👉 Background: Fonterra is the New Zealand dairy giant that specialises in collecting milk from dairy farmers and processing that milk. In fact, Fonterra produces 16 billion litres of milk for more than 140 countries every year.

👉 What happened: On top of its milk collection, Fonterra also owns Aussie brands like Western Star butter, Mainland cheese, Perfect Italiano as well as a 25-year licence to distribute Bega Cheese. But now, Fonterra has announced it is putting its Australia dairy assets up for sale.

👉 What else: It's expected that Fonterra will sell its direct to consumer brands in Australia as well as 8 manufacturing sites. And there are reports it could sell for as much as $2 billion NZD. The goal is to just focus on its core business of supplying high-value dairy ingredients.

What's the key learning?

💡Vertical integration is when a company controls multiple stages of production or distribution within the same industry. While Fonterra started with just collecting and processing milk, it expanded down the value chain to direct-to-consumer products.

💡 However, vertical integration can be trickier than turning milk into a perfect Brie. It requires a company to gain expertise in multiple areas of the value chain, which can be significantly different from its core competencies.

💡By divesting these assets, Fonterra can focus on its core competencies in very unsexy, but udderly profitable milk collection.