With the current ZGS approval of 5,000 hectares of offshore SunGold Kiwifruit there is a significant gap between demand and supply which will widen over coming years.
Under the current approval, ZGS is not going to be able to fulfil its role of supplying fruit in the NZ off-season to provide 12-month supply of Zespri Kiwifruit in core markets, particularly Europe, Japan, Korea, China and the USA. Our modelling shows that under the current approved plantings, ZGS will achieve only 35% of target demand for SunGold Kiwifruit and 44% for Green in 2030. Target demand is set at 90% of unconstrained demand ensuring there is a healthy distance between supply and demand potential.
Our ZGS team developed the 2030 Strategy to explore how ZGS could feasibly expand production to provide more fruit to Zespri and address this gap between supply and demand. The strategy outlines how this can be achieved for SunGold Kiwifruit by lifting productivity and planting more orchards across Northern Hemisphere locations.
While the current and requested future approval allows for planting in all countries except China and Chile, our planting plan proposes to increase planted hectares by approximately 10% year on year (around 600-800 hectares each year) across existing supply regions of Italy, France, Japan and Korea and the new location of Greece. The strategy also allows for a growth contingency of another 250 hectares per year if required along with capacity for introducing a new region such as the USA.
If the 2030 ZGS Strategy is achieved, ZGS will be able to supply significantly increased volumes, and our modelling shows that it will allow ZGS to meet target demand for green kiwifruit and supply up to 93% of target demand (depending on yields achieved) for SunGold Kiwifruit by 2030, in the NZ off-season.
For further detail on the strategy, please click here to view the file on Canopy (log in required).
The purpose of 12-month supply is to have high quality Zespri branded kiwifruit available to customers and consumers all year round.
- Efficiency in sales and marketing investment.
- Building and maintaining customer loyalty.
- Holding shelf space for Zespri Kiwifruit and the Zespri brand for all 12-months of the year.
- Targeting a consistent consumer experience 12 months of the year to preserve consumer demand for NZ kiwifruit.
- Driving stable and consistent relationships with retailers to support long term commitment to Zespri and NZ grown kiwifruit.
Financial Benefits to New Zealand growers
Information from a report by independent research company Kantar shows that significant benefits can be achieved for NZ growers from 12-month supply including:
- Improved and stable brand awareness:
- This is driven by longer fruit availability on shelf
- The faster a brand comes to mind, the more likely people are to buy it
- Restarting the season with NZ fruit and re-establishing the base level of awareness requires significant early season investment, equating to around 15% of the annual promotional budget. Making that investment more efficient by reducing the need for start-of season promotion is estimated to equate to an annual $40 million benefit to NZ growers by 2030 (12-16c/tray)
- Stronger brand health:
- This is driven by high quality and effective brand differentiation helping ensure brands stand out against the competition
- Consumers develop a range of mental associations with any given brand. The strength of these associations and how positive they are helps to increase the likelihood to purchase
- This leads to a higher willingness to buy and pay for the brand. This can be used to drive choice and premiums and/or prevent commoditisation, leading to stability of pricing during 12 months
- Importantly, one Zespri brand is being effectively built, as consumers see it as one brand, regardless of its origin.
- Other Kantar studies suggest that strong brands can command prices on average 14% higher
- A stronger brand affords an improved ‘pricing power’. We have built this in markets with 12-month supply, with consumers showing greater tolerance for price increases because they know the value Zespri presents, which is true for both Green and SunGold Kiwifruit
More predictable and stable sales growth, by de-risking the business for seasonality
Click here to see the full Kantar Final report
As well as funding their direct costs of operating ZGS, ZGS growers contribute to costs of other Zespri business segments. Off-shore costs are allocated to ZGS on a volume basis (i.e. how much fruit is sold) and on-shore (or NZ) costs are allocated on a user-pays basis. As ZGS volume grows, so will its contribution to the costs of running the global Zespri business. If ZGS achieves the expansion strategy, this is expected to save NZ growers an additional 6c per tray on overhead costs in 2030.
Why is it important to build a brand?
Consumers hold in their minds many associations with brands. The strength of these associations is a brand’s ticket in a purchase situation; the faster a brand comes to mind, the more likely people are to buy it – this is why mental availability matters. When it comes to long-term brand building and sustainable growth, creating an emotional connection with people is key. Such connection further influences consumers’ intention to buy; it creates a lifetime advantage that predicts purchase behaviour, accelerates growth and can help support a price premium. Kantar meta-studies show that strong brands can command prices on average 14% higher. This is why a brand shouldn’t merely be famous, but also meaningful and different. Strong brands (1) deliver superior shareholder returns (2) are more resilient in times of crisis (3) recover more quickly. BrandZ research by Kantar provides evidence for this.
Protecting our investment
Kantar’s assessment highlighted that if Zespri does not move to full 12-month supply, there is a significant risk that competitor kiwifruit would fill the vacuum in the market when NZ fruit was not available, filling the demand we are working so hard to create.
The report concluded that our relationships with retailers would be at risk and retailers may seek other partners to fill the gap, eroding the current successful and strategic relationship and possibly price premium that is currently in place for Zespri Kiwifruit.
Competitive, lower-quality replacement fruit also poses an increased risk of a bad consumer experience, which might have a negative impact on repeat kiwifruit purchases at the start of the NZ season and impact the overall category.
In the 2021/22 financial year, ZGS contributed NZ$27 million to Zespri’s corporate profit.
As the ZGS business grows, it is anticipated that profitability will increase.
A broader benefit of growing fruit in other countries is to our government and trade relations.
Our investment and partnership with local growers is recognised by governments as a welcome contribution to local communities and economies, creating goodwill towards the NZ kiwifruit industry.
A good example of this is the establishment of the Korea Free Trade Agreement. The fact that Zespri works with Korean growers was a key factor in the removal of the tariff on NZ kiwifruit imports – a benefit worth NZ$20 million a year to growers at the time and particularly important given Chilean fruit was already benefiting from a reduced tariff.
Similarly, Zespri’s positive contributions in Italy and France, where we partner with local growers and suppliers to support the creation of jobs and investment has been viewed positively during the NZ-EU FTA talks. This tariff cost NZ growers around NZ$47 million last year.
The following videos provide commentary about the value of the relationship with Zespri and New Zealand growers.
The Mayor of Cisterna (the largest kiwifruit growing region in Italy)
The Mayor of Faenza
In both New Zealand and Italy, we have staff members who specialise in preparing the documentation required for fruit exports. These roles use similar systems meaning knowledge can be shared across teams during the New Zealand season and vice versa during the Italian season. This enables documentation to be prepared almost 24 hours a day by utilising staff availability across time zones. It also means that the staff in these specialised roles can be employed for 12 months of the year, retaining valuable skill sets for Zespri and the industry.
Where resources are shared across the New Zealand and ZGS supply business, ZGS pays for its share of the costs. As the ZGS business grows, its contribution towards these shared costs will also grow. More information on how costs are shared is available in the Financials section.
NZ growers benefit from the research undertaken in ZGS locations – both because it helps NZ prepare for possible future risks like biosecurity and pests, and because it means kiwifruit research can happen in two hemispheres in one year – essentially getting two seasons of data in one year.
Key examples of research programmes beneficial to NZ include the work on Kiwifruit Vine Decline Syndrome, Brown Marmorated Stink Bug and budbreak enhancement alternatives.
Risks & Mitigations
Zespri has been successfully operating the ZGS business for 20 years, originally with green kiwifruit procurement and more recently with Hort16a and SunGold Kiwifruit. There are well established systems in place to manage risks and ZGS has an excellent track record of achieving this.
Brand reputation and customer perception
Examples of 12-month supply
In offshore markets, Driscoll’s is a company that has developed a 12-month supply strategy in a similar way to Zespri. They have developed their own varieties and are growing berries in locations in several countries that enable them to supply key markets for 12 months a year.
Click here to find out more about the Driscolls case study.
See below a video from Driscolls talking about the benefits of 12-month supply