November 22, 2011
THE chief executive of HJ Heinz, one of the world’s biggest food manufacturers, has again taken aim at Coles and Woolworths for flooding the market with private label goods, which has forced it to shut one factory and downsize two others as its margins are squeezed to breaking point.
William Johnson, executive chairman, CEO and president of the $US16.4 billion Pittsburgh-based Heinz, told investors the company has had to rework its strategy in Australia to cope with the growing domination of private label goods and the never-ending discounting on branded goods by the supermarket chains.
”The reality on Australia [is that it has] almost come to the point that it’s â€¦ immaterial to us going forward because it has taken such a hit,” Mr Johnson said. ”We are confronting a combination of weak categories, relentless promotional pressure and growing private label, as well as executional issues.”
It is the third time this year a senior Heinz manager has singled out Australia when updating US analysts on the quarterly performance of the global food supplier, with Heinz’s chief financial officer, Arthur Winkleblack, in August blaming Coles and Woolworths for fostering an ”inhospitable environment” for suppliers.
In June, Mr Johnson labelled Australia as ”the worst market” where consumers would ultimately pay the price.
The latest outburst from Heinz comes as the nation’s two biggest supermarket chains face complaints from suppliers and food manufacturers over the growing proliferation of private label, or ”home brand”, goods on shelves. This is coupled with the discounting of popular items such as milk, bread, eggs and oil.
Australia’s largest bread maker, Goodman Fielder, has warned it might consider abandoning daily deliveries to retailers to cut costs due to the tough trading environment where the major supermarkets sell bread for as little as $1.
Lion, formerly known as Lion Nathan and now owned by Japanese conglomerate Kirin, warned the Tokyo Stock Exchange two weeks ago that its milk business was projecting a net loss for the year due to the fact that Coles and Woolworths slashed prices for milk to $1 a litre in January.
Earlier this month, Woolworths announced that it would be aiming to double private label sales, further angering some suppliers of branded goods.
A Woolworths spokeswoman declined to comment on the complaints from Heinz, other than to point out that Heinz’s net profit as a proportion of sales was roughly 10 per cent, whereas Woolworths’ was less than 4 per cent.
Mr Johnson said that Heinz, which makes a range of popular foods including baked beans, spaghetti and tomato sauce and also owns Golden Circle, had been forced to restructure its operations in Australia.
It has closed a factory in country Victoria with the loss of 146 jobs, and another 200 jobs have gone in Queensland and NSW.
The global manufacturer will also cut some product lines.
”We are eliminating hundreds of SKUs [stock-keeping units], closing the sauces production facility in Girgarre [Victoria], downsizing two other factories, reducing overheads and are working with suppliers and retailers to improve overall efficiency in terms of logistics and promotions,” Mr Johnson said.
Last month, the chairman of the Australian Competition and Consumer Commission, Rod Sims, said he was concerned about private labels, adding this vertical integration in the supply chain needed scrutiny to ensure the supermarkets do not misuse their market power under section 46.
The former ACCC head Bob Baxt told BusinessDay the increasing reliance on private labels by the supermarkets was not in itself a breach of competition guidelines or a limit on competition.
”The use of private label is just another form of competition,” Mr Baxt said. ”As long as the labelling is not misleading. I don’t see anything wrong with private labels, in fact it’s another way [in] which companies can compete and thus deliver benefits to consumers.”
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