I wrote recently in the New Zealand Herald about what I regard as Fonterra’s misguided proposal to sell off its consumer brands. Here are the details:
Clive Elliott: Selling the crown jewels – why Fonterra’s proposal doesn’t make sense
If you can’t access the article behind the Herald’s paywall here is the main gist of my argument:
On 21 November 2024, NZ Herald business writer Andrea Fox reported on Fonterra CEO Miles Hurrell’s proposal to sell off a number of the company’s iconic New Zealand brands, including Anchor, Mainland, and Kāpiti. This makes no sense. The benefits of doing so are likely to be short-term and illusory. In my opinion, Fonterra should retain, nurture, and develop its valuable consumer brands rather than hawking them off to the highest bidder.
In my first job out of university, I was employed by the multinational company Unilever. I was fortunate because it gave me an insight into what branding and marketing strategies for fast-moving consumer goods are all about. In those early days, I learned that Unilever’s focus has always been on brand equity: a strong commitment to innovation, a consumer-centric approach to its product range, and the development of strong, protectable, profitable brands.
It is no coincidence that Unilever has remained one of the world’s largest and most successful consumer goods companies, boasting a portfolio of flagship brands across food, beverages, home care, and personal care – for example, Dove beauty products, Lipton tea, Surf laundry products and Magnum ice cream to name a few.
I mention ice cream because Fonterra recently owned New Zealand’s iconic ice cream brand, Tip Top—one of the country’s few examples of a successful value-added food business. Sadly, it was sold off in 2019 when Fonterra decided it could no longer manage it effectively. At the time, Fonterra’s CEO reportedly said that it had to be sold because Fonterra “couldn’t do it justice.” It looks like the current management can’t do justice to the rest of its established brands either. If this is the case, it is a worrying red flag. Does it suggest that Fonterra has still not found a solution five years later so it can “do justice” to the rest of its portfolio of well-loved and established brands? Perhaps the time has come to ask whether Fonterra should reassess its long-term strategic thinking rather than take the easy way out and sell the company’s crown jewels.
In her article, Andrea Fox noted Fonterra’s argument that its consumer business has no competitive advantage, which is why it wants to get shot of it. I’m afraid I have to disagree. There is no reason why Fonterra cannot replicate the success of multinational companies like Unilever and Nestlé. Aotearoa New Zealand’s pristine, green reputation and strong social, and (at least until recently) environmental ethos give Fonterra a huge natural advantage. We also have significant scale and proximity to some of the world’s most dynamic markets, particularly in Asia. The parallels between Fonterra’s potential and Unilever’s achievements are striking. By adopting a similarly strategic approach focused on marketing, innovation, and understanding consumer needs, there is no reason why Fonterra can’t just survive but prosper. What is needed, however, is determination and long-term strategic leadership.
In my view, our prosperity and ability to remain a first-world economy depends on our ability to add value to the product categories in which we excel rather than taking short-term fixes. A pivot towards what is charitably described as a “global business-to-business supplier” of dairy nutrition products is ill-advised. Putting the spin to one side, it means no longer supplying value-added branded products and instead becoming a stock standard commodity supplier. And unfortunately, there are plenty of them around.
To conclude, I believe that Fonterra is making a strategic blunder if it goes ahead and flogs off these assets, particularly at the moment when good payouts are being made to farmers.
As a country we have to add value to our commodity products not sell off the few decent international brands we have and package that up as some sort of success, it’s not! By going back to a basic commodity model, with a bit of innovation on the side, we are throwing in the towel and that is a huge concern. What worries me more however is that few people, Peter Davis a board member of the Helen Clark Foundation aside, seem to be asking the hard questions.
