Fonterra says many farms are inaccessible and milk collection impacted by flooding in Southland and Otago.
In the last few years it has grown at 20% per annum; the rest of the global food service business has grown at about 6%.
“In the last two-three years we’ve really accelerated,” he told Dairy News. “You invest and learn and it takes time and then the momentum builds. We have very good momentum now and we expect that to continue.”
The growth rate of Fonterra’s food service is partly because “we are focused on where we think we can win. If we choose to sell standard butter to everybody we might be at 6%... but if we choose to sell highly innovative products to the types of business that value that product, that’s where we get our growth,” he says.
“We have a simple and focused strategy – and I don’t mean easy, it is a tough game – but we still need to be agile so as trends emerge and change we have to stay to our strategy. But we’ve got to move as well.”
They focus on certain business types, he says.
“We understand well the bakery sector in China and SE Asia, we understand well the quick service industry McDonalds, Pizza Hut, Subway, and we understand well the Italian kitchen -- the pizza and pasta business. We have that expertise, but if we tried to be the experts in fine dining, cafes, hotels or institutional catering… if we tried to understand all the possible channels in food service we wouldn’t be experts.”
They are “intentional” about where they choose to operate. “We need to keep innovating, keep staying relevant to trends and remaining focused.”
He says the team at the Fonterra Research Centre in Palmerston North are the “unsung heroes” because they are such an important part of what makes food service successful: “It is years of learning, mistakes and getting it right.”
Fonterra currently has 56 chefs in about 24 kitchens globally, he says.
“In each of our markets we have invested in a physical facility and we have chefs who work with our customers. Sometimes they will go out into the kitchens of our customers, sometimes they will bring them into our kitchens.
“If we can help them grow their business they benefit from that and we benefit. That is the essence of our operating model in the market. Chefs are front and centre because it starts with food.
“Above and beyond food we work with our customers in other areas... their store layouts, or we might provide materials that sit as a backer to a nice display of a product that contains New Zealand butter and help them communicate to their customers and so forth.
“There are years and years of [product innovation], making mistakes and improving and getting it right.”
Victory is to the agile
Innovation in food service often has to happen very quickly; leaving it weeks can be too long, says Watson.
“If we weren’t a relevant supplier of Tea Macchiato from the start, we would have left that opportunity for one of our competitors.”
Innovating for customers at the front line requires an agile approach to make sense of the trends.
“Spending time in China you realise how quickly they move from one thing to the next to the next,” he says.
“My sense in the Western world is that when someone does something very different we think ‘gee that’s disruptive’; but when you’re in China the way they operate naturally is disruptive.
“So it means moving quickly and you have to be agile, quick and very relevant to be part of it. We need to be ready for stuff we haven’t thought of and that agility needs to be built into our DNA and how we operate with customers.
“The margins on this business are high.”