Dairy giants seek slice of the action as China’s appetite for pizza grows

While China’s economy may be slowing, its love affair with pizza is raging.
Dairy giants seek slice of the action as China’s appetite for pizza grows

And from Hoboken, New Jersey, to Pudong, Shanghai, you can’t make pizza pie without mozzarella.

That is good news for Fonterra Cooperative Group, the world’s biggest dairy exporter and China’s top supplier of the cheese.

The Auckland-based company plans to lift mozzarella output to 50,000 metric tons a year by September 2015, enough to garnish about 350m pizzas. It forecasts demand for the cheese in China will gain about 20% this year and next.

Yum! Brands, operator of restaurant chains including Pizza Hut, estimates China’s consuming class will double to 600m people by 2020, driving demand for fast food.

Fonterra, which also supplies Domino’s Pizza, is raising mozzarella output across its two New Zealand plants and aims to more than double the number of its offices and operations in China to 50 locations to meet dairy demand.

“Particularly in Asia, they like the stretch of mozzarella and couple of times a night in a Pizza Hut or a Domino’s, or a pizzeria, they’ll have stretch contests,” Rene Dedoncker, Melbourne-based director of Fonterra’s foodservice division, said.

“The appetite of the consumer in China for Western diets and for pizza, which is seen to be quite iconic,” is forecast to keep growing, he said.

China is consuming more protein and dairy as changing tastes are accelerated by a population shift to the cities. Urban inhabitants spend two and a half times more on food compared to those in the countryside, HSBC said in a March report. That’s spurring growth in a global pizza market that was worth about $125bn (€90bn) a year at the end of 2012, according to Euromonitor International.

Fonterra, which got 13% of its revenue in China in fiscal 2013, according to data compiled by Bloomberg, has invested NZ$72m (€45m) to raise mozzarella output at its Clandeboye, New Zealand, plant. New technology will enable the company to cut to one day from two months the length of time it takes to make the cheese, Mr Dedoncker said.

“The growth of fast food and processed food throughout Asia is leading to higher demand for processed cheese and mozzarella,” said Mark Topy, a Melbourne-based analyst at Canaccord Genuity. “There’s going to be some opportunities in that space for companies that can provide a long-term supply of mozzarella.”

Yum!, which opened China’s first pizza chain in 1990, will add at least 700 new food outlets in the country this year and swell the number of Pizza Huts to 1,100. Papa John’s also competes in China, with about 202 outlets.

China’s pizza market was worth about €1.5bn in 2012, or 1.6% of the global market, an increase from 2007 when it accounted for about €592m of a €80bn world market, according to data compiled by Euromonitor International. Yum! took more than half its sales from China in the 12 months to December 28.

Fonterra faces global competition from Leprino Foods and Saputo, Canada’s largest milk processor. Saputo may consider asset purchases to raise its mozzarella output, said chief executive Lino Saputo.

“The majority of our growth in the next five years is all about China,” Mr Dedoncker said. “I’d say there’s an 80% chance that anytime you have a pizza there, it’s Fonterra cheese.”

— Bloomberg

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