News

Australia’s major supermarkets could face fines that run into the billions of dollars if they fail to comply with a revamped and mandatory code of conduct designed to protect farmers and families.

An interim review of the Food and Grocery Code of Conduct, to be released on Monday, has the country’s big four supermarket retailers and wholesalers – Woolworths, Coles, Aldi and Metcash, which supplies IGA – squarely in its sights with a series of recommendations designed to deliver cheaper prices for consumers and fairer prices at the farm gate.\

The review is being led by Craig Emerson, who was competition and small business minister in the Rudd and Gillard governments. He was tasked with undertaking the review by the Albanese government in January amid growing outcry that supermarkets were failing to pass savings on even as the prices paid by the big retailers for meat, fruit and vegetables were falling.

The federal government is under intense pressure to address cost-of-living concerns in the May budget. The interim review is being released as the Greens push new laws – which the Nationals and a handful of Liberals have backed – that would allow the Australian Competition and Consumer Commission (ACCC) and the courts to force corporations such as Woolworths and Coles to sell assets if they grow too big.

The big four signed on to the voluntary code of conduct when it was established in 2015, but in his interim report, Emerson found a heavy imbalance in market power between the major supermarkets and their smaller suppliers, who fear retribution if they complain under the current code.

To remedy this, Emerson has recommended the code be made mandatory and major breaches of the code should be met with fines which would be the greater of $10 million, 10 per cent of a company’s turnover or three times the benefit gained from the breach of the code. Penalties for minor breaches of the code would be set at up to $187,800.

If a fine of 10 per cent was imposed on one of the major supermarkets, it would probably be one of the largest fines in corporate history.

Coles reported turnover of just over $40 billion in the most recent financial year, so a fine of 10 per cent of its turnover would be about $4 billion. Woolworths reported sales of $48 billion.

Metcash reported $9.6 billion in food sales in the financial year to June. Aldi reported about $12 billion.

Emerson said the interim report offered the government a practical, low-cost solution and that the idea of imposing a fine equivalent to 10 per cent of turnover had been modelled on the franchising code of conduct.

“I hope this is well received,” he said. “I have sought to achieve the best of both worlds – a tough penalty regime for systemic bad behaviour but mediation and arbitration which, if agreed by the supermarkets under the constitution, would do most of the work to resolve complaints.”

In the report, Emerson says critics of the voluntary code point to the small number of disputes filed under the code as evidence of its failure.

“They nominate the fear of retribution by supermarkets as the dominant reason for so few disputes being raised by suppliers,” Emerson wrote.

That retribution could lead to unfavourable terms and conditions being imposed on suppliers, relocation of products to less popular locations in stores and even delisting of a supplier’s products.

Treasurer Jim Chalmers said the review was an important part of the government’s competition reform agenda, which included an ACCC inquiry into supermarket prices, a boost in funding for supermarket price monitoring by Choice and a comprehensive review of competition policy settings.

“We want a fair go for families and a fair go for farmers,” Chalmers said.

“This work is all about making our supermarkets as competitive as they can be so Australians get the best prices possible.”

Under Emerson’s proposed law changes, the ACCC would help enforce the code but, rather than leaving the enforcement process to potentially years-long court cases, an independent arbitration system would be used so suppliers that brought a complaint would not go bankrupt while waiting for their case to be heard.

The ACCC would continue to be able to issue public warning notices, seek injunctions, initiate court proceedings and accept court-enforceable undertakings.

Compensation for suppliers affected by breaches of the code by one of the major supermarket chains would be capped at $5 million. Emerson also advocated for an anonymous complaints process to be established.

Eight recommendations, including the penalties making it mandatory, and changes to the code to ensure supermarket suppliers don’t fear retribution will not change between now and the final report being handed over on June 30 but three recommendations, including how to implement low-cost dispute resolution, are still to be finalised.

Quadrant Private Equity is understood to have recently launched a beauty parade to pick an adviser to sell Darrell Lea owner The RiteBite Group, say sources.

It is understood that investment banks have received requests for a proposal in recent weeks.

The understanding is that the Sydney-based Quadrant had aspirations to sell the business this year.

However, some believe it now may be backing away from that plan as the cost of cocoa has gone through the roof which is likely to push up the cost of chocolate across the industry even further in 2025.

This may cause product costs to rise sharply, impacting earnings.

The private equity firm was believed to be thinking about a sale of RiteBite in 2021 but pulled back in an effort to focus on growing earnings.

Likely buyer candidates could be groups like Kohlberg Kravis Roberts, which owns Arnott’s Biscuits, Fererro Group, of Ferrero Rocher chocolates and Nutella, and the locally based Pacific Equity Partners.

Mondelez would be ruled out as a buyer because it owns chocolate giant Cadburys.

Quadrant bought Darrell Lea in 2018 for about $200m before creating the RiteBite Group the next year.

RiteBite owns other confectionery and snack brands such as New Zealand’s RJ’s and Life Savers, along with Well Naturally, The Bar Counter, Munchme, Systemax, Planet Food, CrispyFruits and Smooze.

The brand Darrell Lea is best known for its licorice, chocolate bullets, All Sorts and Rocklea Road sold widely now in supermarkets and has been run by former Allied Pinnacle boss James Ajaka since 2020.

Mr Ajaka told The Australian last week that the rising cocoa price had been the greatest challenge across the industry, increasing 220 per cent for the past two years.

The Wall Street Journal reported before Easter that cocoa futures topped $US10,000 a metric ton for the first time ever as major West African producers like Ghana and Ivory Coast reported lacklustre harvests due to bad weather and crop disease.

The industry as a whole has responded through price rises, ranging from 5 to 11 per cent in that two-year time frame.

Darrell Lea was a family business founded in 1927. Quadrant purchased it from the Quinn family and now has plans to expand further into the US market, which accounts for a fifth of its $500m of annual sales.

The business had collapsed in 2012 after earlier having hundreds of retail stores across Australia, and the Quinn family, founder of VIP Petfoods, bought it out of administration, reportedly for about $25m.

Reports are filtering through the private equity market of a number of beauty parades afoot to pick banks to sell businesses in funds from the second half of the year onwards.

The rising interest rate environment in the past 18 months has made asset sales hard because of the large debt costs, so funds have had few strong divestment opportunities for some time.

Quadrant also wants to offload its Affinity Education business this year and Amart furniture company, and an adviser is also potentially being sought for that company after Jefferies had been on the ticket.

Other sellers are Potentia and Crescent Capital, while global fund Kohlberg Kravis Roberts is believed to be holding back on divestments for now, until interest rates fall.

According to a report from MergerMarket, private equity and venture capital exits for 2023 totalled $US7.8bn across Australia and New Zealand.

This compared with $US20.7bn in 2021 and $US32.8bn in 2022 as managers made the most of highly liquid markets when interest rates were low.

Aldi bagged the Supermarket of the Year 2023 title from the Roy Morgan’s Customer Satisfaction Awards – for the seventh time and the fourth consecutive year.

The supermarket chain boasted an average 95.7 per cent customer satisfaction score.

“This the fourth consecutive year that we’ve received the award, and at a time when shoppers are continuously seeking better value, we have never been more aware of the need to continue to deliver on our promise to offer Aussies the highest quality products at the lowest possible prices,” Aldi Australia director Simon Padovani-Ginies said.

Aldi claims to have delivered $3.4 billion in savings to local consumers in 2023.

“Aldi’s business model is about saving people money. We aim to cut out unnecessary costs and pass these savings onto customers.”

Aldi Australia will debut its first streetwear collection in mid-April, aiming to offer effortlessly elegant and casual pieces for less. 

The Aldimania collection includes 23 products priced under $20, including trendy slides, bucket hats and beanies, fleece sweatshirts and pristine white trainers. 

“We have been offering our shoppers high-quality, affordable loungewear for years, but this is the first time we’ve brought our own brand of leisurewear to the middle aisles,” said Aldi Australia’s buying director for Aldimania, Belinda Grice. 

“Designed to celebrate and champion our shoppers, this new range is made specifically with Aldi budgets in mind, without compromising on quality or comfort.”

According to Grice, the collection is made from ethically sourced or repurposed materials and was designed to be mix-and-matchable.

In addition to celebrating the launch of the new collection, Aldi Australia will be giving away five sets to its stylish customers through the Aldi Australia Facebook page beginning April 3.

Australian wine will retake its place among Chinese supermarkets, restaurant wine lists and banquet tables after Beijing announced the end of crippling tariffs that should see China return to being the Australian wine industry’s biggest export market.

Late on Thursday afternoon, just before the Easter break, China’s Ministry of Commerce announced the end of the politically-motivated tariffs that had all but wiped out what was once a $1.2bn export trade for Australia.

“The Ministry of Commerce ruled that in view of the changes in the relevant wine market conditions in China, it is no longer necessary to impose anti-dumping duties and countervailing duties on imported relevant wines originating in Australia,” the Ministry of Commerce said in a statement.

The Beijing ministry said the tariffs would be lifted on March 29, Good Friday.

Anthony Albanese welcomed Beijing’s decision, which he said came “at a critical time for the Australian wine industry”.

“This outcome affirms the calm and consistent approach taken by the Albanese Labor government and follows the success of the similar approach taken to remove duties on Australian barley,” the Prime Minister said, in a joint statement with Foreign Minister Penny Wong, Trade Minister Don Farrell and Agriculture Minister Murray Watt.

Although Australian winemakers remain cautious about re-entering the Chinese market, with many caught out by the imposition of the whopping tariffs almost four years ago that destroyed their business in the Asian giant, there will be celebrations in the $45bn wine sector as a once billion-dollar market is back open for business.

Ending the tariffs has been a top priority for the Albanese government, which agreed to halt a WTO case against China’s impost in an attempt to quicken the return of Australia’s trade. That face-saving arrangement for China was made to create an off-ramp for the nearly 200 per cent tariffs that were imposed by Beijing in November 2020 as one of the centrepieces of its sweeping trade coercion campaign against the Morrison government.

Mr Albanese said Australia would end those WTO proceedings now that Beijing had agreed to lift the duties.

The boss of Accolade Wines, Robert Foye, who oversees one of Australia’s biggest winemakers and which owns brands such as Hardys, St Hallett and Petaluma, said the news was positive for his business and for the whole Australian wine industry.

“While we do not anticipate a snapback to 2020 levels, we do see a sizeable opportunity for our business in China and we are excited about the long-term potential this market brings,” Mr Foye said.

“I was in China last week meeting with our key customers and distributors including at the Food & Drinks Fair in Chengdu and I can say there is genuine excitement about bringing Accolade’s portfolio of exceptional Australian wines back to the Chinese consumer.

“We know that Australian wine has a well-deserved reputation for quality in China, and that includes a number of our leading brands such as Hardys and Grant Burge, and we look forward to building on this now that the tariffs have been lifted.”

The tariffs decimated Australia’s wine trade to China, leaving the market open to competitors from France, Chile, Italy and Spain, and forcing many Australian winemakers to suddenly diversify from their largest export market.

It also left many Australian winemakers with excess stock, with many seeking alternative markets in South Korea, Taiwan and Japan. Some of the high-end trade continued through Hong Kong where the Chinese tariffs did not apply, facilitating a thriving black market trade into the mainland.

While the removal of tariffs is expected to make China again the top market for Australian wine exporters, many are not expecting the pre-Covid era “gold rush” to return.

China’s wine consumption has been in structural decline since before the pandemic, as consumer confidence has slumped. Also Xi Jinping has overseen a crackdown on banquet culture and many foreign luxury goods have been replaced by local alternatives. Last year, China imported only $1.6bn of wine – down more than 60 per cent from its peak of $4.28bn in 2018.

Experts say Australian producers will struggle to recapture even half of their peak of $1.2bn. But even a third of that pre-tariff level – worth about $400m – would once again make China the biggest customer for Australia’s wine industry, overtaking the US and the UK, our current two biggest markets.

That level would also likely see Australia overtake France again and become China’s biggest supplier of wine.

Chinese wine importers say the popularity of Australian wine remains among local drinkers. “It will take two or three years, but Australian wine will get back on top,” one Beijing wine wholesaler told The Australian.

Australian vegan and cruelty-free beauty brand MCoBeauty has entered the US market by launching in more than 1800 Kroger stores.

According to MCoBeauty, the partnership with Kroger provides an opportunity for the company to reach a diverse audience and make a lasting impact in the competitive beauty market. 

The Kroger Co Family of Stores – including Kroger, Fred Meyer, Ralphs, Dillons, and Smith’s – will offer MCoBeauty’s extensive range of products, which will also be sold online at MCoBeauty.com.

Shelley Sullivan, CEO and founder of MCoBeauty, said the company was thrilled to get into the US market and offer American consumers access to its innovative and affordable beauty solutions. 

“Our mission has always been to make high-quality beauty products accessible to all, and we’re excited to introduce our range to a new audience,” said Shelley Sullivan, CEO and founder of MCoBeauty.

 “Supermarkets provide a very loyal and growing customer base for the brand, and I am confident that we will see the same success with the largest supermarket chain in the US, The Kroger Co.”

In addition to makeup essentials, MCoBeauty offers premium-quality, Korean-made skincare, on-trend hair accessories, and seasonal trend launches.

Pharmacy giant Chemist Warehouse has more than doubled its first half profit ahead of a proposed merger with ASX-listed Sigma Healthcare, as public consultation on the deal draws to a close.

Sigma, which reported its full year profit on Thursday, said it expected the Australian Competition and Consumer Commission (ACCC) to make a ruling on the proposed merger in the second half of the year, with the size of the combined businesses and the considerable community interest contributing to the time frame.

The ACCC is accepting public submissions on the deal until March 28, and Sigma managing director Vikesh Ramsunder said his company was in regular communication with the regulator.

The Chemist Warehouse first half results were included in the Sigma results briefing on Thursday, and showed the pharmacy group, owned by founders Jack Gance and Mario Verrocchi and their respective families, increased its revenue 5.5 per cent over the first half to $1.77bn, while net profit was $360.1m, up 104 per cent.

Chemist Warehouse added nine stores to its Australian network and nine internationally, and the briefing said the network’s value proposition was resonating with customers, while there had also been successful online profitability initiatives.

For its part Sigma boosted its full year net profit to a modest $4.5m, up about 150 per cent on the previous year’s result, on revenue of $3.32bn, down 9.2 per cent.

Stripping out merger costs to date, Sigma’s EBIT of $31.4m was up 62.7 per cent and net profit came in at $12.7m.

The company said its two year transformation process had resulted in a much-improved business.

“Customer service performance metrics are now sustained at world class levels and execution of the simplification strategy has recognised an improvement in productivity and cash flow,’’ Sigma told the ASX.

The company said the fall in revenue largely reflected the disposal of its hospital

distribution business during the year and elevated sales of Rapid Antigen Tests (RATs) in FY23 that have not repeated.

Mr Ramsunder said the company had delivered a solid result.

“With our operating performance strong, we have been able to drive efficiencies across our business, reducing total operating costs by 10.7 per cent after absorbing merger proposal costs, providing a catalyst for our current and future financial performance,’’ he said.

“The company-wide simplification program and divestment of non-core assets has delivered a

leaner operating model.’’

Mr Ramsunder also said he was hoping for a positive outcome from negotiations with the federal government over five-year funding arrangements for the distribution of pharmaceutical products, which will set the margin Sigma can earn on the distribution process.

“The supply chain is critical to ensure that more than 6000 pharmacies in the country get supply of medicines.

“What we’re negotiating at the moment with government is a new five year agreement as part of the 8CPA (Eighth Community Pharmacy Agreement).

“We really need a funding increase to ensure that we can sustain that level of service to all the community pharmacies across the country.

“We are in a confidentiality agreement with government as part of this negotiation.

“The government has signed a heads of agreement with pharmacists and that was actually quite positive for the pharmacists, so we remain optimistic that the government would review our requests and see that in a positive light as well.’’

Mr Ramsunder said Sigma had made a submission to the ACCC regarding the merger in February and was in regular engagement with the regulator.

“This is a significant and complex transaction which will require a detailed review by the regulator,’’ he said.

“There will be community interest and a wide consultation process which adds to the complexity of predicting time frames.’’

Under the deal Sigma would acquire all the shares in Chemist Warehouse in exchange for Sigma shares and $700m in cash.

This would result in Chemist Warehouse shareholders holding 85.75 per cent of the ASX-listed merged entity while Sigma shareholders would hold 14.25 per cent.

Putting the proposed merger to one side, Mr Ramsunder said the company was performing well and had, as has previously been reported, locked in a supply agreement with Chemist Warehouse, starting on July 1, which would bring in annualised revenue of more than $2bn.

“With our core business focused on medicine distribution to community pharmacy, we are more resilient against discretionary spend patterns, however growing volume, managing costs, and enhancing our margin are critical, with initiatives already in place,’’ he said.

“We reaffirm our medium-term EBIT target of 1.5 per cent to 2.5 per cent on a stand-alone basis.”

Sigma made changes to Mr Ramsunder’s remuneration package, in light of the proposed merger, and will pay him a $1m retention bonus in cash on the December 2024 anniversary of the merger’s announcement, on top of his existing arrangements, plus another $500,000 a year later.

If the deal does not go through, the second payment will increase to $1m.

Mr Ramsunder was paid $3.38m including share based payments for the year to the end of January.

Sigma will pay a partially-franked dividend of 0.5c per share April 17.

Denmark’s BHJ has acquired Staughton Group, one of Australia’s leading pet food manufacturers, for $100 million.

Staughton owns Cool Off, a raw pet food producer, and Murray River Pet Food, which makes dry pet food and sells it under its brand and private labels. 

Ridley Corporation, a major animal feed producer, was Staughton’s underbidder, reports the Australian Financial Review. 

Staughton has been recording solid sales growth, with revenue reaching $156.9 million in 2022, up from $132.1 million in 2021. However, the company recorded a loss of $913,000 after paying large interest charges.

Established in 1969, BHJ sources and processes raw materials from Danish slaughterhouses and fish producers to produce pet food. The company is an international supplier of raw materials and ingredients for the food, pet food, feed, pharmaceutical, and energy industries. 

Although BHJ was briefly listed on the Copenhagen Stock Exchange, it is now owned by The Lauridsen Group, an investment group headquartered in Iowa that focuses on animal health and food. 

The company recently merged its proteins and stock ingredient division with another of its portfolio companies, Proliant, to create a new brand called Essentia Protein Solutions. This move left BHJ focused solely on raw pet foods. 

The deal is expected to close this month.

Poultry processor Inghams Group is set to acquire Bostock Brothers’ (BBL) organic chicken business for $33 million (NZD$35.3 million). The deal will see the company receive all of BBL’s shares, including its poultry products, three freehold farming properties, and the primary processing plant.

Established in 2014, BBL is the only certified organic poultry producer in New Zealand. Its operations are in Hastings on the central east coast of North Island, approximately four hours from Inghams Waitoa’s plant.

Inghams said the acquisition aligns with its strategy of establishing the company as the leading premium poultry operator in New Zealand. It will provide exclusive market positioning and brand equity, a vertically integrated supply chain to support future growth initiatives, and access to new markets, including high-value export channels. 

“With the strong recovery in the operational and financial performance of our New Zealand business, this acquisition represents a unique opportunity to enhance our capabilities further, extend our range and advance our plans for the business,” said Andrew Reeves, CEO and MD, Inghams. 

The company is estimated to earn between $3.2 million and $3.7 million (NZ$3.5 million and $4 million) in EBITDA by the end of FY24. Additionally, the acquisition is expected to immediately increase earnings per share in FY25.

“The addition of the highly regarded premium Bostock brand and team strongly aligns with our objective to establish Inghams as the leading premium operator in the market,” added Edward Alexander, CEO at Inghams New Zealand. 

The acquisition will be fully funded from existing debt facilities and is subject to the satisfaction of conditions, including those regarding the Commerce Commission and Overseas Investment Office.

It is expected to be completed by the end of September 2024, subject to the satisfaction of conditions.

“Finer foods” such as chocolate and olive oil are about to get a lot more expensive thanks to a supply squeeze of key ingredients due to adverse weather and geopolitical unrest, fanning concerns about sticky inflation.

Wet weather in West Africa has rocketed cocoa prices to all-time highs, making chocolate more expensive just before Easter. Adverse conditions have also lifted olive oil prices to record levels, and sugar prices to the highest since 2011. Shipping disruptions in the Red Sea, meanwhile, have sent coffee prices to new highs.

While finer foods and beverages typically account for a small portion of the consumer basket of the consumer price index, the broad price spikes could have a more noticeable effect on inflation, HSBC’s chief economist for Australia and New Zealand, Paul Bloxham, warns.

“Sorry to say, but some of the finer things in life are getting more expensive,” Mr Bloxham noted in a report to clients.

“For the macro scene, this is just one more factor ... to keep in mind when thinking about whether inflation will prove to be sticky.”

The severe wet weather in West Africa, which accounts for three quarters of world cocoa production, has driven significant supply shortages, with heavy rain, flooding and disease in 2023 pushing prices up 123 per cent in February from a year earlier.

More recently, the El Niño climate pattern has seen a shift to hotter and drier weather in the region, posing additional risks for the 2024 outlook.

Choppy waters

While the impact on production from inclement weather has been a key driver of the surging prices, a global reliance on a small number of geographically concentrated producers has not helped, as regional weather events can disrupt large portions of supply.

Orange juice, for example, has recorded a massive 50 per cent jump in prices in February from a year ago and they are nearly double pre-pandemic levels, having reached a record high in November. That was partly fuelled by a spike in cases of citrus greening disease last year.

And with Brazil, Mexico and the US accounting for more than 60 per cent of orange juice production, weather events in that region typically have implications for global prices, making it harder for consumers to avoid.

Dry conditions in Italy, Greece and Spain are also curtailing the supply of olives, sending olive oil prices surging 70 per cent over the past year to a record high.

While Robusta coffee prices have climbed 55 per cent in February from a year earlier to fresh highs, Mr Bloxham said it was not all bad news for caffeine lovers.

In contrast to orange juice, consumers can substitute between fresh beans, typically Arabica, and instant coffee, which is usually made from Robusta.

“Arabica growing regions are not exposed to the same supply side challenges as Robusta, and therefore not seeing the same sort of price pressure,” Mr Bloxham said.

Sugar prices are also sky-high, having reached the highest level since 2011 late last year as El Niño wreaked havoc on crops in Thailand and India, with the latter enduring its driest August in more than a century.

That stunted sugarcane crops in the growth phase, while Thailand’s sugar harvest quality and quantity also suffered.

For the US’s key consumer price index, snacks comprise 0.4 per cent, sugar and sweets are 0.3 per cent, while coffee is 0.2 per cent and juices and non-carbonated drinks are 0.7 per cent. All together they make up around 1.6 per cent of the consumer basket.

While that may not seem much, Mr Bloxham warned that “double or triple digit price gains in these products could start to add up” just as central banks were looking to start cutting rates.