Bloomberg News

Fallen Icons Defy Australia’s 3% Growth Rate

March 01, 2013

Fallen Icons Down Under Defy Developed World’s Fastest Growth

Shoppers walk past a Darrell Lea store in Sydney on July 10, 2012. Darrell Lea Chocolate Shops Pty appointed administrators in July as insolvency neared, weighed by losses at outlets amid the slump in consumer spending. Photographer: Ryan Pierse/Getty Images

For 117 years, Australians poured Rosella tomato sauce on their meat pies as the company endured world wars, the Great Depression and an end to tariff protection.

What Rosella -- and 86-year-old chocolate maker and retailer Darrell Lea -- couldn’t navigate is the country’s 3 percent growth rate, which has helped drive the nation’s dollar 60 percent higher in the past four years, making some Australian products less competitive at home and abroad.

Rosella’s receiver today said it was unable to find a buyer and will shut the saucemaker, leaving 70 workers without a job. The failure -- along with receiverships at book seller Angus & Robertson, founded in 1884, and Allans Music, in business for 16 decades -- illustrate Australia’s lopsided economy. A mining- investment boom is delivering the quickest growth in the developed world even as it masks other weaknesses.

For John Kumm, Rosella’s plight is personal: His family controlled the business for its first seven decades.

“It’s disappointing that these Australian icons are either disappearing or being severely diluted and undermined,” said Kumm, who spoke before today’s announcement. His great- grandfather Frederick Cato helped found the company in 1895. “We’re used to seeing those things on our shelves and there’s a sense of belongingness.”

Lower Forecasts

Concern about job security has curbed retail spending, which fell in each of the final three months of 2012, the longest decline in 13 years. The central bank last month lowered its economic growth and inflation forecasts as investment outside the mining industry remains elusive, the labor market softens and the strong currency contains prices.

The electorate is seeing the glass as half empty ahead of a Sept. 14 federal election. Just 28 percent of voters said Prime Minister Julia Gillard’s Labor government is best equipped to handle the economy compared with 50 percent for the Tony Abbott- led opposition, according to a Newspoll conducted Feb. 1-3. The latest poll released this week showed her government trailing Abbott’s Liberal-National coalition by 10 percentage points.

While mining, the 15th biggest employer, expanded 9.7 percent in the third quarter from a year earlier, construction and manufacturing, the third- and fourth-largest, shrank.

The Australian dollar’s 60 percent surge in the past four years trails only New Zealand’s kiwi among 16 major currencies, while the benchmark S&P/ASX 200 Index (AS51) has climbed 53 percent over the period. Since Nov. 2, 2010, when the Australian currency reached parity versus the U.S. dollar for the first time since it was freely floated in 1983, the stocks benchmark has climbed 8.5 percent, while the nine-member S&P/ASX 200 Retailing Index (AS51RETL) has slumped 30 percent.

Rising Unemployment

The jobless rate has climbed to 5.4 percent in January from 5.1 percent when Gillard formed a minority government in September 2010. January’s level remains among the lowest in the developed world and compares with 7.9 percent in the U.S. (USURTOT) and 11.7 percent in the euro zone.

“We’re slightly ahead of the other advanced economies, but not as much as sometimes people believe,” said Bill Evans, chief economist at Westpac Banking Corp. (WBC), Australia’s second- largest lender. “We’re going through a particularly soft patch at the moment.”

Evans was the first major market economist to call the Reserve Bank of Australia’s shift toward easing policy, when in July 2011 he forecast the next rate move would be lower; He was proven right in November (RBATCTR) of that year. Doubts over the extent to which the mining boom would drive up wages and prices, and concerns over the currency’s strength, prompted that call, he said in an interview in Sydney yesterday.

Waning Investment

Bob Gregory, a professor at Australian National University in Canberra and former central-bank board member, predicts joblessness will worsen this year. The investment phase of the mining boom, which has been construction-oriented, will wane and government-budget cutbacks will curb infrastructure projects, hurting workers without college educations, he said.

Some blue-collar enclaves in Australian capital cities already have unemployment approaching recession-plagued Spain (SPUNEMPR)’s record 26 percent. Three areas in Brisbane and one in Adelaide exceeded 20 percent in September, compared with none a year earlier, according to the most-recent government data that break down the numbers by district. There were 138 areas with joblessness at or above 10 percent, up from 125.

‘Worst Areas’

“Australia’s now going into a downturn in the labor market,” said Gregory, who has studied the nation’s economy for almost half a century and was appointed to the RBA board by then Labor Treasurer Paul Keating in 1985. “When that happens, it’s always the worst areas that experience the problem most, it’s always these outer suburbs.”

Even inner-city areas are showing declines. In central Melbourne, unemployment climbed to 5.2 percent in September from 3.5 percent a year earlier.

Adelaide’s northern suburb of Elizabeth -- home to a General Motors Co (GM). Holden plant -- had joblessness of 20.3 percent in September. Sandy Fairweather, operations manager for local Christian charity group Anglicare, estimates the number of people without work who need emergency assistance has increased by 50 percent in the past 12 months.

The national data “are definitely not showing what we’re seeing here,” said Fairweather, who has worked with Anglicare for the past 18 years and lives nearby. “It’s gotten tougher because of less employment opportunities.”

Rosella’s Plant

Joblessness in the Sydney residential district of Baulkham Hills south, adjacent to Rosella’s plant, rose to 6.4 percent in September from 5.6 percent a year earlier, government data show.

More than 2.6 million liters (686,847 gallons) of Rosella tomato sauce are sold annually, enough to top 160 million meat pies, the company said in February 2012. Ten months later, Rosella’s parent, The Gourmet Group, went into receivership after profits waned amid increased competition from discounted supermarket brands and the stronger Australian dollar made imported alternatives cheaper.

Angus & Robertson dates back 129 years to a store in Sydney. It published bush poet Banjo Paterson’s “The Man from Snowy River” in 1895; the poem and its author are commemorated on Australia’s A$10 bill. Its most recent parent, Redgroup Retail Pty. Ltd., acquired the region’s Borders book chain in 2008, giving it a total of 260 stores and making it the biggest book retailer in Australia and New Zealand before its failure.

Bankruptcy Filing

The appointment of administrators -- typically the first stage of an Australian bankruptcy -- on Feb. 17, 2011, came less than a day after Borders Group Inc. in the U.S. filed for bankruptcy. More than 500 jobs have since been lost, with Angus & Robertson now an online bookseller.

Australian Music Group Holdings Pty, which traded as Allans Music and Billy Hyde, was the nation’s largest independent music and instrument retailer with almost 30 stores and 500 staff. Allans Music began in the 1850s, while Billy Hyde was a drum manufacturer who opened his first store in 1962. The two merged in 2010.

The company was placed in receivership on Aug. 23 under the control of Ferrier Hodgson Group. The group attributed the downfall to “the decrease in consumer discretionary spending currently being felt by many Australian retailers,” according to an Aug. 23 statement on its website. Efforts to sell the business failed, and it was closed, with the remaining 513 workers losing their jobs, the receiver said Oct. 17.

Chocolate Memories

News of chocolatier Darrell Lea’s receivership prompted even Gillard to reflect on the company’s products.

“Everybody’s probably eaten a lot of their rocky road over the course of their lives,” she said July 10 in Ipswich, Queensland. “I know I have.”

Founded by the Lea family in 1927, Darrell Lea stores harked back to its founding days, with wooden cabinets stacked with sweet treats in 1920s styled packaging.

Darrell Lea Chocolate Shops Pty and Ricci Remond Chocolate Company Pty appointed administrators in July as insolvency neared, weighed by losses at outlets amid the slump in consumer spending, and a dent in exports from the stronger currency.

The company was sold in September after its 27 remaining stores were shut and 418 employees fired. The new owners kept the manufacturing and distribution operations, securing the employment of 83 people, according to a statement from administrator PPB Advisory on Sept. 3. Its brown paper bags of soft liquorice and its “Rocklea Road” bars of marshmallow, chocolate and nuts now are available through licensed outlets.

Weaker Confidence

Gillard on Feb. 17 announced a A$1 billion ($1 billion) program to try to boost innovation and the competitiveness of Australian companies. The government also will provide expanded assistance and better financial access for small and medium- sized businesses and startups. Their confidence and conditions weakened in the three months through December and remain “well- below average levels,” according to a survey from National Australia Bank Ltd., the nation’s largest lender to businesses, released Feb. 18.

“The smaller the business, the worse it is,” said Alan Oster, chief economist at NAB in Melbourne.

A separate NAB survey of 400 companies across nonfarm industries released Feb. 12 showed a decline in employment to the lowest since 2009 and a fall in capacity utilization to the lowest since 2001. The underuse of existing resources means little chance of a pickup in hiring this year, Oster said.

Slashed Target

RBA Governor Glenn Stevens is forecasting rising joblessness and has slashed the overnight cash-rate target by 1.75 percentage points in the past 16 months to 3 percent, matching a half-century low set in 2009.

“I don’t think monetary policy will be enough in the short-term” to turn around the worsening employment outlook, former RBA board member Gregory said. “Unskilled men are going to be particularly adversely affected.”

That’s a bleak prospect for Gillard’s government, which must hold on to Labor’s historic base of blue-collar workers and attract more support from Australia’s mortgage-laden middle class if it’s to reverse its poll slump and win re-election in September. The Newspoll conducted Feb. 22-24 showed Abbott had eclipsed Australia’s first female leader as preferred prime minister for the first time since August.

“The government has a good story to tell in terms of the unemployment rate and the broader economy, but they’re sort of drowned out in the political debate,” as the opposition talks about “the government presiding over a time when great Australian icons have closed down and not doing enough to keep Australian industry afloat,” said Zareh Ghazarian, a politics lecturer at Monash University in Melbourne. “It’s certainly a very potent weapon. Voters feel insecure.”

‘Feel Proud’

When the country expanded 3.1 percent in the third quarter from a year earlier, Treasurer Wayne Swan hailed the result as “faster than every single major advanced economy.” Relatively low unemployment, strong investment, tame inflation and low interest rates are “a combination that Australians can feel proud of and confident about,” he said.

Still, seven of 19 industry groups went backward during the period, according to data compiled by Bloomberg from Australian Bureau of Statistics figures. Construction, Australia’s third- largest employer, shrank 0.5 percent from a year earlier, while manufacturing, the fourth biggest by workers, slid 1.7 percent.

Accommodation and food services shrank 2.1 percent; and the agriculture, forestry and fishing industry contracted 7.3 percent, the worst performer, as crops declined and cattle and wool prices fell. In the six months to November, it lost 31,500 people, while jobs in professional, scientific and technical occupations fell by 26,200.

Shedding Employees

Even the fastest-growing sector -- mining -- is shedding employees. In the six months to November, it lost 13,100 jobs, compared with a gain of 60,000 in the prior 12 months, the most recent government data show.

Companies are cutting costs and deferring projects after commodity prices fell. Annual growth in demand for minerals in China, the biggest metals importer and Australia’s largest trading partner, will decline to 2 percent to 4 percent in the next five years, from as much as 20 percent, Marius Kloppers, chief executive officer at BHP Billiton Ltd. (BHP), said Feb. 24.

Ferrier Hodgson, also The Gourmet Group’s receiver, today said efforts to sell the Rosella business were unsuccessful. The loss of jobs is “disappointing but unavoidable due to the scale of losses the business was sustaining on a weekly basis,” partner and Rosella receiver Jim Sarantinos said in a statement. “We have exhausted all options.”

Kumm said he still felt a connection with Rosella even though it moved out of his family’s hands about half a century ago and he hadn’t been involved with the business.

“When the company originally decided to produce tomato sauce they actually modified my great-grandmother’s home recipe for the product,” said Kumm. “The Rosella name has gone on from the late 1800s and right through depressions and wars.”

To contact the reporter on this story: Michael Heath in Sydney at mheath1@bloomberg.net

To contact the editor responsible for this story: Stephanie Phang at sphang@bloomberg.net


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