Fonterra SWOT Analysis
TABLE OF CONTENTS
Company Overview (3)
Key Facts (3)
SWOT Analysis.....................................................................................................4Fonterra Co-operative Group Limited
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T ABLE OF CONTENTS
COMPANY OVERVIEW
Fonterra Co-operative Group Limited (Fonterra or 'the company') markets and distributes milk and milk-based products for both industrial and consumer use.The company operates in New Zealand.It is headquartered in Auckland, New Zealand and employed 17,500 people as of July 31, 2013.The company recorded revenues of NZ$18,643 million (approximately $15,302.2 million) in the financial year ended July 2013 (FY2013), a decrease of 5.7% compared to FY2012.The operating profit of the company was NZ$874 million (approximately $717.4 million) in FY2013, a decrease of
6.5% compared to FY2012.The net profit was NZ$718 million (approximately $589.3 million) in FY2013, an increase of 1
7.9% over FY2012.KEY FACTS
Fonterra Co-operative Group Limited
Head Office Auckland 1142
NZL
64 9 374 9000
Phone 64 9 374 9001
Fax https://www.sodocs.net/doc/0116828149.html, Web Address
18,643.0
Revenue / turnover (NZD Mn)
July Financial Year End
17,500
Employees Fonterra Co-operative Group Limited
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Company Overview
SWOT ANAL YSIS
Fonterra markets and distributes milk and milk-based products for both industrial and consumer use. The diversified geographic presence limits the company's exposure to the risks associated with a particular region. However, any outbreak of animal diseases may affect the company's international milk sales.
Strengths
Weaknesses
Diversified geographic presence
Lack of scale
Quality issue leading to suspension of
Strong market position
operations and negative publicity
Opportunities
Threats
Outbreak of animal diseases
Strengthening presence in Australia
Growing global foodservice business
Government regulations
Opening of a dairy distribution center in
Brazil
Strengths
Diversified geographic presence
Fonterra has a well-diversified geographic presence with operations in more than 100 countries. In FY2013, the company generated 13.4% of the total revenues from China, one of the fast growing emerging markets; while New Zealand, the company’s domestic market, contributed 10.7% of the total revenues. Australia contributed 9.9% of the total revenues while the US accounted for 7.6%. Europe accounted for 5.9% of the total revenues in FY2013 and the rest of Asia accounted for 28%. The company derived 24.6% of its total revenues from rest of the world in FY2013. A well-diversified geographic presence insulates the company from any geographic and economic-specific risks.
Strong market position
Fonterra is one of the world's largest milk processors handling around 22 billion liters of milk each year.The company has leading market positions for its brands in various geographies it operates. Anlene, a milk brand that provides nutrients for bone health, has market leadership in Shanghai and Guangzhou.The company has also increased its market share for this brand in Jiangsu region. Furthermore, the Anlene and Anmum brands maintained their market share positions across ASEAN/MENA (South East Asia, the Middle East, North Africa and Sri Lanka) with Anlene in first position across all key markets and Anmum in the top three across the key markets. Further, the
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company has 25% market share in the foodservice dairy category and ranked as the number one supplier in the Australian foodservice industry. Anchor milk has maintained its market share in New Zealand and remained as the top brand in the New Zealand grocery channel. In the Latin America region, the company continued to maintain its number one market share position in yoghurt, liquid milk, dairy desserts and butter, and increased its market share in the mature cheese category consolidating its number two position.
Strong market position provides competitive advantage and enhances the company's market penetration capabilities and also helps it to enter new markets effectively.
Weaknesses
Lack of scale
The group lacks favorable scale of operations in comparison to its competitors. Many of its competitors, such as Nestle and Groupe Danone, are much larger in size in terms of revenues. In the financial year ended December 2013, Nestle recorded revenues of CHF92,158 million (approximately $99,438.5 million), significantly higher than that of Fonterra. Similarly, Danone recorded revenues of E21,298 million (approximately $28,283.7 million) during the same period. Fonterra, in comparison, recorded revenues of NZ$18,643 million (approximately $15,302.2 million) in FY2013.These large competitors have greater financial resources, as well as greater marketing and distribution resources than Fonterra. Discounting and any other competitive action taken by these companies, thus, makes it more difficult for Fonterra to sustain its revenues and profits.
Quality issue leading to suspension of operations and negative publicity
The company has recalled certain products in the recent past. For instance, in January 2014, Fonterra Brands NZ initiated a voluntary recall of 300 ml and 500 ml bottles of Anchor and Pams fresh cream with a best before date of 21 January 2014, distributed in the North Island from Northland to Turangi, including Gisborne. Earlier, in August 2013, Fonterra advised eight of its customers of a quality issue involving three batches of a particular type of whey protein concentrate (WPC80) produced at a single New Zealand manufacturing site in May 2012.T ests indicated the potential presence of a strain of Clostridium (Clostridium Botulinum) in a sample, which can cause botulism.This particular whey protein concentrate is used by Fonterra's customers in a range of products, including infant formula, growing up milk powder and sports drinks.
In the same month, NZAgbiz initiated a product recall of a small amount of calf milk replacer sold in the North Island, which contained traces of affected whey protein concentrate. Subsequently, Fonterra's board established the WPC80 Inquiry Committee for conducting a review into the whey protein concentrate (WPC80) contamination and the subsequent events.These findings and subsequent recalls triggered ban on imports by some countries. In May 2013, Fonterra Brands (New Zealand) announced a voluntary recall of Mainland Tasty individually wrapped flavored processed cheese slices 250 gram packets.
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Recalls may affect not just the sales of the other products (marketed by the company) at the time of the recall, but also the future sales of the company's products. Regular product recalls are indicative of poor quality control at the company and may raise doubts about the efficacy of the quality control mechanisms in the minds of the consumers. Moreover, the negative publicity surrounding the product recall may have a significant negative impact on the company's brand equity.
Opportunities
Strengthening presence in Australia
Australia is an important market for Fonterra.This market has been a experiencing a significant consolidation activity in diary industry in the recent years.T o further strengthen its presence in the Australian market, the company in November 2013, acquired a 6% shareholding in Bega Cheese, an Australian-based dairy company.Within the same month, Fonterra also acquired the assets of T asmanian yoghurt business of Tamar Valley Dairy to further strengthen its position in the Australian yogurt sector.This acquisition, besides strengthening Fonterra’s position as a leader in the Australian dairy industry, also complements the company’s existing yoghurt portfolio. In T asmania, Fonterra currently operates two manufacturing facilities and processes half of Tasmania’s milk.
Acquisition of yoghurt business from T amar Valley Dairy and Bega Cheese will help the company strengthen its presence in the growing Australian dairy market.
Growing global foodservice business
The global foodservice industry has been growing in the recent past. In order to capitalize on this growth, the company, in October 2013, announced an investment of NZ$72 million ($59.1 million) at its Clandeboye mozzarella plant to further strengthen its foodservice capabilities.This investment will help the company double the capacity of the Clandeboye plant to produce individual quick frozen (IQF) grated mozzarella.The plant will increase Fonterra’s IQF mozzarella capacity across its two plants in New Zealand to over 50,000 MT per annum. According to the company estimates, the growth in the global foodservice category is driven by emerging Asian markets where the category is expected to grow nearly 13% annually to 2016. Furthermore, the demand for high-value dairy products like mozzarella is boosted by changing dietary habits, particularly in Asia where westernised diets are preferred. For instance, there has been dramatic growth in the number of pizza restaurants in China where key customers such as Yum! (owners of the Pizza Hut brand) and Domino’s Pizza are undertaking aggressive expansion plans in new and existing markets.
Furthermore, in February 2014, the company announced a NZ$32 million ($26.3 million) expansion of its slice-on-slice cheese capacity at its T aranaki plant. Slice-on-slice cheese is used in quick service restaurants for products such as hamburgers and sandwiches.The company’s foodservice business operates in 50 countries and generates more than NZ$1 billion ($0.8 billion) in sales per year.The company’s foodservice business has grown 9% in volume over the last three years and the profitability of foodservice has increased 11% during the same period.With demand for Fonterra Co-operative Group Limited Page 6
out-of-home meals increasing annually Fonterra’s expansion of mozzarella production and
slice-on-slice cheese will help it to cater for growing foodservice business.
Opening of a dairy distribution center in Brazil
Rapid urban growth and a focus on healthy nutrition are driving demand for dairy products in Brazil, one of the important markets for Fonterra. DP A (a joint venture of Fonterra and Nestle) opened a dairy distribution center in Brazil in December 2013.This NZ$45 million ($36.9 million) facility was constructed on the same site as the DP As’ Araras factory which makes a variety of chilled dairy products including yoghurts, desserts and cream cheese. More than 200,000 metric tons of dairy products, destined for delivery across Brazil, are expected to pass through the distribution center per year.This new distribution center will enable the company reduce distribution costs and ship out the products quickly across the country. Further, combining the production and cooling site with the distribution facility offers energy savings such as reducing the amount of diesel required for transport by approximately 150,000 liters and saving 400 tons of CO2 per year.
Fonterra’s Latin American footprint drives over 900,000 metric tons of volume per year from consumer dairy, foodservice and high value ingredients.Therefore, opening a distribution center in this region will help the company lower its distribution costs and further facilitate growth in this region. Threats
Outbreak of animal diseases
Fonterra is dependent on constant supply and quality of the raw materials like milk. Any outbreak of animal diseases (especially foot and mouth disease caused by a virus which is one of the most contagious and feared diseases), can cause heavy loss in susceptible cloven-hoofed animals world over.The operations of the company including the milk supplies and the production and sale of dairy products could be affected in case of diseases outbreak. A large-scale outbreak of animal disease could have an adverse effect on the production and sale of dairy products, and also could negatively affect the financial performance of Fonterra.
Government regulations
As a manufacturer and distributor of food products, the company is subject to a number of food-related regulations administered by Food Standards Australia New Zealand, Ministry for Primary Industries and others, as well as and other foreign regulatory authorities, including the US Food and Drug Administration. Food Standards Australia New Zealand is a bi-national government agency, which develops and administers the Australia New Zealand Food Standards Code, which lists requirements for foods such as additives, food safety, labeling and GM foods. It develops standards that regulate the use of ingredients, processing aids, colorings, additives, vitamins and minerals.The code also covers the composition of some foods, such as dairy, meat and beverages as well as standards developed by new technologies such as genetically modified foods. It also has responsibility for Fonterra Co-operative Group Limited Page 7
some labeling requirements for packaged and unpackaged food, including specific mandatory warnings or advisory labels. Ministry for Primary Industries (MPI) regulates the food consumed in New Zealand or intended for export.Violations or non-compliance with these laws and regulations could result in the imposition of fines or civil liability against the company by governmental entities. The company's failure or inability to comply with such requirements could subject it to civil remedies, including fines, injunctions, recalls or seizures, as well as potential criminal sanctions, which may negatively impact the business of the company.
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