The \u201cAnchor Essence\u201d cream offers a fresh option for China\u2019s foodservice operators, including chefs, bakeries, cafes and restaurant chains. While primarily a B2B (business-to-business) model, Fonterra\u2019s foodservice products are ultimately geared toward urban, middle-class consumers who are increasingly seeking higher-quality, indulgent but healthy food experiences.<\/p>\n
\u201cWe\u2019re focused on premium natural ingredients that drive value add,\u201d says Katie McClure, Fonterra\u2019s director of innovation and marketing. \u201cOur customers are looking for that grass-fed standard, cleaner label, healthier and more natural ingredients. Those are the cues driving a willingness to pay.\u201d<\/p>\n
About 71% of consumers are willing to pay more for products that are simpler and more natural, she adds.<\/p>\n
Fonterra says its Greater China foodservice business is a key part of its value-add strategy, with products reaching hundreds of cities. It has six application centres in China, based in Beijing, Shanghai, Guangzhou, Chengdu, Shenzhen and Wuhan, where chefs work with customers to develop ideas and recipes, catering to local market trends and preferences.<\/p>\n
The co-op has built a network of foodservice chefs across its application centres in China, where they work alongside bakeries, tea chains and restaurant groups to develop recipes, solve product challenges and train staff at scale.<\/p>\n
Teoh Joo Cheong, one of Fonterra\u2019s senior chefs in the market, says his focus is on helping customers grow in an intensely competitive environment.<\/p>\n
\u201cWe work with the customers to develop recipes, find the pain points and also do the analysis for the trade marketing for the consumer.\u201d<\/p>\n
He says bakeries are targeting multiple selling points and a customer spend of 100RMB ($26) per person in store.<\/p>\n
\u201cThere is fierce competition, so we have to try and stay ahead of the game.\u201d<\/p>\n
It quickly becomes clear why Bakery China is a key date on the foodservice calendar for Fonterra.<\/p>\n
The four-day event ran from May 20-23, spanning more than 330,000sq m across 13 halls. It drew 2267 brands and companies from 79 countries and regions, showcasing more than 10,000 products, and attracted nearly 400,000 professional visitors from 144 countries.<\/p>\n
\u201cBakery China is a mega event for us because essentially we are a B2B business for food service and the majority of the visitors we see here come from the baking industry,\u201d says Justin Dai, Fonterra\u2019s vice-president for foodservice in Greater China.<\/p>\n
\u201cWe have tens of thousands of customers we probably only meet once a year, so this is the occasion we can thank them for their business and show them the new products, new applications, the best we have.\u201d<\/p>\n
It\u2019s even more significant this year because just weeks earlier, on March 31, Fonterra completed the $4.22 billion sale of its global consumer business to French dairy giant Lactalis \u2013 a deal that handed over household names like Mainland and Anchor in many markets and marked the most dramatic strategic pivot in the co-operative\u2019s history.<\/p>\n
Fonterra retained the Anchor brand and the Anchor Food Professionals brand in China, which is seen as a vital channel into the world\u2019s largest foodservice market.<\/p>\n
The consumer sale delivered a $3.2b capital return to farmer shareholders, while leaving up to $1b to be deployed into Fonterra\u2019s ingredients and foodservice businesses.<\/p>\n
Commenting on Fonterra\u2019s third-quarter update late last month, new chief executive Richard Allen said the sale marked a significant step in the co-operative\u2019s future strategy, which is focused on growing the high-value Ingredients and Foodservice businesses.<\/p>\n
He also highlighted additional investment already going in to support the remaining businesses.<\/p>\n
\u201cWe advanced work on our new $35 million pastry butter sheet capacity at Edgecumbe, reached product validation stage on our $75m Studholme protein hub, and made good progress on our $75m butter expansion at Clandeboye and $150m UHT cream build at Edendale.\u201d<\/p>\n
CEO Richard Allen has highlighted the extra investment in Fonterra’s remaining businesses. Photo \/ Alyse Wright<\/p>\n
A dynamic market<\/p>\n
Bakery China is an ideal place to understand the bet Fonterra is making.<\/p>\n
\u201cChina is a very dynamic market,\u201d says Teh-Han Chow, Fonterra\u2019s Greater China chief executive.<\/p>\n
\u201cThe consumer is willing and actually demands to experience something new every day. So, as you go through this market, you\u2019ll notice that dynamism means that you get constant change and something new always happening.<\/p>\n
\u201cWhether you\u2019re walking down the street and there\u2019s suddenly a new building that just came up, or your standard of living significantly improving every five years, we see this translate into new products, new flavours, new ways of eating things.<\/p>\n
\u201cThat dynamism means there\u2019s always a lot of opportunity, but also a lot of challenges. So, you\u2019ve got to be innovative, you\u2019ve got to keep up and develop new propositions \u2026 so you\u2019re always testing, checking and adjusting.\u201d<\/p>\n
China\u2019s economy is experiencing increasing unevenness, with retail sales falling for the first time in more than three years and investment also slumping. At the same time, industrial output has picked up pace.<\/p>\n
Economic growth in the second quarter is expected to slow to 4.5% from 5% in the first.<\/p>\n
However, it\u2019s still a market that suits producers like Fonterra, says Dai.<\/p>\n
He describes demand as \u201crelatively soft\u201d compared with the past decade, but argues that reflects scale rather than weakness.<\/p>\n
Teh-han Chow, here at Bakery China, says China is “a very dynamic market”. (Photo \/ Fonterra<\/p>\n
\u201cYou cannot keep that growth rate for such a gigantic market,\u201d he says. \u201cChina\u2019s economy is also moving into a different phase, and I would say it\u2019s probably more of a natural evolution of the economy, rather than a kind of a simple slowing down.\u201d<\/p>\n
Even at 5% growth, China is adding the equivalent of a large, developed economy every year, and the nature of that growth is shifting.<\/p>\n
\u201cConsumption is getting more and more important,\u201d Dai says, as Beijing pivots away from export-led growth toward domestic demand, a move that directly benefits sectors like foodservice.<\/p>\n
The great unwind, what comes next<\/p>\n
The sale of Consumer to Lactalis is the latest step in a years-long process of dismantling Fonterra\u2019s global expansion.<\/p>\n
Since 2019, the co-operative has raised more than $7b through asset sales \u2013 including Tip Top ice cream, DFE Pharma, its Beingmate stake, farms in China and Chile\u2019s Soprole business.<\/p>\n
The message from the board has been consistent. The old model \u2013 owning brands, factories and distribution networks around the world \u2013 was capital-intensive and delivered lower returns.<\/p>\n
Chairman Peter McBride has framed the consumer business divestment as a defining moment, with the focus now on growing further through its core business as a New Zealand farmer-owned global B2B dairy provider.<\/p>\n
Not everyone agrees.<\/p>\n
Critics like New Zealand First leader Winston Peters argue Fonterra farmers have given away more than a century of work and iconic assets for a \u201cshort-term sugar hit\u201d in a move that puts at risk the security of supply for their milk.<\/p>\n
Fonterra has pushed back, emphasising long-term supply agreements that will see it continue providing milk and ingredients into those brands for years.<\/p>\n
Bakery delights<\/p>\n
On paper, the case looks compelling.<\/p>\n
Fonterra\u2019s ingredients division generated $17.5b in revenue in 2025, with $1.1b in operating profit.<\/p>\n
Foodservice, smaller at $6.4b in revenue, delivered $340m in operating profit and is growing quickly. During the third quarter of the 2026 financial year, the Foodservice underlying operating profit was up $304m, or 143%, to $516m, driven by pricing and product mix.<\/p>\n
Ingredients, which comprises bulk and specialty dairy products such as milk powders, dairy fats, cheese and proteins, saw its underlying profit fall 18% to $965m in Q3, because of a lower contribution from core operations reflecting a higher cost of protein being expensed.<\/p>\n
Fonterra’s Anchor Food Professionals products for sale at Sam’s Club in central Shanghai. Photo \/ Duncan Bridgeman<\/p>\n
While margins are not dramatically higher at the headline level, the foodservice channel offers proximity to customers and influence over how dairy is used.<\/p>\n
That is evident inside China, which accounts for roughly a third of New Zealand\u2019s milk production, making it the single most important market for Fonterra\u2019s value-added strategy.<\/p>\n
A visit to Sam\u2019s Club, a giant Walmart-owned membership retail outlet similar to Costco, reveals shelves stacked with Fonterra products, including UHT milk, whipped creams and cheeses.<\/p>\n
The bakery section is stocked with all manner of treats, including flower-shaped egg tarts, cheese Danish pastries, sausage cheese bread and pistachio Mario \u2013 all featuring Anchor Food Professionals ingredients.<\/p>\n
In central Shanghai, Fonterra\u2019s bakery customers have stores in high-footprint shopping malls.<\/p>\n
At Du Su Shijia, traditional pastries are on display alongside new-style bakery items such as Guizhou Matcha Cake, a green dessert prepared as a light sponge with Anchor cream and butter.<\/p>\n
Fonterra-produced cream is being used in products sold at bakeries across greater China, like this one in a Shanghai Mall. Photo \/ Duncan Bridgeman<\/p>\n
In another mall, Proust Moment displays its star product \u2013 a preservative-free \u201craw toast\u201d which uses natural ingredients and slow fermentation for a fluffy, moist outcome.<\/p>\n
Fonterra\u2019s six \u201capplication centres\u201d in major Chinese cities are central to this pipeline.<\/p>\n
\u201cOur product is completely transformed before the consumer sees it,\u201d Chow says. \u201cThat makes it more complex, but it also creates far more opportunity.<\/p>\n
\u201cA channel-led approach means we can focus our resources and innovation much more tightly on foodservice.\u201d<\/p>\n
McClure is at the coalface of innovation, providing a link between Fonterra\u2019s research and development in Palmerston North, factories like the Waitoa UHT plant, near Matamata, and the marketing and distribution channels in Greater China.<\/p>\n
\u201cWe\u2019ve got global dairy expertise \u2026 but you have to have local knowledge to complement that. So we\u2019ve got local sensory teams, technical teams, insights, and that balance is where the magic happens.<\/p>\n
\u201cOur general principle with innovation should be starting from a customer problem. But sometimes, if you ask the question of what people are going to want to buy in 10 years\u2019 time, you might not have the answer. So we also balance that with longer-term science and technology shifts.\u201d<\/p>\n
McClure talks about China\u2019s coffee culture, for example.<\/p>\n
\u201cCoffee is growing in what has historically been a tea market,\u201d she says, while beverages are also becoming a platform for functional nutrition, such as high-protein drinks.<\/p>\n
This is creating a new avenue for dairy, not just as an ingredient, but for lifestyle and health trends.<\/p>\n
Fonterra chefs demonstrate foodservice products at Bakery China 2026 in Shanghai.<\/p>\n
The emphasis on innovation at Bakery China is unmistakable.<\/p>\n
Chow points out that more than 570 applications have already been developed from a single product launch.<\/p>\n
\u201cThere are a lot of different things you can do with a one-litre pack of cream,\u201d he says.<\/p>\n
Fonterra also emphasises its grass-fed dairy credentials and New Zealand\u2019s competitive edge, with the FernMark logo helping to protect those claims from companies seeking to appropriate them.<\/p>\n
\u201cOur position in China is driven by this grass-fed proposition \u2026 it\u2019s become the standard everyone aspires to,\u201d Chow says.<\/p>\n
McClure sees it as a competitive weapon just as much as a marketing tool.<\/p>\n
\u201cHaving that mark on [a] pack will ensure our customers ask questions of our competitors,\u201d she says.<\/p>\n
Going deeper inland<\/p>\n
Until now, Fonterra\u2019s growth in China has been built around megacities like Shanghai, Beijing, Shenzhen and Guangzhou, with tier-one and tier-two urban centres.<\/p>\n
But that\u2019s starting to change as China enters a new phase of development.<\/p>\n
\u201cThe real shift is toward lower-tier cities,\u201d Dai says. \u201cThat\u2019s where the next decade of growth will come from.\u201d<\/p>\n
Fonterra launched a new whipping cream at Bakery China 2026.Photo \/ Duncan Bridgeman<\/p>\n
China\u2019s so-called tier-three, -four and -five cities, with hundreds of counties, account for more than 60% of the population and are now emerging as the next target for food producers.<\/p>\n
\u201cWhen we look at our target population, we still have population growth. And so that means there\u2019s plenty of opportunity for us as we look into going deeper into these lower-tier cities that are still small cities with a few million people,\u201d Dai says.<\/p>\n
\u201cWe need to continue to penetrate and to defend the position we have. It\u2019s just becoming more and more sophisticated. In the lower-tier cities, we will aggressively expand. But we need to again strike the right balance in terms of investment return.<\/p>\n
\u201cBecause there\u2019s a reason why they\u2019re lower-tier cities. They\u2019re further inland in terms of travel distance, logistics distance, and reaching customers. We don\u2019t want to invest blindly; we need to do it in a staged process.\u201d<\/p>\n
In some markets, that means blending dairy with non-dairy ingredients to build familiarity, or designing offerings that can cope with weaker infrastructure.<\/p>\n
In others, it means relying on distributors and local partners to reach customers at scale.<\/p>\n
The risk factor<\/p>\n
Fonterra\u2019s new strategy is not without risk, some of which are beyond the co-op\u2019s control, such as geopolitics.<\/p>\n
\u201cNew Zealand and China have a very strong bilateral relationship. And that means that there are free trade flows, unimpeded trade flows. And that\u2019s critical for us to do business.\u201d<\/p>\n
Any disruption to that environment would be very damaging to Fonterra.<\/p>\n
\u201cIf trade flows are disrupted, then everything else \u2026 becomes pointless,\u201d Chow says bluntly.<\/p>\n
Competition is another constant pressure, and there is execution risk.<\/p>\n
\u201cThe market is dynamic, and competitors are getting better,\u201d Dai says. \u201cWe just need to work harder to stay ahead.\u201d<\/p>\n
McClure is confident Fonterra can deliver.<\/p>\n
\u201cI think the new direction gives us focus and clarity,\u201d she says. \u201cThat focus will actually mitigate risk rather than create more.\u201d<\/p>\n
Duncan Bridgeman is the managing editor of NZME Business News, overseeing the Business Herald<\/a> and BusinessDesk<\/a>. His travel to Shanghai, China, was funded by the Asia New Zealand Foundation.<\/p>\n