterra, a major dairy company, is planning to sell its well-known consumer brands like Anchor, Fresh’n Fruity, and Mainland.
This decision marks the biggest change in Fonterra’s 23-year history. There are several reasons for this surprising move.
Fonterra has traditionally made a lot of money from selling directly to consumers. In 2023, the company earned $3.3 billion from these brands, benefiting both the company and the farmers who supply it. However, Fonterra now wants to focus on selling dairy products to other businesses instead of consumers.
Economic conditions, such as high inflation and low growth, have made it tough for food brands. Last year, Fonterra’s consumer side lost $164 million after taxes. This has pressured the company to reconsider its strategy.
One of Fonterra’s challenges is that basic dairy products like milk and butter are seen as commodities. Shoppers often choose cheaper, generic options over branded ones. It’s costly for Fonterra to keep proving the value of its brands to consumers, especially when money is tight.
Selling its consumer brands might help Fonterra invest more in creating new products with other businesses. This approach has worked well for other food companies, like the Kerry Group in Ireland, which has benefited from focusing on innovation and partnerships.
For New Zealand farmers, the sale could bring in up to $3.4 billion. They might also gain from Fonterra’s new focus on selling high-value ingredients. However, losing iconic brands could be a risk, especially as competition from non-dairy products grows.
Even if Fonterra sells these brands, it might still supply milk to the new owners. But there’s no guarantee the milk will come from New Zealand. For instance, when Fonterra sold the Anchor brand in Europe, production eventually moved to the UK.
Some worry that new, foreign owners might raise prices. However, Fonterra itself has been criticized for keeping prices high. New Zealand’s market regulations should still help keep prices fair.
