Anchored in past as dairy giants merge

By Rod Oram

Between the lines


As New Zealand's dairy farmers enter their fifth year of dickering on how or even whether they will reorganise their industry to make it stronger and more competitive, they should pause to consider a simple fact: the world is passing them by. Around the globe their customers and competitors are frantically merging to seek clout, savings and synergies.

Meanwhile, New Zealand's dairy industry gets more fractious by the day. The arguments have long held back the Dairy Board's development of products and markets.

If the downward spiral continues, the industry's nasty internal politics will undermine the Dairy Board itself, ending the united front it presents to the world.

The sheer scale and speed of change abroad is breath-taking. Who would have thought a year ago that two once-great British retailers, Marks & Spencer and J. Sainsbury, could be vulnerable to hostile bids?

But they are because of inept management's failure to keep pace with retailing changes. The loss of investor confidence is so great, the Sainsbury family has even hired an investment bank to advise what it should do with its 30 per cent stake in the company.

Sainsbury is worth around sterling 11 billion ($36 billion) and Marks & Spencer sterling 8 billion. But there are plenty of plausible, well-financed bidders for one or the other such as Wal-mart and Safeway of the US, Royal Ahold of the Netherlands, Tesco and Kingfisher of the UK, Pinault-Printemps-Redoute of France and Hennes & Mauritz of Sweden.

As retailers get bigger, they gain clout for extracting tight terms from suppliers. In defence, manufacturers are seeking their own mergers particularly those giving them "must have" brands on supermarket shelves.

The pressure is so intense, United Biscuits of the UK attracted two bids this week. Even though it leads the domestic market with a 35 per cent share with famous brands such as McVitie's and Penguin and has the most efficient plants in the UK, it says it can go it alone no longer.

One sterling 1.2 billion bid is from a US consortium including Nabisco, the dominant US cookie maker.

The French counter-bid consortium includes Danone, Europe's largest biscuit maker. Both are after United Biscuits' UK assets and its plants and markets in China, Taiwan and Hong Kong. Also for lack of scale, United Biscuits has just sold its frozen food business to Heinz of the US.

If New Zealand dairy farmers think biscuits have nothing to do with them, they need to think again. Danone is a leading global dairy company. When it touts its yoghurts and dairy desserts it can offer retailers a broad range of big brands in biscuits, other foods and mineral waters to help it claim shelf, chiller and freezer space.

In contrast, the Dairy Board's Anchor brand looks ever more an anachronism and orphan. The game's not lost yet but the fight back gets much harder by the day.