Anchor launches a Route to Market strategy in China to go deeper into the catering market

SHANGHAI,July 12,2018 -- Today,China's catering industry is experiencing explosive growth on a double-digit scale and a general trend of consumption upgrade. As one of the fastest growing dairy markets in the world,China market is being valued by more and more dairy giants. Constantly following the market demand,Fonterra adopted a Route to Market strategy and successfully achieved its self-transformation. At present,most of the well-known western food stores in China are Fonterra customers.

Recently,the head of Fonterra Foodservice Department accepted an interview with Foodinc and talked about this strategy.

Two years ago,it took nearly 3 months,from placing order,paying to confirming the delivery,for a restaurant in mainland China to buy Anchor cheese and butter from Fonterra. Now,however,this shopping cycle has been shortened to as short as 3 days,as far as within Fonterra's network.

How does the company make that happen? All can be dated back to the 'Route to Market' launched by the Fonterra in China two years ago.

"There used to be complaint from our food service customers that they can't buy Anchor cheese timely enough." Kefei Bu,with a former position inFoodservice team and now General Manager of Fonterra's China Strategic Account team,revealed that before entering China,Fonterra supplied Anchor products to mainland customers primarily by way of Hong Kong and Taiwan,and has gained a group of loyal customers on account of its good reputation.

In the decade that followed the company's official entrance to China market in 2011,Anchor cheese and butter are sold to the market through cooperation with the locally designated distributors. However,such level-by-level distribution fails to keep up with the fast-growing market demand.

"Some pizza chains told us that they felt discouraged to quickly open more restaurants even though their business are booming,as they worry about the availability of our cheese and butter. And you have to be very lucky for a stock-up," said Jim Ruan,Vice President of Foodservice team of Fonterra Greater China.

There are restaurants that tried to skip distributors to order directly from Fonterra's New Zealand factory,but they have problem in communicating in foreign language and need to hire special personnel to take charge of the customs declaration and inspection.

This huge supply-demand imbalance really upset Foodservice team. They had no way to push the channel downward because of their high dependence on the distribution network at that stage.

It's not until 2016 that the situation began to change,when Fonterra's management made a decision on reforming the market channel for it food service business.

In May 2016,Anchor's food service brand "Anchor Food Professionals" came into China.

It's also a signal that the sole business of cheese and butter has changed: Fonterra starts to design customized solutions for Chinese catering business.

Apparently,this diary giant from New Zealand,not contented with its trader role,is determined to break from the original distribution system and build its own channel for deeper penetration into the market.

According to Jim Ruan,to access directly to more customers,the AFP sales team has tripled in size within 6 months,with members increasing from 20 to over 60.

"We believe that closer relationship with customers will bring us more opportunities to success," said Jim Ruan.

He also believes that one of the key reasons for this change is that the company hopes to shorten the intermediate process and deliver products to customers better and faster,thus reducing food safety risks,as cheese and butter imported from New Zealand must be kept at low temperatures throughout the transport.

He revealed that in addition to expanding the team size,they also adopted a series of measures to develop channels over the past six months: improve stocking,establish a cold chain distribution center,build a cold chain delivery system,a procurement and order system,and set up a logistics team. In October 2016,AFP officially launched the new network and operation mode in China.

Bu Kefei,who personally led this channel revolution two years ago,said that for local catering companies,not only can the channel cost be significantly reduced,but the procurement process are greatly simplified.

"First,you may place the order and receive the delivery within 3 days without paying in advance; second,restaurateurs don't need to go through a lot of trouble to contact Fonterra's New Zealand factory,but just talk to the local salesmen," said Bu.

Moreover,Fonterra has set application centers in Shanghai,Beijing,Guangzhou and Chengdu to provide room for technical demonstrations,professional training and marketing seminars and design solutions for customers from product publicity,pricing to sales promotion and kitchen.

After two years of development,Fonterra has fast expanded its food service business in China. But at the same time,more and more giants of imported dairy products have spotted opportunities from the 10% high growth per year in China's catering industry and the big trend of consumption upgrade in recent years.

A most current example is the Danish dairy giant Arla and Mengniu officially introduced their catering brand Arla Pro to China in May this year.Earlier,FrieslandCampina and Nestle were also stepping up their layout for professional catering in China.

But as the earliest company to delve into China,AFP has laid a better market base. More than half of the pizzas in China are using Fonterra's mozzarella,and more than half of the big bakery chains are using Fonterra's butter,cream and cheese.

"After completing the transformation two years ago,we have achieved a double-digit compound growth," said Jim Ruan. At present,Fonterra has realized direct delivery in 40 or 50 cities across the country,basically covering first and second tier cities. AFP has turned their eyes towards third and fourth tier cities,aiming to further push the channels downwards.

He said that the first-tier cities like Beijing,Shanghai,Guangzhou and Shenzhen are developing smoothly,and the second-tier cities are growing rapidly,but inthe future,the third and fourth tier cities will constitute the major growing force.

What's moreisthe tea drink and food in the catering market are developing faster on a nationwide scale,while for baking,the prime growth is now a history,and the differentiation trend ensues. Baking products are diverted from traditional cake shops to coffee houses,convenience stores and other channels,but the overall volume remains large. In the light of growth potential,tea drink,under the big trend of raw materials upgrading,is expected to have a promising prospect.