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Westland to spread overseas butter footprint after $40m investment

09 Nov 2021 4:11 PM | Mike Hearn (Administrator)

Westgold butter has started rolling off the new line at Westland Milk Products’ Hokitika factory following a $40m investment that has doubled production capacity.

The company, owned by Chinese dairy giant Yili, produced around 42,000 tonnes of butter annually but following the plant upgrade a greater proportion of this would be high-margin premium grass-fed butter rather than bulk commodity butter – a strategy to manage a future of flat milk volumes.

Westland planned to increase market penetration of Westgold butter in its existing 20 global retail and foodservice markets and pursue new territories that offered the best value, including potentially the UK in the wake of the recent proposed Free Trade Agreement.

General manager of sales and marketing Hamish Yates said that the US is a “focus market” for the group, which has annual revenue of around $800m and is about one-twentieth the size of Fonterra.

The US is one of the world’s largest importers of butter alongside China and Russia, with the trio driving global butter and spread sales from a current estimated $US44tn to a forecast $US59tn by 2025.

Westland has been in US foodservice since around 2017 largely in the cruise line sector, which meant it side-stepped eye-watering dairy tariffs. After four years of negotiations, it made its entry into retail last year where the margins for premium grass-fed butter are attractive enough to wear the taxes.

“When you are working with large volume retailers – some of the biggest retailing brands in the world – you have to take time beyond that initial pitch to show them the proposition and gain some trust,” Yates said.

“You have to be able to offer differentiation from their current product mix and give them confidence around your ability to scale and that all takes time.”

Westgold is now on the shelf at two mainstream US supermarkets – although contractually Yates is not able to name them – as well as undertaking private label business for some US retailers.

The focus now was on driving bricks and mortar sales by raising the profile of Westgold with US consumers, who were increasingly informed about premium grass-fed New Zealand butter following the entry of other Kiwi players such as Lewis Road.

“We are very much focused on the grass-fed element of Westgold… versus what is in the US – a very traditional grain-fed dairy industry,” Yates said.

“The keto diet has really bought out lots of label reading and people digging in to find out more about their food so having such a high percentage [around 95%] of grass-fed in our raw milk supply means our product can stand out from the rest even some of those long-standing brands that have been in the US.

A direct-to-consumer strategy was also pencilled in, but not immediately.

“Like everyone, we are looking at a D2C strategy and how that might work – being in the chilled category is a little bit tougher but people are doing it. It is not part of our short-term strategy but medium term we are keen to get into that, particularly in the US and China where they are massive adopters of D2C.”

Globally, Yates said the company had a diversified portfolio of markets to protect, although he declined to comment on the balance of the mix or what percentage of sales came from China, where it supplied parent company Yili’s brands, alongside selling direct.

To this end it has strong markets in unexpected pockets of the world.

“We have a really large presence have had for a long time in Azerbaijan in Eastern Europe – that is an incredibly important market for us, and we are looking to expand into other regions in Eastern Europe as time allows and the scale we have now got with our new production facility.”

And the recent proposed free trade agreement between New Zealand and the UK means the company is expediating plans for an entry.

“The UK has been on our radar,” Yates said.

“The profile of New Zealand as an origin among British consumers is really high, our wine and lamb exports speak to that and the products are really well regarded, but obviously the trade barriers in the form of those tariffs are actually untenable in terms of hitting a retail price point.”

Post-UK FTA, Westland would be rolling out the strategy “that we know has worked for us” in the US, Australia and Japan, particularly for grass-fed New Zealand origin with a focus on retail butter and foodservice butter.

Yates said due diligence has prompted the company to start scoping logistics partners and other aspects of route-to-market inside the UK, keeping them in hold mode until the timing of the NZ-UK FTA is confirmed.

Source:  https://www.foodticker.co.nz/

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