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12 Month Supply

Zespri’s strategy is to market the world’s leading portfolio of kiwifruit 12 months of the year. We know that in order to maintain and build the Zespri brand profile, maintain shelf space, and provide a solution for our retailer customers throughout the year, we need to be able to provide quality product year-round. The purpose of ZGS is to procure fruit or contract growers to grow Zespri-standard fruit in key offshore locations to fill the shelves during the gap when New Zealand fruit is not available – targeting 12-month supply in core Zespri markets.

2030 Strategy

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).

Benefits

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.

Corporate profit

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.

Trade relationships

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


Resource sharing

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.

Research benefits

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.

For more information see Biosecurity and Innovation.

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.

Risk

Mitigation

Brand reputation and customer perception

  • Risk of a food safety breach which causes brand reputation damage
  • Sustainability/environment and/or social responsibility issues
  • Zespri Kiwifruit produced or procured by ZGS has equivalent standards and auditing systems in place to NZ fruit
  • ZGS growers have equivalent independently audited food safety assurance systems to NZ such as GAP (other than Korea where this is currently under review as part of the Zespri GAP refresh)
  • ZGS growers must comply with the Zespri’s crop protection programme and residue testing checks compliance like in NZ
  • Reinforcement of protocols through grower training and education
  • Zespri oversight of growers and post-harvest facilities with experienced staff on the ground

Financial risks

  • Risk of ZGS and NZ fruit competing in the same market during season cross-over
  • Risk of markets being over-supplied
  • Risk of cost to NZ growers from operating the ZGS business
  • Prioritising NZ fruit sales is the key principle in achieving the transition between seasons. In doing this, the aim is to ensure that NZ fruit sales are not disadvantaged by the presence of ZGS fruit.
  • Market allocations are planned based on this principle and we review plans regularly based on seasonal circumstances and transit times working to ensure consistency in quality and avoid disruption of sales and promotional planning.
  • The season cross-over is monitored and reported to industry
  • ZGS covers all of its own overheads and contributes to wider Zespri costs on a user-pays basis (by volume or time)
  • As ZGS grows, it will contribute more to the costs of running Zespri
  • As production increases from newly planted hectares, we will regularly assess demand and supply to ensure that ZGS is not producing more fruit than is demanded by the markets

Intellectual Property

  • Risk that Zespri knowledge and techniques are used by competitor growers
  • Risk of PVR leakage
  • All growers agree to confidentiality provisions when signing contracts and growers are reminded of this with disclaimers on all documents. Only authorised SunGold Kiwifruit growers can attend Zespri technical events
  • Legal systems exist in ZGS production countries to address unauthorised planting which will be utilised where appropriate.
  • ZGS creates legitimate opportunities for overseas growers to plant SunGold Kiwifruit in ZGS production countries which reduces the risk of unauthorised planting. Generally speaking, anyone who meets our requirements and wants to grow SunGold Kiwifruit can do that through our partners
  • ZGS has been operating for over 20 years and we provides growers with the opportunity to be part of a growing community of authorised Zespri partners which creates additional incentive for growers and the community to report unauthorised planting activity, as well as creating a network of people that improve Zespri’s ability to become aware of unauthorised activity early
  • Zespri has skilled staff in place in ZGS production countries who are part of the local growing community and are more able to identify potential unauthorised plantings
  • Only Zespri authorised growers can access SunGold nursery stock and grow SunGold Kiwifruit
  • All planting is audited and recorded
  • Zespri accredits only reputable nursery partners and monitors plant material development
  • Growth is currently planned for existing countries of Italy, France, Japan, Korea and Greece and potentially the USA. The approval allows planting in any country other than China and Chile so expansion in additional locations is also possible subject to Zespri's assessment of the relevant PVR enforcement environment.


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

Feedback from retailers