Earlier this year, the New Zealand-based milk giant partnered with a customer in Greater China to develop a cake containing its probiotics “in response to rising consumer interest in the health benefits of probiotics,” said Fonterra CEO Miles Hurrell.
This interest has certainly bolstered the company’s first quarter, with improved performance in all three of its sales channels. Higher margins across the Co-op’s Ingredients, Foodservice and Consumer channels have driven the healthy boost in profit for the company, up 85% (to NZ$392m) after tax vs this time last year. EBIT is up 63% to $575 million.
“As a result, we have lifted the midpoint of our forecast earnings for the year up 5 cents per share, with the range moving from 45-60 cents per share to 50-65 cents per share,” said Hurrell.
Rising demand for diary
In January, Fonterra’s foodservice operations in Greater China saw a generous dollop of health boost consumer demand.
Dairy’s popularity is on the rise in China. Not a typical ingredient – around 92% of Asian people are genetically predisposed to lactase-deficiency – demand for dairy is expected to grow 2.4% between 2023 and 2032, according to Rabobank.
As such, foodservice products sold across the region are increasingly based on – or contain – cream, cheese and butter, which makes them the ideal vehicle to incorporate additional benefits, said foodservice VP for Greater China Justin Dai.
Enter Fonterra’s 50-strong team of Anchor Food Processionals (AFP), which concentrates on product innovation for bakeries, cafés, pre-packaged foods and quick-service restaurants.
The foodservice development arm has a footprint around the globe – with several in China – to give customers access to the 135-year-old NZ company’s significant experience and insight into local markets.
A leading bakery chain wanted probiotics in some cakes, so the AFP application centre in Shanghai jumped into action and developed new product line, adding a nutritional USP (unique selling point) to otherwise “normal cream cakes,” Dai told Farmers Weekly.
Adding a health punch
Recent years have seen a surge in global awareness about the benefits of probiotics in health and wellbeing.
Probiotic dairy products were once known mainly for their positive effects on digestive and immune health. According to the FMCG Gurus Probiotics Survey, 73% of consumers use probiotic products to support digestive health, while 71% aim to boost their immune systems. However, consumers have become motivated by a wider set of health-related concerns.
Fonterra has long been at the forefront of innovation in dairy science and nutrition.
Its journey into probiotic research began in the mid-1990s when scientists from the Fonterra Research and Development Centre (FRDC) in Palmerston North, New Zealand, initiated a research programme to develop unique probiotic strains that enhanced the immune system.
The Microbial Fermentation Unit (MFU) based at the FRDC, today, holds a collection of more than 40,000 dairy-associated bacterial strains – regarded one of the world’s largest collections of its type. This has become a rich source of potential new probiotics, and helped the company develop ingredients like Nutiani, which incorporate the HN001 and HN019 probiotic strains, which benefits ranging from inflammation control to immunity support, gut comfort, weight management, brain health and a glowing skin, among others.
Fonterra AFP is also investigating adding a higher protein content to biscuits and waffles for other foodservice customers.
“Traditionally foodservice products have to be delicious, but now they also can be nutritious,” said Dai.
“We bring health and wellness into the recipes and the customers like it very much.”
At the beginning of the year, Fonterra also signed a deal with Walmart China to launch new bakery products in more than 400 stores, including a cream cake, Basque cheesecake and a Swiss roll using New Zealand whipping cream and cream cheese.
“Our strong partnership leverages the strengths of both sides – retail and dairy supplies – to bring out successful innovations,” said Dai.
“In the future, we will continue to strengthen co-operation with our retail partners and to provide more innovative solutions for Chinese customers.”
In his forecast for FY24 earnings, Hurrell said, “Our in-market teams are continuously working on new ways to commercialise our innovation expertise.”
He added, “We are pleased with the results for the first quarter of FY24 and see positive momentum across our business as we work towards our 2030 goals.”