Fonterra is in a unique position as not only the purveyor of consumer-facing brands but also a major supplier of raw ingredients. So while it’s not in the direct line of public fury, it is subject to the anger of major trade customers.
In August, Danone found that batches of whey protein concentrate supplied by Fonterra had been contaminated by clostridium bacteria.
The scandal cost baby formula manufacturer Dumex US$275 million and led it to cancel its supply contract with Fonterra. The scandal followed the discovery of fertiliser dicyandiamide (DCD) in Fonterra’s milk, while in January, Fonterra was forced to recall bottles of cream when an E. coli contamination was discovered.
What can Fonterra do to regain trust from both consumers and the businesses and markets it supplies?
The past incidents have certainly hurt the premium, high-quality reputation that both Fonterra and New Zealand have been carefully cultivating for years. That said, my sense is these are short-term setbacks for both brands. They have done such an effective job at positioning their brands (and fulfilling their promises) around quality and purity that a few incidents alone won’t suddenly lead to their demise.
Both Fonterra and New Zealand, understand the importance of China for their brands and have been effective at addressing the issue head-on, giving consumers there at least a sense of assurance.
The current situation does create a window of opportunity for dairy brands from the US and Europe (and to an extent, even domestic Chinese brands), but New Zealand has such a strong country brand built around the notion of purity that it will still likely be the desired place of origin for dairy and other natural products. Still, consumers are pausing in the shopping aisle to consider other choices.
Competing brands looking to seize this opportunity have sped up communications that position themselves as a smart alternative.
To defend and keep up sustained market share growth over time, Fonterra must keep its overall communications and crisis management efforts proactive, transparent, and detailed.
It must be noted that, since the 2008 scandal and resulting carnage, affluent Chinese shoppers who have the means to afford imported milk formula, reject domestic dairy producers outright. They have no credibility and are considered a national disgrace by many.
China’s state-run media’s unfair condemnation of multinational brands is viewed as hypocritical coming from a government that struggles to provide clean air, water and food to its citizenry. But Fonterra’s competition will, no doubt, increase in the coming years as European, North and South American players come on line and as China attempts to diversify and improve its supply. Domestic players are working hard to improve their quality and safety standards with the help of joint ventures and overseas investments.
The future will be challenging
In doing so, Fonterra can more easily correct fallacies, clarify confusion, and positively influence the direction of conversations to support embattled clients. Such a strategy will give Fonterra a voice as well as a face.