Analysis and Commentary

Australian FMCG brands facing extinction?- by Allen Roberts

Analysis and Commentary

Sara Lee has been billed as the latest Australian food brand to go to the wall – it is actually New Zealand owned. Nevertheless, here Allen Roberts explains why it is next to impossible to find an Australian owned food brand on the shelves of our supermarket duopoly.

When I was a boy in this business, back in the seventies, having a brand was table stakes to be in the game.

At that time, there were a number of supermarket chains, and every one was stocked with a suppliers proprietary branded product.

There were many types and scale of brands. From the small producers hoping for a modest segment in the market that would provide a living and employment in their modest factories, to the multi-national, mass market giants.

There were no ‘House brands’, until Franklins as an experiment ranged ‘No Frills’ margarine, packed by my then employer Vegetable Oils Ltd, which later became Meadow Lea foods.

Over time, the number of supermarkets reduce to the two gorillas and Aldi that we have today, and the number of brands reduced from the many hundreds down to the few MNC brands, with a very few exceptions, which are slowly being squeezed of life today.

If the trends of those 40 years continue, a brand extinction event is getting closer every day.

The latest victim is Sara Lee.

Originally the brand came from the US, and at its height had diversified into a wide range of products from the initial frozen cakes to clothing, and real estate.

The Australian business has been through several owners, the most recent being a Dutch company nobody outside the industry would have heard of.

Manufacturers have been their own worst enemies.

They have failed to recognise the long-term impact on their profitability of the increasing power of Woolies and Coles, with the recent addition of Aldi.

Retailers do not care about proprietary brands – their goal is their own profitability. If they cannot have your product on shelf, they are just as happy to have an alternative.

Increasingly over the past 30 years that alternative has been a house brand.

When retailers own the shelf space from which consumers pick products, and also ‘own’ the sales margins from half the products for sale, guess who wins.

Retailers have used their muscle to squeeze out proprietary brands, taking the proprietary margin for themselves.

The stupidity is that manufacturers have aided and abetted this quest to destroy them, by supplying the products and stopping the long-term brand building that made them successful.

The funds have been redirected by manufacturers from advertising and brand building back into price promotion. Selling with price being the only differentiator is a sure way to destroy a brand.

To explain the resilience of a few brands, and some that resisted the retailer pressure for years before succumbing, you need look no further than effective, long term brand building advertising.

The Vegemite (pictured) jingle is in the brains of most Australians over 40, and Vegemite persists.

Aeroplane jelly is also there, and I would guess the brand could be rejuvenated by a return.

Similarly, Meadow Lea is a shadow of its former self, but 30 years after the great ‘you ought to be congratulated’ advertising finished, the positioning of Meadow Lea remains viable, and could be revived with investment.

To explain the failure of FMCG management to continue to invest in their proprietary brands over the years, allowing house brands to take over, you need look no further than the lack of understanding of the contrary dynamics at work.

Advertising is a long term investment, over numbers of years. Advertising is treated as an expense, one that is accounted for on an annual basis in the accounts of businesses.

These two contrary forces, when allied to executive KPI’s dominated by accounting thinking, and the increasing power of the retailers to demand discounts as a necessity for distribution has drained the capital necessary for brand investment.

The retailers are happy, they have the margin. The short term executive profitability goals of a few executives may be reached, so they are happy individuals.

However, the brands have been destroyed, and the long term viability of their manufacturing operations been compromised, in most cases, terminally.

That in a nutshell, leaving aside questions of the operational efficiency of the Sara Lee business, is why it is now on the discount block itself.

Allen Roberts is principal of StrategyAudit, a consultancy that helps companies identify and remove the barriers to high performance.

Editor’s note: This story has been corrected to say that sara Lee is New Zealand rather than Australian owned.

Picture: Bega Group/Vegemite is a survivor as an Australian owned food brand

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