Fonterra’s Chinese play via Alibaba

Internet Retailing

17th Jan 2018

Kiwi dairy firm Fonterra has partnered with e-commerce giant Alibaba to launch a new fresh milk product in China in partnership with Hema Fresh, a new retail concept which combines traditional bricks-and-mortar shopping with a digital experience.

The new Daily Fresh milk range is now available in Hema’s 14 stores in Shanghai and Suzhou in 750mL bottles, sourced directly from Fonterra’s farm hub in Hebei province. The product has unique product labels to match each day of the week in order to emphasise freshness, with stock being replenished overnight ready for each new day.

Initial volumes are currently around three metric tonnes daily, with plans to scale-up over time and expand with the retailer as it rapidly grows its footprint of stores across China.

President of Fonterra Greater China Christina Zhu said this new product delivers to growing domestic demand for higher-quality fresh products, as part of the ‘premiumisation’ of China’s consumer categories.

“Shoppers here in China are becoming increasingly sophisticated in terms of their tastes and preferences, which are being driven by rising household incomes,” said president of Fonterra Greater China Christina Zhu.

“More than ever before, consumers are consciously seeking products that are fresh, nutritious and safe, and our new product for Hema caters to this.”

According to McKinsey, over 75 per cent of China’s urban consumers will earn RMB 60,000 to 229,000 each year (NZD $13,000 to $49,000) by 2022. This is up from just four per cent in the year 2000, prompting a marked shift in consumer behaviour and purchasing power.

Linked to this trend is the rise of Hema, which emerged on the scene in early 2016. It is a major sign-post of China’s ‘new retail’ trend, which Alibaba founder Jack Ma coined as being the intersection of online and offline shopping, logistics and data.

At Hema, consumers can either shop in-store using their mobile phones to browse and purchase, or order online for a 30-minute delivery within a three kilometre radius. Hema then uses its data to provide a tailored, personalised shopping experience for each customer.

In addition to the brand new fresh milk range, Anchor UHT milk products and the Anchor Dairy Foods range of butter, cream and cheese items are sold through Hema. The retailer is also a foodservice customer, using Fonterra’s Anchor Food Professionals products in its in-store bakery.

Hema Fresh CEO and Founder Hou Yi said he is excited by the strategic co-operation between the two companies.

“This co-operation between two powerful companies is set to redefine the concept of fresh milk in the new retail era,” he said. “As a global leader in the dairy industry, Fonterra is well-known for quality milk pools, world-class breeding techniques and advanced experience in food safety and quality, which matches well with what we advocate.”

Zhu said the new product highlights how Fonterra’s business in China is leveraging the strength of its local milk pool, spread across three farming hubs.

“No other multinational dairy company in China has a local milk pool to draw from, so we are in an advantageous position,” added Zhu. “This milestone with Hema is a sign of things to come and indicates that our push to shift more of our local milk into higher-yielding consumer and foodservice products is well-and-truly underway.”