What Would Synlait Be Worth to Fonterra or a2 Milk?
Speculation of a possible joint move by Fonterra and a2 Milk to buy Synlait raises a much bigger strategic question, says agribusiness expert Dr Nic Lees.
Despite owning iconic New Zealand brands like Anchor, Mainland, and Perfect Italiano, Fonterra has been unable to compete in the global consumer market. The loss to foreign ownership of these well-known local brands is a tough pill to swallow for New Zealand consumers, but it highlights a reality: the small markets of New Zealand and Australia could never match the scale and reach of Lactalis and other dairy giants such as Danone and Nestlé.
The reality is that consumer sales were always a minor part of Fonterra’s business, making up less than 10% of its NZ$25 billion annual revenue. Most of its business is in ingredients and foodservice. By contrast, Lactalis earns the majority of its €30.3 billion (NZ$55.1 billion) turnover from global consumer brands including Président, launched in 1968, Galbani, founded in 1882, and Parmalat, established in 1961. The company operates more than 260 factories worldwide and sells its brands in more than 90 countries.
The contrast is not only about scale but also about history. Lactalis’s flagship brands have been building consumer loyalty for decades, in some cases for more than a century. Lactalis itself was founded in 1932. Fonterra, by comparison, was only formed in 2001 through the merger of New Zealand’s dairy co-operatives and the Dairy Board.
In consumer branding terms, Fonterra entered the game late, facing competitors with much longer legacies and deeper roots in global markets. Anchor is its most recognised global brand, inherited from the New Zealand Dairy Board, and has existed since 1886. However, Fonterra has struggled to take the brand beyond Australasia, Britain and some select Asian countries.
Fonterra’s core business has always been in dairy ingredients, processing around 16 billion litres of milk each year. Competing in the consumer market, where margins are thin, marketing costs are high, and brand loyalty is deeply entrenched, has drained Fonterra’s resources and attention. Lactalis, however, has long been structured to succeed in this space.
For Fonterra, exiting consumer brands is a strategic move back to its strengths. For Lactalis, the acquisition adds trusted Australasian names to a strong portfolio of established brands in North America and Europe.
Dr Nic Lees is senior lecturer – Agribusiness Management, Lincoln University
Read More:
- Strong shareholder mandate needed for Fonterra's $4.22b divestment
- Fonterra consumer business sale price jumps to $4.22b
- Fonterra seeks strong farmer mandate for sale
