Fonterra sells fresh milk in China through Alibaba hybrid

Fonterra managing director Greater China Christina Zhu. Picture / Jason Oxenham.

Fonterra has started selling fresh milk in China in partnership with Hema Fresh, a start-up company backed by e-commerce giant, Alibaba.

The new "Daily Fresh" milk range is now available in Hema's 14 stores in Shanghai and Suzhou in 750ml bottles, sourced directly from Fonterra's farm hub in Hebei province.

The product has labels to match each day of the week in order to emphasise freshness, with stock being replenished overnight.

Initial volumes are currently about three tonnes daily, with plans to scale-up over time and expand with the retailer as it rapidly grows its footprint of stores across China, Fonterra said.

Christina Zhu, Fonterra's president of Greater China, said the new product delivers to growing domestic demand for higher-quality fresh products, as part of the "premiumisation" of China's consumer categories. China's fresh milk market makes up jut 20 per cent of the total milk market, the dominant category being UHT milk.

All Hema Fresh transactions thorugh are through an application and no cash changes hands.

As it stands, Hema operates in the Yangztge River Delta area and in Beijing.

Zhu said in China were becoming increasingly sophisticated in terms of their tastes and preferences, driven by rising household incomes.

According to management consultancy McKinsey, more than 75 per cent of China's urban consumers will earn RMB60,000 to RMB229,000 each year ($13,000 to $49,000) by 2022 - up from just 4 per cent in 2000.

Alibaba founder Jack Ma has described Hema, which started in 2016, as "an intersection of online and offline shopping, logistics and data".

At Hema, consumers can either shop in-store using their mobile phones to browse and purchase, or order online for a 30-minute delivery within a three kilometre radius. Hema then uses the data it gathers to provide a tailored, personalised shopping experience for each customer.

In addition to the brand new fresh milk range, Anchor UHT milk products and the Anchor Dairy Foods range of butter, cream and cheese items are sold through Hema, Fonterra said.

Zhu said no other multinational dairy company in China has a local milk pool to draw from.