Fonterra has bought Nestle's yoghurt and dairy business in Australia - and scored a small coup in its campaign to take over the Sydney-based Dairy Farmers cooperative.
Dairy Farmers currently sells Nestle's Ski brand of yoghurts and dairy desserts, but its long-term licence to manufacture, market and sell the Nestle desserts will revert to Nestle in 2012.
The deal announced today - to take effect on September 1, when Fonterra will take over Nestle's factory at Echuca in northern Victoria - will mean those licences will then be licensed to Fonterra.
In effect, Fonterra has locked rivals competing for the Dairy Farmers company out of being able to continue its Ski branding.
Dairy Farmers, Australia's biggest dairy cooperative, has a turnover of $A1.2 billion ($NZ1.38 billion) and is strongly represented in three key market segments - cheese and fresh dairy products such as yoghurts, and liquid milks in the Brisbane and Sydney markets.
It is the fresh dairy and liquid milk segments which Fonterra needs to pick up to balance its Australian business, because trans-Tasman shipping times make it difficult to send NZ milk and yoghurt and still meet retailers' requirements for shelf-life.
Fonterra's managing director in Australia, John Doumani, who runs the cooperative's market on both sides of the Tasman, said the Ski purchase represented a significant step towards achieving the company's growth strategy in Australia.
"We currently do not have a national presence in Australia's yoghurt and dairy dessert sector," he said.
"By acquiring Nestle's yoghurt and dairy dessert business, it provides us with a national position and complements our existing portfolio where we hold leading national positions in cheese and spreads through our Mainland, Bega and Western Star brands."
Yoghurt and dairy dessert brands already sold by Fonterra include Brownes' Fresh n' Fruity yoghurt and CalciYum dairy dessert, while Nestle's brands include Nestle yoghurts, Milo Mousse, Blissful and Munch Bunch.
According to an independent Australian analyst Steve Spencer, the possibility of losing use of the profitable Ski brand has been a weakness for Dairy Farmers. Its other problems include a limited share in markets outside Queensland and New South Wales, and high supply chain costs because its milk supply is not close to its factories.
In comparison, Fonterra Australia, which also runs the branded consumer goods in New Zealand supermarket chillers, is weak in liquid milks and fresh dairy, and strong in cheese, spreads and milkpowders.
Mr Doumani said acquisition of the Ski brand built on a global partnership with Nestle, and Graham Campbell, Nestle's managing director in Australia said having his yoghurt and dairy dessert brands in the chillers of Australian supermarkets was important. "This new operation creates a soundly-based commercial entity that is well placed to be one of the leaders in the yoghurt and dairy dessert sector, and we are delighted that the vast majority of employees will be moving across to Fonterra," he said.
In 2005, a similar deal was done when Nestle handed over to Fonterra collection of milk and the manufacture of milkpowder in Victoria, and sold the New Zealand company its Dennington factory near Warrnambool. Nestle continues to sell the milkpowders made by Fonterra.
