Changes at the chocolate factory

Nothing untouched

“Look, in the last 12 months, there won’t be nothing we don’t touch and improve with efficiencies in manufacturing,” Klark Quinn, the 30-year-old in charge of overhauling the iconic confectionary maker Darrell Lea and making it profitable again said.

Quinn, the son of VIP Petfoods owners Tony and Christina (whose fortune BRW this year estimated at $350 million), is no stranger to getting his hands dirty and to turning a factory’s operations around.

At the time of writing, Darrell Lea has just started to be stocked on the shelves of selected IGA supermarkets, and the Quinns are trying to get DL into Coles and Woolies, too. Are deals with other supermarket chains just waiting to be inked?

“Pretty much; first thing of all we set up meetings with all Australian retailers and we’re pretty open and public with the future of Darrell Lea,” said Quinn when Food Magazine visited the Kogarah plant, which opened in 1962, in Sydney’s south.

“The need for Darrell Lea from the Australian public – the prime minister talking about it on national TV [when it went into administration in July], the amount of media attention, proves how iconic and strong the Darrell Lea brand is. So we need to capitalise on that.”

When the 85-years-old, fourth-generation family-owned Lea – famous for products like its soft eating liquorice and Rocklea Road bars – announced its collapse in July, everyone from prime minster Julia Gillard to septuagenarians who had grown up with the brand were disappointed. Comments on another Australian icon gone and the sad end of an era – and more headlines involving a pun on “rocky road” than you could possibly count – were hard to miss. Sales of their products all shot up as consumers flocked to the closing retail outlets to stock up in what they thought was their last chance to do so.

Saving an Aussie brand

But in early December, DL found a buyer: the Quinn family, who stumped up an undisclosed sum (estimated at $25 million) to rescue the brand and its manufacturing operations. Not surprisingly, there was a lot that needed changing and will require further changes.

First of all, getting Lea into the supermarkets is a big step. Refusing to be a supermarket brand but not quite positioning itself as a premium confectioner (like Haigh’s, for example) meant Lea limited itself.

“Yeah, tradition killed them to some extent,” explained Quinn.

Further than that, there was a mountain of improvements that needed to be made to the way Darrell Lea cranked out its sweets.

“It was very fat and inefficient before, so we need to make it into a lean manufacturing process. With a mind to

looking after the brand and not compromising the quality or upsetting any of the loyal Darrell Lea customers.”

What to keep?

When we spoke to Quinn last week, it was early days in the company’s revamp. He says they’ve only retained 186 out of 700 products, with many performing poorly and some, for example boiled lollies, being produced at a considerable loss. Despite the aggressive shedding of loss-making product lines, he’s moving cautiously in other ways.

“You can’t build Rome in a day, and you can’t make too many changes,” he explained. “You have to be mindful as well, that a lot of people have been here for over 40 years, and an exceptional amount of people have been here for 30 years, so people are part of the furniture, and if you start changing the furniture too quick, you’re going to upset a lot of people.

“But at the same time we have purchased machinery and equipment. And as soon as last week we started setting new equipment to help product efficiencies… So in the next six months we’re planning to touch 50 per cent of all production lines and improve them by 20 per cent. So that’s already happening. We don’t want to make too many quick decisions, too early.”

Also part of the rationalisation process was doing away with anything that wasn’t completely Australian-made. Quinn gave the example of Bo-Peeps. Despite their sentimental value with some, the foreign-made sweets aren’t part of the new Lea.

“And the way they’re produced and having them produced overseas is not part of our vision. So firstly, to keep them Australian-owned and Australian-manufactured is our number one priority.”

Getting involved

Quinn, who begins his day at 7 am and who often retires to his bachelor loft (the ironically-named “Penthouse”) around midnight, is currently spending as much time as he can, involving himself in all the aspects of the factory’s operations. “It’s extremely important that I understand every facet of the business.”

The general manager considers his experience in 2009, when VIP bought Bush’s International (now Australian Pet Brands) for $45 million, a valuable lesson. The family placed Klark at Bush’s Dubbo factory and brother Kent (at the Ingleburn site) in charge of reviving the troubled manufacturer.

“Being on the floor certainly helped and straight away we gained a lot of respect from the employees on the floor, and that helped change the business,” he stated.

“With that culture change, getting people to trust and respect you goes a long way. And that’s really important in any takeover of a business; you need to very quickly gain the respect and trust from the employees. And that, just by our natural demeanour that the family has; we’ve all worked on the floor, we all know what it takes to pack product into a box and drive a forklift and run a machine – we’ve all done this before – so we have a very healthy respect for what it takes to do that.”

After throwing himself into Bush’s, the Quinn brothers managed to stem the bleeding (the company was losing $400,000 a week, says Klark after five months. Within a year, it was turning a tidy profit again.

The future

The Quinns now plan to relocate the factory’s operations. The factory, which currently sees 160 tonnes of liquorice (and is the largest liquorice producer in Australia) and 20 tonnes of chocolate produced each week, on a site with a 5,000 pallet storage capacity, won’t be doing what it does now in 18-24 months.

“Part of our sale and purchase agreement was to purchase the Darrell Lea site at Ingleburn, which it previously planned to relocate many, many years ago, but they had had the opportunity to.

“So we’ve got about a 7,000 pallet controlled environment warehouse on a 40,000 square metre block of land. We plan to build a world-class facility. And that will be a far more efficient and ergonomic plant.”

For the time being, Quinn will continue learning about the Kogarah site. He admits his current schedule is unhealthy but necessary for getting the job done properly. And for the time being, chocolate lovers should keep an eye out for Darrell Lea on supermarket shelves when they’re shopping for Christmas supplies.

 

Retail conditions soft, says AFGC CHEP Retail Index

The AFGC CHEP retail index predicts growth to be 2.9 per cent, year-on-year, for the December quarter, below both the 10-year average and the September quarter result.

The index, released today and using comment from the Australian Food and Grocery Council and Deloitte Analytics research based on CHEP Australia pallet movements, suggests that conditions are currently sluggish.

The Council’s chief executive, Gary Dawson, suggests another rate cut by the Reserve Bank would help consumers to open their wallets.

“We’re hoping that another cut in interest rates will send the right signals to households so they embrace this summer season with more optimism,” said Dawson.

“Food manufacturers are facing an environment where sluggish retail conditions, rising input costs on everything from commodities to labour to energy and retail price deflation continues to cut margins, placing the sector under increasing pressure.

The Index is described by the AFGC as an “accurate forward indicator of retail trade sales published ahead of official Australian Bureau of Statistics (ABS) historical data.”

Maggie Beer slams supermarket dominance

Celebrity chef and food producer is the latest industry insider to accuse the major supermarkets of failing to support Australian food growers and manufacturers.

“So many Australians seek the cheapest alternative in food, and perhaps this is exacerbated by the big two [Coles and Woolworths], our duopoly, that pits one against the other in price wars, that see the farmer suffer. We have to do something about that,” she told the International Year of Co-operatives conference in Port Macquarie last week.

Beer’s pate, quince paste and ice creams sell through major supermarkets and independent retailers at a higher price than other comparable item, due to their high quality standard and use of Australian ingredients.

She said that while most Australians say they support Australian made and owned products, their purchasing behaviour proves otherwise.

''It's interesting Australians say they will support Australian-made and Australian-grown, but will we?”

“We support what's marketed most, and we so often support what's cheapest, especially with food.''

Beer was awarded an Order of Australia this year, after finding recognition for her cookbooks and television series focussed on cooking.

Beer has echoed the statements of Independent Queensland MP Bob Katter, who earlier this year told Parliament that the major supermarkets are killing our farmers.

''If we don't support our farmers, we will not continue to enjoy the freshness and the diversity of the produce we have now,'' she said.

''I have to say flavour, seasonality, ripeness, can not travel a long way.

Beer is in a good position to comment on the realities of farming, since she owns a farm in South Australia’s Barossa Valley with vineyards, olive groves, quince orchards and a soft fruit orchard.

“I know we live in a global market, but our local farmers can not compete against the imports of a global market when it comes to the cost of our labour.

''It's important that we pay a proper wage to a farm worker that not only sustains a family but sustains farming communities – whole communities.''

Terry Toohey Australian Dairy Farmers Director, told the Food Magazine Industry Leaders Summit earlier this year that the impact of Coles and Woolworths’ price wars will continue to drive farmers away.

"The retail actions are certainly impacting the dairy farmers in a negative way, this combined with the uncertainties and other factors [impacting] dairy or other farming, it's making it unattractive for the next generation, because it's not profitable for my children,” he said.

"If I was old and had children ready to take over the farm, I will tell them blue in the face not to come into agriculture.

“And that's pretty sad after 107 years on the one farm."

“It’s an unfortunate reality that milk price is a dollar.

“[It’s] simply unsustainable for all involved in the fresh food market.

“You can see the dairy farmers’ dairy families already suffering for Coles’ tactics.

“Given the sheer size of the supermarket duopoly, over 75 per cent of the market is between the two powers, and they are wielding that Australian marketplace and the majority of Australian suppliers, particularly to the fresh food industry,” he said.

“In NSW, my state, I see farmers being asked to sign contracts for 3 cents a litre than their previous contracts," he said.

“This will have astronomical effects on fund and profit margins.”

“In my case I’ll have 40 per cent of my tier 2 of milk [purchased] at 18 cents [per litre].

“The cost of products is 40 cents [per litre].

“So, you start to look and say, I’m only one person, there are 800 dairy farmers in NSW alone.”

Beer also joined the myriad of critics of Australia’s current labelling laws, saying they make it very difficult for consumers to understand which products are locally-grown.

''We were bottling some of our olives,” she explained.

“The salt came from South Australia and we had some of our own red wine vinegar in the jar and we were labelling it and then we found out we could not say 'Produce of Australia' because the jar came from overseas.''

Australian entrepreneur Dick Smith, who launched his own food company over a decade ago, has also voiced his concerns about the ability for local companies to compete against cheap imports.

“The freedom we’ve usually had in Australia is that you could go to a supermarket and decide if you wanted to buy Australian, imported, high-quality, low-quality, it was up to you," he said earlier this year.

“ALDI has taken that decision away.

“The problem is that because so many of us go to ALDI because the prices are cheaper, Coles and Woolworths will copy.

“The reason ALDI’s so successful is you can’t compare a price.

“What Coles and Woolworths will do to compete with that, which they must do because they have Aussie mums and dads as shareholders and the board will get the sack if they don’t keep making profits each year, so they will go to more and more products where you can’t compare a price.

"I call that ‘extreme capitalism,’ and it’s a disadvantage to consumers."

Do you agree with Maggie Beer's comments? How can we fix this problem?

Image: Australian Traveller

Nestlé expands manufacturing capabilities in Australia

The world’s largest food and beverage business Nestlé has invested $17 million in a new liquid manufacturing site in Australia’s Tongala factory located in Victoria’s north-east for Nestlé’s Health Sciences business.

The newly constructed manufacturing facility opened yesterday will serve as a manufacturing hub for Oceania, Asia, Middle East and Africa.

The factory will manufacture a range of ready to drink liquid supplements such as Resource, Isosource, Sustagen and tube feeding solutions for people who have been hospitalised and who are unable to consume normal food.

The new investment will create approximately 30 new positions over the next two years.

According to Regional Business Head for Nestlé Health Science in Asia, Oceania and Africa Paul Bruhn “this significant investment by Nestlé Australia to extend its Tongala factory into a bigger production hub is a huge vote of confidence the company has in the region.”

He went on to say that “Tongala is now world class in its manufacturing capabilities and the transformation of this factory is an exciting venture, with an enormous potential for growth, as we develop and roll out new products specifically for the local and regional markets.”

As a result of expansion, there will be a significant increase in the production capacity, Mathew Oram, factory manager at Nestlé’s Tongala factory stated.

He pointed out that “the factory will be manufacturing 7,000 tonnes of product annually by the end of 2013 giving us the capacity to supply Australia as well as other countries in our region.”

Woolworths reports big sales growth

Woolworths Limited has reported a huge first quarter, boosted by its supermarket and liquor dominance in the Australian market.

Sales in the period were up almost 5 per cent from the same period last year, and above “comparable store sales for the quarter [which had] increased 2.3%.”

From last year’s first quarter sales of $12 564 million, this year the group saw $12 993 in sales in the same period, attributed to an increase in the supermarket giant’s market share and increased consumer numbers and sole items.

The recent commencement of Sunday trading in Western Australia, which began at the end of August this year, has also been a contributing factor the increased sales.

While sales were up, Woolworths reported a fall of almost 3 per cent in average prices, which it says is resulting in “customers taking advantage of the fact that Woolworths continues to lower its prices for their benefit.”

But while the price of a number of items may be down for the average shopper, many don’t understand the impact of the price war on the food industry and its future.

Food manufacturers and producers are going out of business and struggling to make ends meet as they find it impossible to compete with cheap imports.

But experts have warned that the prices are unsustainable, as once the Australian dollar goes back down, prices of imports will increase and there will be fewer Australian companies able to provide food.

Woolworths opened eight Australian supermarkets during the quarter, meaning they now have 879 throughout the country, while the opening of six new Dan Murphy’s took the total to 165.

Smaller retailers have criticised the supermarket giant’s determination to continue opening new stores, saying they are opening larger than necessary outlets in a deliberate bid to wipe out competition.

Overall, the Woolworths group sales increased more than 4 per cent in the quarter, bringing it up to $15.2 billion for the quarter.

Chief executive Grant O’Brien said online sales had increased by 30 per cent for the quarter.

“This was a pleasing start to the year with momentum created towards the end of the last financial year continuing through the first quarter,” he said.

“While we have made progress against our strategic priorities, there is still a great deal to do in our business transformation programs.”

AFGC report confirms decrease in food manufacturing

The Australian Food and Grocery Council’s (AFGC) annual State of The Industry report has shown a decrease in the food manufacturing industry's output.

The fourth AFGC/KPMG report showed that overall output was down 4.5 per cent for 2010-11, as well as a decrease in employment of 2.2 per cent for the sector in the financial year 2011-12.

Factors putting pressure on food manufacturing such as the squeeze on margins by the supermarket duopoly of Coles and Woolworths, the high dollar, and high input costs were in the news last month, with Terry Davis, the CEO of SPC Ardmona, speaking of the need for changes to payroll tax and taxation depreciation allowances.

Gary Dawson, the council's CEO, said the report highlighted a difficult environment. According to the research, based on ABS data, there were 335 fewer businesses operating in the industry in 2011-12 compared to the previous year.

“The sector’s growth, competitiveness and ability to create jobs are under threat,” Dawson said.

“The findings of State of the Industry 2012 serve as a warning to policy makers at all levels of government that the Australian food and grocery manufacturing sector – Australia’s largest manufacturing sector – is facing an environment where input costs are rising on everything from commodities to labour to energy, and retail price deflation continues to cut margins, placing the sector under increasing pressure.”

The AFGC has used the report’s release to call for reform in areas such as the mandatory reporting system, streamlining energy efficiency and water use reporting requirements and “clarification that standards and labelling relating to food composition and safety are administered by Food Standards Australia New Zealand and all other consumer related labelling requirements should be in consumer law.”

Darrell Lea to be back on shelves in time for Christmas

Infamous Aussie confectionary brand, Darrell Lea, has overcome its financial issues from earlier this year, and the new owners have pledged to have the treats back on shelves in time for Christmas shopping.

In July Darrell Lea went into voluntary administration amid concerns surrounding the Lea family's ability to meet financial obligations.

In September, Darrell Lea was sold to Australia’s largest manufacturer of fresh chilled pet-food, the Queensland-based Quinn family for an undisclosed sum; though 400 part-time workers still lose their jobs.

Now Klark Quinn, one of the new owners, has told The Sydney Morning Herald that Darrell Lea products should be on sale in every major supermarket chain to buy for Christmas.

''Everyone wants Darrell Lea,'' he told the Herald.

Darrell Lea products will be in IGA stores by the end of October, thanks to a distribution deal struck by Quinn Foods.

Quinn confirmed the company is in negotiations with Coles, Woolworths and other supermarkets.

Quinn said the task of getting the confectionary maker back to being a profitable company will take work, speaking to the Herald at the Kogorah plant while wearing a fluro maintenance shirt.

''I wear a maintenance shirt because things are broken,'' he said of Darrell Lea. ''Every facet [of operations] was disconnected, marketing from sales, sales from finance, etc.''

Part of the plan will include a heavier focus on the 200 best performing and known products in the range, including the Rocklea Road and Soft Eating Liquorice, while 600 less popular products will most likely be dropped.

''It was the lesser known products that were dragging the business down,'' he said.

''It was very hard choosing what products to keep.

“But when we looked at it closer, it was obvious.''

Darrell Lea the No. 1 producer of liquorice in Australia.

While the Quinn family wants to modernise the Kogarah plant, to Darrell Lea products keep  their distinctive handmade flavour, much of the old confectionary processes and equipment will remain.

This includes burnished copper pans in which cooks make peanut brittle without a recipe and thermometer, Qiunn explained.

''You hear people talk about word 'iconic,' but Darrell Lea is iconic,” he said.

“There's so much history we can draw back on going forward, it's really exciting.''

What do you think of the Quinn family's decision to drop 600 products? Is it good business sense?

Hershey bows to pressure, commits to 100% certified cocoa by 2020

US confectionary manufacturer Hershey is the latest company to declare its commitment to ending child labour in West Africa, by pledging to use 100 per cent certified cocoa in all its products by 2020.

Activists have slammed the company, who say Hershey is the only major chocolate producer in the world that hadn't made a commitment to use certified cocoa.

Mars, Arnott's, Nestle are amongst other confectionary makers who have previously announced their commitment to ending child labour in the cocoa growing regions in West Africa by using only certified cocoa.

Last September, research found that the Australian chocolate industry has taken huge steps towards using accredited cocoa products.

Following the pressure, Pennsylvania-based Hershey confirmed its plan to use certified cocoa on Wednesday.
Certified cocoa is produced according to certain social, economic and environmental standards. 

West Africa produces about 70 percent of the world's cocoa and currently, certified cocoa accounts for less than 5 percent of the world's cocoa supply, according to Hershey.

According to the fourth annual report produced by Tulane University under contract to the U.S. Department of Labor to monitor progress in the protocol, about 1.8 million children, aged 5 to 17, work on cocoa farms in Ivory Coast and Ghana.

The report revealed 40 percent of the 820 000 children working in cocoa in Ivory Coast are not enrolled in school, and only about 5 percent of the Ivorian children are paid for their work.

Hershey earlier this year said it would invest $10 million in West Africa to reduce child labor and improve the cocoa supply, as part of its commitment to reducing the harsh working conditions in Ivory Coast and Ghana.

The commitment by major manufacturers to only use certified cocoa is a huge step in towards fairer conditions for the workers in the region.

Hershey has also pledged to continue its support of community development programs, including village school construction, mobile phone farmer messaging, training in modern farming techniques and literacy and health programs.

"Consistent with Hershey's values, we are directly addressing the economic and social issues that impact West Africa's two million cocoa farmers and families," J.P. Bilbrey, company president and chief executive officer, said in a statement.

"I am confident that we can make a substantial difference in West Africa by 2020."

Independent auditors will verify the certified cocoa was produced by the highest labor, environmental and farming practices, the company said.

Staff at Melbourne food plant claim extreme bullying was ignored

Staff at a Melbourne gourmet food manufacturing facility, which provides food for Ikea, Qantas and Costo have allegedly suffered extreme bullying at the plant.

More than half the workers employed at the Glendal Foods factory in the inner-city suburb of Brunswick say they have been bullied for years, and despite informing management and a trade union, the allegations were never followed up, The Age reports.

Of the 38 staff employed at the plant, 18 say they have been bullied by their employer, and one allegedly harmed herself two weeks ago as a result of the treatment.

She was admitted to the Western Hospital as a result and doctors there contacted WorkSafe to become involved.

An investigation is currently being conducted into the incident by the work safety authority.

Another staff member has alleged that a heavy trolley was pushed into her stomach while she was pregnant.

Most of the staff speak little English, and since their concerns have allegedly been ignored, they have decided to go public with their story.

They say the inappropriate treatment has been going on for at least six years.

The workers allege that management at the factory had allowed a senior staff member to regularly yell at them and make sexual and personal comments, tell workers they needed to give 48 hours' notice if they wanted to take sick days and demand staff work overtime on any day, without any notice.

They were also told, when they went from casual to full-time workers, they must ''celebrate'' by buying lunch for the entire workplace, or buying a supervisor a gift.

Employee Hiep Nguyen said when she was given a full-time job with the company, she was instructed to shout the entire factory lunch, because ''it was the rules,” and would face termination if she did not.

''I am a new arrival,” she said through an interpreter.

“I came to Australia legally.

“I work, and pay tax and try to be a good citizen.

“But because I have really limited English, I don't know a lot of rules.

“And for someone who has been here a bit longer than me to make my life really difficult is not fair for me.”

It is also alleged they were banned from making any contact with the company's owner and wages of some employees were withheld for up to eight weeks.

Most of the bullying complaints are against one supervisor, Van Phan, who the staff allege, pressured most of them to pay her 10 per cent of a backpay payment made to them in July after they signed a new workplace agreement.

They apparently had to make the payment in cash, and while Phan wouldn’t discuss the other allegations on Friday, she did say employees who gave her a cut of their backpay had given it as a gift.

''They were happy to do that,'' she said.

When the union became involved in the case, the company asked Van to voluntarily pay back this money, but it is unclear whether this has occurred.

Very few of the Glendal Foods employees were members of the National Union of Workers until August, when Nguyen filed a complaint with the union.

She also contacted the federal government's Fair Work Ombudsman, which referred her to WorkSafe.

Qantas and Ikea have confirmed that Glendal Foods is one of their suppliers,  among their suppliers but would not comment further.

Glendal Foods, which makes samosas, filo pastries, soups, curries and casseroles for its clients, is owned by Melbourne chef Chandra Kanodia, and the staff all allege he was aware of the incidents in the plant, but he ignored it.

He declined to discuss the allegations, but did comment on the fact that WorkSafe is investigating.

''WorkSafe will take care of this; the allegations are going to be sorted out by them,'' he said.

When asked why so many of his staff had complained of bullying, he said: ''They are all union members, are they? That says something, don't you think?''

He later issued a brief statement saying his company was concerned about the matter and taking it very seriously.

National Union of Workers organiser Monique Segan, who has regularly met staff at Glendal Foods since August, said the bullying was some of the most extreme the union has seen.

She also said that raising the issue Glendal Foods had increased problems, pushing the workers to go public with their story.

Coca-Cola Amatil overcomes ‘difficult trading season’ with big profits

Coca Cola Amatil (CCA) has continued its trend upwards, reporting growth of almost 6 per cent in the second quarter of this year.

The beverage giant’s growth in net profit in the period was $247.1 million, in what many have labelled a ‘difficult trading season’.

Despite the tough market conditions, CCA also managed more than three per cent volume growth and earnings before interest tax (ABIT) was up by almost five per cent in its Australian market.

CCA’s shareholder report showed that Australia’s EBIT growth to $294.8 million was the result of significant ‘momentum turn’ in spending habits during the second quarter, as well as ‘effective promotional strategies’ in May and June 2012.

The iconic beverage maker announced last month that following on from the unprecedented success of its ‘Share A Coke’ campaign last year, it would be expanding on the promotion this summer by embracing the nostalgia of music.

Joining with Facebook and Spotify, CCA will allow consumers to unlock top music hits from the year listed on individual bottles using a QR code and share the playlist with friends.

It also revealed in August that it would be increasing the size of its glass bottles and adding a resealable lid to appeal to the consumer demand for more convenient and portable.

CCA is also experiencing success in its Indonesian and PNG businesses, with the EBIT in the region at more than 19 per cent.

It attributed to their 12.9 per cent volume growth on its ‘significant cold drink cooler footprint’ in the region, saying it has ‘positioned them well for future growth.’

CCA is continuing to expand in Indonesia, and now has about 235 000 cold drink coolers and100 sales and distribution centres there, which has provided over 8000 jobs in the company.

Despite the surge in profits for the company, CCA still believes the ‘weak consumer spending’ in Australia, will likely result in its capital expenditure increasing by about $100 million to $470 Million in the last quarter of 2012.

CCA is also all but confirmed to re-enter the Australian beer market in late 2013 in a joint venture with Casella, which will give CCA the ability to sell, manufacture and distribute beer in Australia at the end of their restraint, which expires on 16 December, 2013.

Aussies buying less private label products

In a small win for Aussie food companies, big-brand grocery item purchases have increased, while private label products have decreased.

A new Neilson poll shows that private label grocery items have fallen for the first time in five years.

The big food companies who have been struggling against the rapid increase in home brand products will surely be hopeful the 0.7 per cent drop in private label grocery sales from this time last year is possibly an indication that Australian consumers are committed to keeping these companies alive.

The Nielsen report found ‘household penetration’ of the supermarket’s own ‘home brands’ have dropped from 95.5 per cent in 2011 to 94.8 per cent this year.

The findings back reports in recent months that found nearly half of all shoppers go out of their way to buy Australian-made produce, while more than a third buy Australian wherever possible.

The news comes after previous studies earlier this year found the number of private label products being purchased in Australian supermarkets is increasing.

The report also found that while consumers are becoming more dedication to food brands, they are not demonstrating the same loyalty to the supermarkets, with the rate of cross-shopping increasing to over 88 per cent in 2012.

Supermarkets ‘providing an enjoyable experience’ and ‘staff service’ were factors impacting store loyalty, Nielsen Retail Industry Group Executive-Director Kosta Conomos explained.

“As retailers continue to focus on the same initiatives such as private label, loyalty reward cards or low shelf prices, shoppers are increasingly seeing them as ‘hygiene factors’.

“Unless further differentiation occurs among Australian retailers, we’ll continue to see very high penetration levels and cross-shopping, with low levels of loyalty.

ACCC pledges to crack down on supermarket dominance

The Chairman of Australia’s competition watchdog has come out swinging over competition in local markets including the food industry.

Chairman of the Australian Competition and Consumer Commission (ACCC), Rod Sims, outlined the current ACCC priorities at the Australia Israel Chamber of Commerce’s Business Leaders Lunch in Perth yesterday.

According to Sims, of the 40 to 50 cases the ACCC always has in the Federal Court, about a quarter is related to competition.

“We currently also have 35 separate investigations underway into misuse of market power, cartels, or cases involving a substantial lessening of competition,” he told the audience.

“While these cases are complex, and take considerable time and resources to investigate and then prosecute, the deterrent effect of our work is substantial.”

As part of the ACCC’s bid to improve competition in Australia, which would include taking on even more competition cases, he outlined a strategy it would be using.

It will be focused on the online economy, cartels and misuse of market power and other anti-competitive behaviour, especially in concentrated markets, such as the supermarket industry.

In terms of the digital and online markets, which the ACCC has outlined as a key priority after a strategic review this year, as it poses two of the biggest regulatory challenges.

Digital marketplaces

They are ensuring consumers enjoy the same protections in the digital and online economy as they do in other environments, and making sure there is fair competition in the digital and online economy between new and innovative competitors and their older counterparts.

“We are examining whether certain current bricks and mortar leading firms are seeking to prevent online competition in ways that breach the Competition and Consumer Act (CCA),” Sims said.

“I recently heard one such retailer claiming that bricks and mortar incumbents will dominate online shopping in future and see off completely new solely online competitors.

“It would be a missed opportunity for competition if this became the inevitable outcome.

“Our cases against Ticketek and Flight Centre are two prime examples of our enforcement work to ensure competition online.

“A related case is our successful court action against Apple for misleading consumers about Apple 4G iPad’s capacity to connect to the 4G network in Australia which also has competition implications.

“Other firms, Samsung for example, sell tablets which compete with the iPad and which can connect to Australia’s 4G network.

“Those firms are entitled to compete in a market that is fair in terms of the claims that are made about what the devices can do,” Mr Sims said.

Sims also discussed the misconceptions cartels have about legal conduct, saying the key focus area for the watchdog could result in prosecution.

“Combating the damage cartels wreak on other businesses, consumers and the economy has been a major ACCC priority for some time,” he said.

“For over a year now we have been taking a more proactive approach to cartel conduct, following results from the 2010 Melbourne University Law School research that showed 58 percent of businesses don’t know that fixing prices, rigging bids, sharing markets and restricting supply is a criminal offence that can result in a 10 year jail sentence and of the 42 percent of businesses that understood the potential criminal nature of cartel conduct, almost one in 10 said they’d still be likely to join a cartel if the opportunity arose.”

“Our proactive enforcement and education program aims to bed down the new laws and increase awareness of them.

“We have 10 current cartel enforcement matters before the Federal Court.

“We have a number of active cartel investigations currently underway.

“We have conducted a direct mail and email campaign to targeted and general industry sectors informing them of the criminal penalties and how immunity can free them from prosecution.

"This includes letters to 2,500 executives in the heavy construction and construction supply industries.

“We have made and distributed a short film called The Marker that shows how involvement in cartels can ruin your business and your life – I have personally sent copies to the CEOs of the 300 top ASX listed companies urging them to show it to relevant employees at all levels of the organisation

“We have gained significant media publicity around our most recent court case and the launch of The Marker”.

Misuse of market power

Sims pointed out that due to the size of the country and our distance from other markets, there are many concentrated markets in Australia, and the misuse of market power must be stopped.

He said the ACCC is carefully observing key markets where this is occurring to make sure no mergers or arrangements that substantially lessen competition, are occurring, and where the obvious market power is not misused to prevent or damage competition.

Anyone within the supermarket industry would know that it is one of the markets the watchdog must be keeping an eye on, following an intense couple of years of price cuts and damage to suppliers’ businesses by the big two dominant forces,  and while Sims maintained the markets being targeted are confidential at this stage, he did outline the three most pressing areas.

“Issues relating to the treatment of suppliers by the major supermarket chains,  which include competition issues as well as allegations of unconscionable conduct, business-to-business, which we are keen to pursue generally,” he said.

“Investigating the sharing of information about prices in the fuel retailing sector, and examining the longer term competition implications of the large shopper docket discounts provided between the fuel and supermarket sectors in particular.”

Mergers and acquisitions

The ACCC will be closely monitoring the impacts of potential mergers and acquisitions to ensure they are used for the right purposes – to make companies more efficient – rather than for lessening competition.

“Some of the mergers and acquisitions we review clearly attract a lot of publicity,” he said.

“Understandably, the parties involved in a transaction have an interest in having their merger dealt with as quickly as possible and this can lead to criticism of the length of time the ACCC takes to reach a decision on a proposed merger.

“The length of time our reviews take, and the potential impact on the parties’ commercial time-frames, is something the ACCC is acutely aware of and is taking a number of steps to address.

“The publication of a Statement of Issues is part of the ACCC’s processes that ensure transparency of our consideration of merger proposals.

“We will take account of the reactions from the market and the merger parties to the concerns we have outlined.
“At this stage we aim to make a final decision on this transaction in mid-October.

“Close scrutiny from the ACCC will be particularly the case in concentrated markets.

"As I noted above, we want to ensure that mergers will not result in structural changes leading to a substantial lessening of competition.

“While there are a range of factors to take into account in assessing mergers under section 50, market concentration is a key factor.

“When a merger is a “3-2” – so, when a merger reduces the number of key players in a market from three to two – the parties should not be surprised that the ACCC would want to carry out a full review.

“With only two principal players remaining in a market, each will learn to anticipate the actions and reactions of the other. 

“In these circumstances, the ability of the two remaining firms to raise prices or reduce quality for consumers generally increases.”

What are your thoughts on Sims' comments? Do you think the new plan by the ACCC will improve the food sector? What else needs to be done?

Confronting corporate power in the food system

The Federal Government’s current national food plan process is heavily dominated by business interests. It is built on flawed assumptions that the market can provide the solutions that our broken food system sorely needs.

Australia’s food system, like the food system globally (see also The GROW Report), is dominated by a handful of corporate players in pursuit of profit. Far from the rhetoric of “free” and “competitive” markets, our food economy is governed by an oligopoly of private interests.

(Super)market domination

Concentration of economic power in the Australian agrifood system is probably best understood through the example of the supermarket duopoly of Coles and Woolworths, controlling around 80% of retail grocery sales. Lesser-known corporate giants include Cargill, the world’s largest grain trader, which became Australia’s largest grain trader when it purchased the privatised Australian Wheat Board in 2011.

Since deregulation of the dairy industry, one multinational food and beverage company, Kirin, controls around 80% of Australia’s drinking milk market, forcing out farmer-run cooperatives. Two companies, Weston Foods and Goodman Fielder, control more than half of the bread and bakery markets.

Private control of agriculture, food processing and retailing means that decisions about what food is produced, how it is processed and where it is sold are driven by profit motive, and not by human needs. Moreover, the huge market share controlled by the small number of companies that dominate Australia’s food system creates the potential abuse of market power.

Farmers' struggle

Farmers feel this impact of this market power keenly. As suppliers to the two big supermarket chains, and to companies like Kirin in the milk market, farmers are forced to accept lower and lower prices in order to win supply contracts. In the milk sector, farmers are receiving a decreasing proportion of retail revenue since deregulation in the early 2000s. The start of the so-called “Milk Wars” between Coles and Woolworths in early 2011, pushing milk retail prices to $1 per litre, only exacerbates this downward pressure on farmgate prices.

In addition to low prices, farmers are forced to meet exacting standards regarding the appearance of fruit and vegetables, to package and label produce at their own expense, and risk having produce returned at the whim of the retailer. Negotiations between supermarkets and their suppliers are not transparent and the resulting contracts, with no standard terms of trade, provide little consistency for suppliers. At times, suppliers are notified of the prices they will be paid after the sale is completed.

It is not only farmers who suffer as a result of the enormous economic power of the handful of companies that dominate the food system. A survey of hundreds of truck drivers working for Coles earlier this year found that the majority felt pressure to drive above the speed limit in order to meet the company’s demands.

Drivers were forced to work for hundreds of unpaid hours per year, waiting in delivery lines, and loading and unloading cargo. Health and safety standards dropped, putting workers’ lives at risk, when the company failed to allow sufficient time for vehicle repairs.

Need for change

It is unacceptable that powerful food companies obtain profits by extracting unreasonable concessions from primary producers and workers in the food system. This imbalance of economic power undermines farmer and rural livelihoods, and threatens the future of Australia’s food production industries.

There has been significant discussion in Australia of the power of the supermarket duopoly. The ACCC issued an astonishing report in 2008 which pronounced the retail industry sufficiently competitive, despite the two largest retailers controlling, at the time, 70% of grocery sales, 50% of fresh fruit and vegetable sales and 60% of all supermarket stores.

Nonetheless, the ACCC did find that some adjustment measures were required, such as lowering barriers to entry for other firms. There has been little progress on this point as Coles and Woolworths have further consolidated their market positions and are refusing to agree to a more “streamlined” process proposed by the ACCC for approving mergers and acquisitions. The retailers are reportedly concerned that the new process will enable the ACCC to block deals and limit their growth plans.

Amid many complaints from farmers and other industry stakeholders, the ACCC’s new Chairman has made several attempts to curb the duopolists' power, including the streamlined approval process for acquisitions. The ACCC has also investigated claims of unconscionable conduct regarding suppliers and misuse of market power regarding private label products. The outcome of these initiatives is yet to be seen.

The national food plan process has been particularly dismissive of concerns regarding the impact of the duopoly. The government has refused to intervene in the relationships between Coles and Woolworths and their suppliers, preferring to “let the market decide”.

The Australian Food Sovereignty Alliance decided in early 2012, after seeking to engage with the government’s flawed food plan process, to initiate the “People’s Food Plan” project. The national food plan fails to provide adequate access to the public for consultation and prioritises the needs of the market over the needs of the people who depend on the system. In contrast, the People’s Food Plan questions the dominance of corporate interests and the market-driven nature of the food system, opening the door to the kind of transformative change that many are advocating.

The People’s Food Plan involves community meetings throughout Australia. At these forums, interested farmers, community activists, food-lovers, students, workers and others will get together to talk about the changes we want to see in our food system. If you are interested and would like to participate in one of these discussion events – you can find out more or contact us at The Australian Food Sovereignty Alliance.

Claire Parfitt is affiliated with the Australian Food Sovereignty Alliance and is a coordinator of the People's Food Plan project.

The Conversation

This article was originally published at The Conversation. Read the original article.

Consumers misled over serving sizes: Choice calls for reform

Consumer watchdog Choice is calling for an overhaul to current labelling standards, after research revealed some manufacturers are misleading consumers over portion sizes to make their products seem healthier.

The Choice study found that some manufacturers using the thumbnail percentage guides on the front of packaging to portray their products as the healthier option are deceiving consumers by using distorted serving sizes.

Choice spokesperson Ingrid Just told Food Magazine the practise has been going on for some time.

“We’re not surprised [by the findings], we know manufacturers are manipulating serving sizes to make products seem healthier than they are,” she said.

“Those manufacturers who use thumbnail percentage [daily intake] labels on the front of packs often look to that serving size because it brings some of those percentages down.

“So for consumers who may use that to compare products, they are getting an unrealistic reading, as the serving sizes may not be the same.”

In Australia, manufacturers are responsible for deciding on appropriate serving sizes, and as such, they often vary between different sized of the same product.

A Mars Bar serving, for example, is stated as 18, 36 or 53 grams, depending on the pack size

Comparatively, the US serving sizes are regulated by government body the Food and Drug Administration (FDA).

Just said the industry needs to be regulated so that manufacturers can’t select serving sizes that will paint them in a more positive light than reality.

“The daily intake thumbnails are confusing, consumers find them difficult to understand, and we’re saying there needs to be one consistent comparison, using 100 grams or 100 millilitres, so that across products, regardless of serving size, they can find healthy options.”

Just said the design and display of front-of-pack labelling is crucial to its success, as consumers don’t allow much time to make their decisions.

“We think any front-of-pack labelling should be one that allows consumers to find healthy options at a glance, so colours or symbols should be used to make that obvious, because consumers take two to five seconds to chose products, so they have to be able to easily compare.

“It needs to be based not on serving sizes.”

The research found manufacturers are putting up to three servings into packaging portrayed to be a single serving size, leading consumers to consume more than intended.

With the mandatory front-of-pack nutritional labelling due to be rolled out by the government this year, Just said Choice will be assisting agencies to find the best variation.

“We look forward to working with all stakeholders to make sure it is easy to understand, is based on a standard measure and is easily comparable,” she told Food Magazine.

Successfully overhauling the system would result in a healthier industry, according to Just.

“What we know is that a front-of-pack, easy to understand system would highlight those products that are worse, and that’s why some manufacturers wouldn’t support it.

“Having said that, it would encourage regulation, which would see, in turn, more healthier products on shelves, and that is good for consumers and everyone.”

The Choice report refers to the latest food and nutrition publication from the government’s Australian Institute of Health and Welfare reports that found that our current overweight and obesity rates – 23% of children and 61% of adults – are some of the highest in the world.

“Food portion sizes are increasing,” the report states.

“In the US in the 1950s, McDonald’s offered just one size of soft drink – 7oz (about 210mL).

“It now has 12, 16, 21 and 32oz (950mL) offerings.

“And French fries and hamburgers are now two to five times larger than those originally offered.

“Portion distortion has even occurred in the home, where the sizes of our bowls and glasses have steadily increased and the surface area of the average dinner plate has increased 36 per cent since 1960.

“Why does this matter?

“Put simply, the bigger the portion, the more you eat and the more kilojoules (energy) you consume.

“Between 1983/85 and 1995, energy intake increased significantly for both adults and children in Australia.

"Without an equivalent increase in energy expenditure, increases in energy intake can result in significant weight gain over time.”

Increasing plate sizes has also led Australians to consume more, as natural instinct leads most to fill a plate or bowl, regardless of its size.

Even nutritionists aren’t immune to the behaviour, with one study asking 85 nutrition experts to serve themselves a bowl of ice cream.

A variety of bowl and scoop sizes were handed out, and it was found that those with larger bowls served themselves 31 per cent more ice cream without being aware of it, while a bigger spoon made them dish out almost 15 per cent more.

What do you make of these findings? Does there need to be one standard across the board, or should manufacturers be entitled to make the call on serving sizes themselves?

Image: Choice

Imafe

Kraft to buy remaining stake in Moroccan biscuit company

Global food giant Kraft has signed an agreement to acquire the remaining 50 per cent stake in Moroccan biscuit manufacturer Biscuiterie Industrielle du Moghreb (BIMO).

Kraft announced yesterday it will purchase the remaining share from local investment holding National Investment Co (SNI) for MAD1.31bn (US$150m).

Last year Kraft split the company into two parts, to further growth in different sectors of the food market.

The US food giant said the latest acquisition is part of its overall strategy to grow in developing markets, and that operations in the Middle East and North Africa are "an important part" of that plan.

It plans to continue to grow BIMO and its brands in conjunction with Kraft Foods' broader Moroccan operations.

The move will "ultimately benefit BIMO and the Moroccan economy as a whole,” according to of Kraft Foods Middle East & Africa, Lawrence MacDougall.

"For several years, Kraft Foods and SNI enjoyed a strong and successful partnership in the jointly-owned BIMO, and this transaction is clearly aligned to fit our respective strategies,” MacDougall said.

"I am excited about our business prospects in Middle East and Africa in general, and in Morocco in particular, where this agreement will serve to reinforce our position as ‘a global snacks powerhouse' not only internationally but also in this region.”

The finalisation of the acquisition will depend on customary regulatory approvals.

Govt not amused by big tobacco’s plain packaging “sick joke”

The federal health minister has slammed big tobacco’s “sick joke,” which has seen the first two companies rolling out the plain packaging for cigarettes in ways that do not comply with the new standards.

Imperial Tobacco has unveiled new packaging which shows the traditional Peter Stuyvesant logos and colours being torn away to reveal the new drab green colouring, which will become mandatory from next month.

It’s new packaging, which is essentially a new marketing campaign, aims to show consumers that while the appearance is changing, "it's what's on the inside that counts''.

"Soon no one will see Peter Stuyvesant on the outside but we don't care,” the company says in a leaflet advertising its packaging change to retailers.

“We're going plain early, because we know Peter Stuyvesant will continue to live on inside.”

But Health Minister Tanya Plibersek is not amused by the company’s ballsy move, or that of fellow tobacco giant Philip Morris, labelling them "the ultimate sick joke from Big Tobacco''.

“Diseased lungs, hearts and arteries are the reality of what is happening on the inside to a smoker,'' she said.

The government has also written to Philip Morris, warning that that the new plain packaging of its Bond Street cigarettes “heavily resembles the plain packaging requirements,’ but still needs improvement to comply with the new legislation.

"We note that if these products are sold, offered for sale or otherwise supplied after 1 December 2012 the packaging would not be compliant with the Act,” the health department stated.

''The breach of the act could possibly expose the company to massive fines of up to $1.1 million.

“The department takes issues with the use of the word `cigarettes' in small type on the side of the packet, it says the outer surfaces of the packet must have a "matt finish'' and warns the pack may not be the correct colour – Pantone 448C.”

The department has also referred the health warnings displayed on the packaging to the Australian Competition and Consumer Commission to determine whether they comply with regulations.

From 1 October, companies will be required to start including graphic health warnings across 75 per cent of the packaging, which will be required to be the specific drab green colour set out by the government.

As of 1 December, all cigarettes sold in Australia must be encased in plain packaging, or retailers risk hefty fines.

Major retailers are expecting to receive deliveries of the controversial new packs of Peter Stuyvesant and Bond Street cigarettes this week, and Plibersek has warned that the department will "be closely watching the new packages to ensure that they comply with the regulations because we know that Big Tobacco will use every trick in the book to try and get around the new requirements''.

"Where we identify any examples of possible non-compliance before the implementation dates we will be letting the companies know so they can rectify any issues,'' she said.

What’s your thoughts on the moves by the two companies? Do you agree with Plibersek that it’s a “sick joke,” or are these companies entitled to market their brands?

AussieMite secures national distribution in Coles stores

AussieMite, an Australian-owned option in the yeast-based spread market, has secured national distribution and will now be available in all Coles supermarkets.

Developed as a locally-based alternative to iconic brand Vegemite, which is owned by US company Kraft Foods, AussieMite is a small family-owned business with a local focus.

“We are committed to keeping profits in Australia, using only the best local ingredients, where possible, and with all the packaging including the jar, lid and label, made in Australia” says AussieMite Managing Director Elise Ramsey.

The company seeks to use only the finest, ethically sourced ingredients and avoids chemical additives and preservatives

Coles General Manager of Grocery, Richard Pearson, says: “Coles is delighted to add yet another Aussie-made product to our shelves. We sell more products carrying the Australian Made Australian Grown logo than any other brand in the country and we’re sure AussieMite will be another popular choice for customers.”

Edible packaging encases food in skin-like substance

Cambridge-based company Wikicell Designs have created a nutritious, edible, skin-like packaging that encases and protects food in the same way that a grape is protected by its skin.

As consumers become more aware of the total environmental impact of their food choices, particularly excessive amounts of non-biodegradable packaging, many companies are making a sincere effort to show consumers that they are also conscious of the problem, such as the Texas grocery store that has gone completely packaging free.

Wikicells go one step further, taking cues from natural products such as grapes and oranges, encasing food and beverages in a protective skin that also provides additional nutrients.

The soft skins are made up of mostly food particles, such as chocolate, seeds or fruit, which are held together by healthy bonding ions such as calcium, according to CEO and co-founder Robert Connelly.

For those who are a bit wary of the skin-like substance, the packaging can be removed and is completely biodegrable.

So far they have encased ice cream in a fudge Wikicell, yoghurt within strawberry skins and orange ones filled with orange juice.

The company has just closed US $10 million in Series A financing and will begin public testing early next year.

Photo by Mark Garfinkel

Bulmers introduces new flavour with ‘Ginger Pride’ campaign

Bulmers has launched a tongue-in-cheek Facebook campaign to promote their new ginger-flavoured cider.

The campaign seeks to promote individuality by turning the tables on all the ‘ranga’ bashing and ginger-hair hate that tends to thrive on social media (the widely publicised and criticised ‘Kick a Ginger Day’ fan page comes to mind).

Launching their first ever Facebook page to kick off the campaign, the “Bulmers – Proud to be Ginger” page is asking fans to tell them what they’re proud of with the winner receiving double passes to the exclusive Bulmers Ginger VIP launch event on Tuesday 18 September, at The Standard in Sydney

The cider is made using real fermented ginger, delivering a refreshing taste with a hefty bite and a hint of lemon and is sure to be a popular addition to the brand’s growing range of flavoured cider, which also includes pear and apple-blackcurrent in addition to traditional apple flavor.

Cider is currently the fastest growing category in Australia, growing by 43% volume in the past 12 months to June 2012 with a number of brands entering the market in recent months.

400 Darrell Lea workers to lose jobs as customers commence panic buying

A deal has been struck that will see troubled confectionary maker Darrell Lea sold to Queensland-based Quinn family, though 400 workers will still lose their jobs.

The company plans to restructure and will continue to sell its famous confectionary such as Rocklea Road through a network of 1200 retailers.

Administrators took control of the company earlier this year to try and save it from ruin, and was sold to Australia’s largest manufacturer of fresh chilled pet-food, the Quinn family, for an undisclosed sum.

The news of the sale and that the remaining 27 Darrell Lea company-owned stores will cease trading on Sunday, September 9 saw the George Street store flooded with customers stocking up on nostalgic sweets such as liquorice and Rocklea Road.

83 employees will remain at the company and a spokesperson for the Quinn family said that their aim was to ensure that the iconic Darrell Lea brand remained under Australian ownership.

Picture: Luke Marsden