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Global confectionery business Nestlé has launched the first three products by the new China incubator team and company’s own Totole brand during Nestlé China Innovation Day.

Xingshan is a new brand of ready-to-drink herbal drinks and soups that are made with traditional Chinese ingredients including rose, pomegranate, tremella and mushroom.

Nestlé Incubator also launched Muscle Hunt, a ready-to-drink high protein water for post-workout recovery, as well as Green Bite, a collection of customisable healthy snacks.

The FMCG giant is now leveraging new innovation platforms and internal incubators for faster product development, adapting to the rapidly evolving consumer tastes. Xingshan was launched in eight months and it will first be sold on e-commerce platforms. Nestlé R&D in China researched benefits of Chinese medicine and cuisine for several years and selected traditional ingredients carefully to maximise nutritional value.

“In response to the rapid changes in China’s Food and Beverage industry, Nestlé has accelerated the improvement and testing of its innovation business model over the past two years to create a multidimensional, sustainable innovation strategy,” said Rashid Aleem Qureshi, chairman and CEO of Nestlé Greater China.

“For over 150 years, Nestlé has been dedicated to the same mission: enhancing quality of life and contributing to a healthier future. Our innovation team, with over 100 ongoing projects, will bring consumers more choices through a variety of healthy products over the next two years,” he added.

Nestlé Incubator plans to fill the market gaps in China and pursue the Healthy China 2030 initiative. There’s a growing demand for healthy, natural and customised Asian products.

“Nestlé’s multidimensional innovation strategy is supported by three key levers: Besides developing the company’s basic operations through accelerated innovation and improvement, we are enhancing the consumer experience through various approaches including consumption patterns and consumption venues, addressing new market needs through Nestlé’s Incubator program,” explained Nini Chiang, CMO of Nestlé Greater China.

In early 2018, Nestlé launched its Incubator Team to expand its business and respond quickly to China’s market needs. The country is the second market to have an Incubator Team, after the US.

The boss of Woolworths has confirmed the rise of Halloween as a key commercial event, and which this year was the “biggest ever” for Australia’s largest supermarket chain.

It comes amid debate about how much the creep of American culture is responsible for the increasing popularity in Australia of the October 31 celebration, which sees groups of kids in fancy dress tramp between fake cobweb-hung homes looking for sweets.

Woolworths chief executive Brad Banducci told The Australian that although the sales data was still coming in from the retailer’s more than one thousand stores, it was “easily” the biggest-ever spending spree by shoppers on Halloween goodies.

“It was our biggest Halloween ever, it only happened yesterday and we need to see all the numbers but it easily will be our biggest Halloween ever, and it is part of a conscious effort as a team to focus on our customers’ key events and help them celebrate those events,’’ Mr Banducci said.

Last night, across Australian cities, children dressed up as everything from vampires, zombies and grim reapers to Star Wars stormtroopers and medieval plague doctors, knocked on doors and asked neighbours for chocolates.

Halloween is increasingly spawning street parties and community events and many Australians point to American influence for the celebration’s strong growth in recent years, and for its growing commercialisation.

Australia still lags well behind the US, the home of Halloween.

According to retail experts in the US, more than $US10 billion is spent each year by Americans on confectionery, costumes and Halloween decorations. While more than $US3 billion is spent on costumes, and $US2.6bn on confectionery, Americans also shell out around $US400m on Halloween greetings cards.

Australian spending is much more modest, but Woolworths did expect in the lead up to Halloween to sell more than 200,000kg of Halloween pumpkins, up more than 20 per cent on last year.

Mr Banducci said Halloween was an example of the new celebrations the supermarket chain was happy to cater for.

“So we have also had a terrific year more recently with (the Indian) Diwali and (Chinese) Lunar new year.’’

There will be pumpkins there somewhere. Woolworths boss Brad Banducci in one of the retail giant’s Sydney supermarkets. Pic: John Feder.
There will be pumpkins there somewhere. Woolworths boss Brad Banducci in one of the retail giant’s Sydney supermarkets. Pic: John Feder.
Woolworths invested heavily in in-store promotions and displays for Halloween in the month leading into the big night, with pumpkins and chocolates featuring heavily as well as other novelty foods such as pumpkin-flavoured bagels.

“It was big, but we still have a lot of work to do to analyse exactly how big it is, but certainly not as big as Mother’s Day or Father’s Day.

“And we are just getting better at executing (Halloween) … and also having a bit more fun in the store, you want to make it an enjoyable experience for everyone, giving permission for our teams to get behind an event and enjoy an event and I think it is good for our team and I think customers feel that.’’

Halloween is also a boon for farmers, with pumpkin growers doing a brisk trade when, normally, pumpkin is enjoyed by Australians in winter months.

Retail Food Group (RFG) has appointed ‘turnaround specialist’ Peter George as its new chairman, after laying out a three-pronged strategy to stabilise, optimise and reinvest in the business at its annual general meeting (AGM) on Thursday.

George, who joined the board as a non-executive director in September, was elected chairman on Friday. He takes over from Stephen Lonie, who stepped into the role vacated by previous chair Colin Archer, who announced his retirement from the board at the end of September after RFG reported a $306.7 million full-year loss.

George previously led the restructuring and merger of integrated marketing solutions provider, PMP Limited, as managing director from 2012-2017, and was executive chairman of Nylex Limited from 2004-2008.

His focus will be on effectively executing the already developed turnaround strategies to return RFG to stability and profitable growth, and add further impetus to the group’s efforts to restore value for shareholders, he said.

Lonie admitted in the company’s annual report on Thursday that RFG, which owns a portfolio of food brands including Gloria Jean’s, Donut King, Crust Pizza, Brumby’s Bakery and Michel’s Patisserie, faced several challenges in FY18, which contributed to its poor performance.

Increased scrutiny of the treatment of franchisees, specifically those within RFG’s network, contributed to a decline in new store growth, resale and renewal activity and the number of outlets being passed to management in FY18. This, combined with challenging retail trading conditions, particularly in shopping centres, and the increased complexity of the business, forced RFG to write down $402.9 million in impairments in FY18, pulling the company’s $374 million revenue into the red.

Lonie highlighted the need to stabilise the business and improve profitability and said the company has already embarked on a turnaround strategy. This includes integrating and streamlining the group’s operations and right-sizing the operational base across RFG’s businesses to support a more sustainable model for the company and its franchisees.

Group CEO Richard Hinson noted in the report that he met with approximately 700 of RFG’s franchisees during a national roadshow to listen to feedback and explain the steps that RFG is taking to enhance the profitability of their businesses, including delivering $4.5 million in cost of goods savings, discounting new store and franchise renewal fees, investing an additional $1.5 million in field support per year and $1.2 million in wage entitlement audit and compliance activities per year.

Hinson said the response to the roadshow was “overwhelmingly positive”, with 79 per cent of franchisees who responded to a subsequent survey professing support for the company’s future direction.

That future direction is broken down into three stages. The first stage, stabilise, involves a mix of cost saving initiatives through simplifying and consolidation the organisational structure and identifying supply chain efficiencies and extending support for franchises. The second stage, optimise, includes further improvements to the store offering through ‘gold standard’ customer service training and enhanced digital capabilities, as well as further cost reductions through store rationalisation and a simplified product portfolio.

Australian health supplement company Blackmores has reported strong results for the first quarter, with a 15 per cent increase in revenue to $154 million and a 7 per cent lift in net profit.

“During the quarter, gross margins improved and we invested in major strategic initiatives, including a 55 per cent increase in advertising and promotional spend to strengthen our brand,” Blackmores CEO Richard Henfrey said.

Australia and Asia experienced strong sales growth with sales up 19 per cent at home thanks to new product launches and a strong media presence. It remains the number one brand in the vitamins and dietary supplements market in Australia with an overall market share of 17.5 per cent.

China’s in-country sales grew by 30 per cent, supported by promotion on Chinese online platforms. The company acknowledged a significant shift to indirect export through daigou partners.

“When this channel shift is taken into account, overall growth in sales to Chinese consumers is estimated to be strong at 18 per cent,” Henfrey said.

Other Asian countries experiencing strong growth including Hong Kong which was up 59 per cent, Taiwan up 167 per cent and Korea up 76 per cent.

The practitioner-only BioCeuticals range enjoyed sales growth of 13 per cent.

The company also announced that Brent Wallace will be appointed the new chairman effective immediately, as Stephen Chapman retires. Wallace has been a member of the Board since 2005 and has over 30 years’ experience in marketing, advertising and research insights.

Woolworths has announced that it will revert to a two tin limit on baby formula following increasing pressure from families.

The “big two” had previously enforced a two tin limit earlier this year, but in July Coles increased the limit to eight due to improvements in supply, and Woolworths followed suit a month later.

A video uploaded to Reddit over the weekend shows long lines of customers at Woolworths in Chadstone, Melbourne queuing up from early morning to purchase baby formula before it even hit shelves.

Reddit user BeBa420 who shared the clip from Sunday morning said that there was a line from “one end of the supermarket to the other full of people carrying boxes of baby formula.”

A spokesperson for Woolworths told Inside FMCG on Monday afternoon that the supermarket now plans to row back on the formula allowance.

“We can confirm from next week week the baby formula limit will revert to two tins per transaction. We’ll closely monitor our on shelf availability and feedback from customers as we make this adjustment,” a spokesperson said.

The change will be communicated to store teams and signs will be placed in stores to advise customers. On October 8, a group of Sydney parents posted a handwritten letter to a Woolworths Sydney Metro store asking for the limit to be reduced as they struggle to obtain formula for their children. Sydney dad Ivan Chan shared the letter on Facebook in recent days asking the supermarket for a response to their request.

“We have to keep calling stores all over Sydney to feed our children. The problem has become acutely worse since Woolworths increased the per customer limit to eight tins. We demand Woolworths bring the limit back down to two tins per customer to ensure adequate supply for Australian families,” the letter read.

The crisis escalated further over the weekend as NSW Police reported that four men had been charged after the alleged theft of baby formula and cosmetics at Sydney supermarkets on Saturday. Items valued at more than $2500 had been stolen from two supermarkets within Mount Annan shopping centre.

Global beverage giant Coca-Cola has announced key changes to its top leadership team including the election of a new president and chief operating officer as well as a new chief financial officer.

Brian Smith has been elected to serve as president and COO from January 1, after 21 years with the soft drinks company. Smith currently serves as president of the company’s Europe, Middle East and Africa (EMEA) group. The company said in a statement that Smith is well-equipped to lead field operations and bring an “accelerated focus” on executing key strategies. He will report to CEO James Quincey.

“I have tremendous respect for Brian, who is a valued business partner,” Quincey said. “He is the ideal person to steer the in-market executional leadership of the company, which will allow me to focus on the strategic direction of Coca-Cola as we continue to evolve as a total beverage company.”

John Murphy, president of the company’s Asia Pacific group, will move into the senior vice president and deputy CFO role on January 1 and will be elevated to executive vice president and CFO on March 16, 2019, following the retirement of Kathy Waller after 32 years at the soft drinks giant.

Waller, who took on the CFO role in 2014, has been “instrumental in transforming, modernizing and simplifying the Coca-Cola finance function”. As founding chair of the company’s Women’s Leadership Council, she supported the creation and execution of the Women in Leadership Global Program.

Murphy has worked in the Coca-Cola system since 1988 and has served in a number of senior finance, strategy and operations roles around the world. He is a well-respected leader with financial and operating expertise with strong relationships in the company’s finance division.

As CFO Murphy will be responsible for leading the company’s global finance organization, including mergers and acquisitions; investor relations; tax; treasury; audit; accounting and controls; financial reporting; real estate; and risk management.

“I join everyone at Coca-Cola in thanking Kathy for her many years of exemplary service to the company,” Quincey said. “She leaves a great legacy as a leader, including as a mentor who created a strong organization and put the building blocks in place to continue to transform and modernize our finance function. John will be a great fit as our new CFO, thanks to his broad experience in both finance and as an operational leader.”

The beverage company also announced Nancy Quan will take up the role of senior vice president and appointed Chief Technical Officer from January 1. She currently serves as a vice president and Chief Technical Officer for Coca-Cola North America.

She succeeds Ed Hays, who plans to retire from the company on March 31, 2019. Hays will transition to a role as senior advisor on January 1, reporting to Quincey also.

Coca-Cola Australia’s caffeine kick

The beverage giant remains busy innovating and adding new products with its latest concoction designed for adults to enjoy a caffeine kick after dark.

Coca-Cola Australia has created Coca-Cola ‘Batch Blends’, which can be enjoyed on their own or used as a mixer for drinks or cocktails.

coca-cola batch blends

The limited edition product comes in two flavors in 500ml or 1.25-litre cans with one combining coffee and chocolate together with Coca-Cola and the other a mix of caramel and Coca-Cola.

Coca-Cola Australia’s marketing director Luce Austin said that ‘Batch Blends’ has been crafted for adventurous drinkers and curious minds. Australians can now “explore sophisticated tastes” when out with friends.

The new drinks will be available in select bars, restaurants and hotels in Australia.

The chief executive of Penfolds and Wolf Blass owner Treasury Wines says the company has made a solid start to the new financial year and isn't being hurt by the escalating trade war between the United States and China.

The winemaker is on track to achieve its target of 25 per cent profit growth, as it continues with its strategy of holding back some of its top-end wines from the market to ensure a more consistent performance.

CEO Mike Clarke told shareholders at the group's annual meeting that the "first quarter trading performance is in line with our internal plans across all regions".

He also said that the major changes the company is making in the way it distributes its wine in the United States is paying off, although it is still early days.

He said Treasury was absorbing higher duties on its American wines being sold into China, and there was no let up in the strong growth of the Australian portfolio into China.

"Our momentum continues to build on the foundation that we've built over the past four of five years,' Mr Clarke said.

He said momentum was also continuing to build in its American portfolio into China, and it was investing in all of its brands in a multi-region approach, although he hoped the trade spat would eventually be sorted out.

"We hope this gets resolved at some time in the future".

'Extreme happiness'

He was speaking from a hotel in Hong Kong where he and chairman Paul Rayner are holding court in a two-country approach to the annual meeting, with Australian shareholders listening in from the Convention Centre in Melbourne.

It is designed to reinforce the importance of the China market to Treasury, which has become a sharemarket darling on the robust growth being achieved from exports to Asia, led by its Penfolds brand that has been repositioned as a luxury brand.

But even the Treasury Wines share price has been hit by the broader sharemarket sell-off in the past two weeks.

Treasury shares are down 16 per cent since early September and are currently sitting at about $16.70.

Stocks trading on high price-earnings multiples experienced the brunt of the sell-off in the past two weeks.

Morgan Stanley analyst Tom Kierath said in a note on October 14 that a global "luxury and growth" sell-off had hurt Treasury Wines but it was still probably too soon to "buy the dip".

Treasury trades on a multiple of 25 times forecast 2018-19 profits.

Mr Clarke said Treasury is a growth company.

"We still see significant value that is yet to be unlocked across a number of areas of our business, including all regions performing and growing brand portfolios from multiple countries-of-origin." Mr Rayner defended the high salary package being earned by Mr Clarke, and said investors were very pleased with the strong returns being delivered. "All I get is extreme happiness in relation to the company's performance," he said, referring to his visits to large shareholders.

Brand building

Treasury has just released a new Italian wine brand called Cavaliere d'Oro, which sources grapes from Tuscany, Puglia and Sicily. It is also expanding its Penfolds brand beyond its Australian roots.

Mr Clarke said Treasury was still pulling out costs and removing duplication, as it embarked on brand building.

"We are very pleased with the progress that we are making towards 25 per cent EBITS (earnings before interest, tax and the SGARA accounting standard) growth in fiscal 2019, with our disciplined approach to allocating luxury wine ensuring a balanced earnings delivery across the fiscal year," he told shareholders.

On the US distribution overhaul, where it has changed 40 per cent of its route-to-market structures, Mr Clarke said the bulk of the changes happened in the last three months of 2017-18.

"The scope and scale of this business model change is large and while we are still embedding the model and investing in new ways of working with retail and distributor partners, early indicators are positive," Mr Clarke said.

Treasury has appointed Louisa Cheang to its board as an independent director. She lives in Hong Kong and is currently the vice-chairman and chief executive of Hang Seng Bank.

She is also a member of important government advisory committees, including the Twelfth Jiangsu Provincial Committee of the Chinese People's Political Consultative Conference.

Wesfarmers’ Coles retailing arm notched a 5 per cent rise in first-quarter sales, driven by increased activity at its chain of supermarkets.

The results are the strongest Australian supermarket comparable sales for 11 quarters, since the second quarter of 2016.

And they compare to a 0.3 per cent lift in the corresponding period last year, and the previous quarter’s 1.8 per cent rise.

The strong performance during the 13 weeks through to September 23 comes as the Australian conglomerate prepares to next month spin off Coles to its shareholders.

Wesfarmers (WES) said retail sales for the period totalled $9.84 billion, up from $9.37 billion a year earlier.

Supermarket sales were 5.8 per cent higher year-over-year at $7.66 billion, while liquor sales rose 2.1 per cent to $744 million and convenience-store sales were up 2.5 per cent at $1.44 billion.

The growth reflected increased “basket size,” transaction numbers and items sold, as well as improvements in Coles’ fresh market share, Wesfarmers managing director Rob Scott said.

The supermarkets were also aided in the quarter by Coles’ “Little Shop” promotional campaign and investments in the company’s “flybuys” promotions, Mr Scott said.

The bumper first quarter performance was also despite the disruption of the phasing out of plastic bags at Coles and Woolworths.

The strong return in Coles sales is perfect timing, as Wesfarmers prepares to demerge Coles in a $20 billion deal that will see Coles shares list on the ASX on November 21.

It is also the first sales performance for new Coles boss Steven Cain.

If Woolworths reports less than 5.1 per cent for the first quarter - market expectations are for no better than 2 per cent - then Coles will have ended its rivals’ run of outperformance after seven quarters.

The world's biggest infant formula maker Nestle is launching its own brand of A2-only baby formula in Australia and New Zealand as it looks to muscle in on the dominant position of high-growth stock, The a2 Milk Company.

While many dairy makers have held back from selling products that only have the A2 beta-casein protein, perhaps sceptical about its benefits and cautious of undermining their regular milk sales, a2 Milk has proved to be a huge growth story. Revenue has surged from $NZ62.5 million in 2011-12 to $NZ923 million in 2017-18. The company's market capitalisation has swelled to more than $7 billion.

Now the Swiss giant wants in on the space and is launching its NAN A2 brand in Coles and online in Australia this week. It has plans to sell its S-26 Atwo brand in New Zealand in November at select Countdown stores and online.

A2 milk contains all of the proteins found in standard cows' milk except for the A1 beta-casein protein. Proponents of A2-only milk say the A1 protein causes indigestion.

This major push by Nestle comes on the back of its launch into China in February with its Illuma Atwo formula brand. The NZ and China formula products are Wyeth Nutrition brands, while the Australian product is labelled Nestle Nutrition.

'The original manuscript'
Tarun Malkani, Nestle's global business head for Wyeth Nutrition, told The Australian Financial Review it is still early days in China but it is performing to expectations, while Australia is also an important market.

"We are going to win [market share] on the strength of the brand," he said. "It comes down to the power of the brand. In this case it happens to be the A2 offering, but its still about the brand.

"The A2 beta-casein protein is the original form of protein before cows were domesticated thousands of years ago. And now cows have both the A1 and A2 proteins. So we are going back to the original manuscript.

"But at the end of the day we have to make sure consumers have a choice. This is a viable lead in the market and consumers have asked for it, so we have a responsibility to give them an option along with the other options in our portfolio."

The company offers product from starter formulas to toddler milks and cereals.

Citi analyst Sam Teeger said Nestle backed-Wyeth had the largest share of the infant formula market on Chinese e-commerce platforms in 2017 of about 10 per cent, making its entry into the A2-protein category currently dominated by the Jayne Hrdlicka-run a2 as significant.

Another analyst said there will be some nerves around this Australian A2 launch but a2 Milk has a first-mover advantage and "premium platinum status."

"[For] top brands like a2 and Aptimil, it appears very hard to get product Australia-wide right now," Mr Teeger said.

Consumer demand
The a2 Platinum baby formula was launched late in 2013 and is the No.1 Australian infant formula with a market share of 36 per cent, according to the company. But it is Chinese mothers who have fanned the company's success further. China has one of the world's lowest breastfeeding rates.

Mr Malkani said early success in China had confirmed demand for the product and underlined the decision to expand into new markets. "This gives us reason to believe this is not a gimmicky flash in the pan," he said. "This is something consumers have a need for and that is why we have taken the step to go outside China to other markets."

Mr Malkani is mulling the entry of A2 product in the United States, along with other countries. "If we believe the dynamics in the market suggest that A2 is a viable option, then we will put the energy behind this," he said.

Mr Malkani said he along with all other baby formula makers are awaiting more detailed news from Beijing around China's new e-commerce law set to come into effect on January 1.

At the end of August the Chinese government passed a new law providing the framework to e-commerce trade covering operators, contracts, dispute resolution and promotion for domestic and cross-border transactions (CBEC). The law covers larger platforms such as Alibaba's Taobao but also those selling goods via social networks like WeChat.

"Certainly China is very important to us," Mr Malkani said. "We recognise the government wants to ensure their growing e-commerce channels are operating appropriately. We don't have any specific details now of this law, I don't believe anyone does. But we appreciate the importance of it and we will monitor it closely."

New Coles managing director Steven Cain says he is willing to exit the $35 billion retail fuel market at the right price to end a deal that has saddled the retailer with Australia's highest petrol prices and led to a one-third slump in sales volumes over the past two years.

Mr Cain revealed on Monday that Coles, which is soon to demerge from Wesfarmers, is experimenting with a convenience store format that sells on-the-go foods such as sandwiches and snacks and a range of grocery staples, but crucially does not sell fuel.

Asked if Coles, like Woolworths, would consider exiting the low-margin fuel business, Mr Cain said: "Our approach going forward will be like the Wesfarmers one – if someone comes along and offers the right price for the business clearly we'd look at it."

Higher prices, falling sales
However, he also said Coles Express, which accounts for 18 per cent of the retail fuel market, was "something of a powerhouse" and was a business that had further upside.

Mr Cain's comment followed another sharp fall in Coles' fuel sales volumes, which took the shine off an otherwise strong first-quarter sales result.

Coles' pump prices are routinely several cents higher than those at rivals such as Woolworths and Caltex, BP and 7-Eleven and it is rapidly losing market share due to an uncompetitive fuel supply agreement with the recently listed Viva Energy, which took over the Coles contract in 2014 after buying Shell's retail fuel and refinery businesses.

Coles Express comparable fuel volumes slumped 15.9 per cent in the September quarter after falling 15.8 per cent in the June quarter and 21 per cent in the September quarter 2018.

Higher fuel prices, which have risen about 20 per cent over the past year to 4½-year highs, added to the pressure on volumes.

Despite the fall in fuel volumes, same-store sales in convenience stores rose 3.4 per cent, compared with 4.6 per cent growth in the June quarter and 0.2 per cent in the first quarter 2018 as Coles improved its food-to-go range in an attempt to offset weaker petrol sales.

Wesfarmers managing director Rob Scott said Coles believed weekly fuel volumes were starting to stabilise at around 60 million litres a week (compared with 90 million litres a week two years ago), but analysts questioned this assumption, saying quarterly sales were still falling at a rapid rate.

Coles Express earnings fell 9 per cent in 2018 after a 6 per cent fall in sales to $5.7 billion and Bank of America Merrill Lynch analyst David Errington said Coles was facing a similar fall in earnings this year unless the volume decline was arrested.

Viva unwilling to budge
"What are you going to do? This is a volume game and a fixed-cost industry," Mr Errington said.

"You might sell a few more coffees and sandwiches but that won't offset another 15 to 16 per cent drop in volumes – what can you do here to avoid another step down in earnings if petrol prices stay up at these levels?

"It looks like your joint venture partner is not going to come to the party. If volumes don't pick up you're sitting on a pretty hefty drop in EBIT again."

Coles has been in discussions with Viva for two years to improve the terms of the supply deal but Viva, which floated in July, has been unwilling to budge. The current agreement is due to expire in February 2024.

Mr Scott said Coles Express was trialling different pricing initiatives, without giving details, and continued to discuss the issue with Viva.

"Coles Express is not an overly material contributor of earnings to the group and we're focused on improving it," Mr Scott said.

Coles has been selling fuel since mid-2003, when it established an alliance with Shell. Shell sold its refining and fuel retailing business to Viva Energy in 2014.

Coles Express accounts for about 18 per cent of retail fuel sales but under the Viva agreement pays the highest wholesale fuel prices in the market. It also leases its 711 sites from Viva.

Woolworths is still considering selling or floating its $5 billion fuel business, which delivered a 7.1 per cent increase in earnings to $168 million in 2018 as sales rose 3.1 per cent to $4.8 billion.