Interview with Fonterra Zhou Dehan: The cheese market is big enough, there is no need to fight a price war.
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  Photo courtesy of interviewee Zhou Dehan, CEO of Fonterra Greater China

Sino-Singapore Jingwei, November 7 (Yan Shuxin and Fu Yumei) “Chinese consumers want to see new things and are willing to try new things. Whether it is a multinational company or a local company, how to meet the needs of consumers is the key.” During the 4th China International Import Expo (hereinafter referred to as the CIIE), Zhou Dehan, CEO of Fonterra Greater China, said in an interview with Sino-Singapore Jingwei.

The cheese market is big enough, there is no need to fight a price war

In recent years, with the rapid rise of domestic dairy brands, market competition has become increasingly fierce, which has also accelerated the localization of foreign brands.

Foreign brands including Nestlé, Mead Johnson, Wyeth, Abbott, etc. continue to increase their weight in the Chinese market, setting up factories in many places in China to meet the needs of Chinese consumers. In addition, the use of third-party foundries is also one of the means for foreign brands to accelerate localization.

According to Zhou Dehan, at present, many of Fonterra’s products are produced by third-party factories in China. Fonterra is responsible for the early product development and later market promotion and sales. Zhou Dehan said that this is a new way of localizing foreign brands. “Chinese consumers want to see new things and are willing to try new things. Whether it is a multinational company or a local company, how to meet the needs of consumers is the focus.”

In recent years, the domestic cheese industry has developed rapidly, and the cheese stick track is particularly prominent. According to Nielsen data, in the first half of 2021, the domestic liquid dairy market retail sales increased by 9% year-on-year, the infant and adult formula milk market retail sales increased by 7.7% year-on-year, and the cheese market retail sales increased by 35.3% year-on-year.

According to estimates by Everbright Securities, in 2020, the size of China’s retail cheese market will be 8.776 billion yuan, of which the cheese stick market will be about 3.5-3.6 billion yuan, and cheese sticks will account for about 40%.

Sino-Singapore Jingwei noted that more and more players are currently deploying the cheese stick market, including traditional dairy companies such as Yili, Mengniu, and Guangming, as well as new brands such as Miaocolanduo, Miaofei, and Dr. Cheese. The influx of players from all walks of life has caused problems such as industry price wars and product homogeneity.

“When many manufacturers enter a single field, there is often a price war.” Zhou Dehan said that the cheese industry is not only popular with cheese sticks, but also other subdivided products, such as shredded cheese. “Cheese shreds are also divided into re-made shredded cheese and natural shredded cheese. It is not that which is better, but now consumers have more choices. We think the cheese market is large enough, and everyone does not need to fight a price war. It should be approved. Products to distinguish the needs of different consumers.” Zhou Dehan said.

Rising raw material costs are a major challenge facing companies

The rising cost of raw materials is a major challenge Fonterra will face in fiscal year 2022. Zhou Dehan pointed out that at present, the prices of almost all raw materials are rising, including agricultural products, industrial products, and feedstuffs, some of which have been transmitted to the consumer side.

According to media reports, many well-known multinational food companies have announced price increases recently, including Kraft Heinz, Nestle, Unilever, Coca-Cola, Pepsi, etc., due to factors such as rising raw material costs and shortages of supply.

Domestically, many food sector companies such as Haitian Flavour, Qiaqia Foods, and Yasui Foods have also announced price increases for some products. Recently, Arowana also disclosed that the company adjusted the prices of different oil types at the end of 2020 and March-April 2021, and the overall price increase was about 10%-15%.

When asked whether Fonterra also has a price increase plan, Zhou Dehan said that its price will be determined according to market conditions. “The dairy industry has an authoritative pricing platform called GDT (Global dairy trade). The prices of some basic dairy products are updated every two weeks. Our product pricing will also refer to GDT data.”

Zhou Dehan said that although the purchasing power of Chinese consumers is getting stronger and stronger, whether their consumption situation will change with changes in product prices remains unclear. “If the price increases, how much the increase can be accepted by consumers, or if it exceeds which value is unacceptable for consumers, this may be a challenge for us.” Zhou Dehan said. (Zhongxin Jingwei APP)

Jerry Dakin’s cows have produced milk that helped feed families across the state for decades. Now, the longtime Manatee County dairyman has been recognized as Florida’s Farmer of the Year.

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