A family of chocoholics

Over 98 years, Haigh's Chocolates has seen confectionery and management trends come and go – and it's made some of its own in the process.

One of the most common features of old family businesses, ones that started in the 19th or early 20th centuries, is an absence of women. The male heirs usually get the business; their sisters get property or cash. It's just the way things were.

Haigh's Chocolates of South Australia is a classic example of this, but that part of its tradition is now over. It stops with the fourth generation, led by Alister Haigh who has three children – two girls and a boy, all in their 20s – and his brother Simon, who has four younger kids. None of them are in the business yet, but all are equally welcome.

Haigh's is one of Australia's great medium sized family businesses, turning over about $40 million worth of chocolate made from scratch in their Adelaide factory and sold through the family's own stores in Adelaide, Melbourne and Sydney.

Alister's father John, grandson of the founder Alfred Haigh, established the retail strategy in 1965, courageously turning his back on the supermarkets and deciding not to chase volume.

Now 83 and still the largest shareholder, John looks back on that decision with satisfaction, as he watches suppliers to the supermarkets complain their two powerful customers, Coles and Woolworths, and the ACCC mount an inquiry into the situation.

So Haigh's is not on the supermarket treadmill, and happy to be its own retailer through 14 stores that sell nothing but their own brand of chocolate, but now there is a new challenge: chocolate cafes which Alister says have "taken the top off sales".

The first challenge faced by this business was from television, in the 1950s. At that stage Haigh's chocolates were sold mostly through 30 theatre concessions around Adelaide, but sales collapsed when people started staying at home and watching the box in the lounge-room.

Young John Haigh had joined the business in 1946 determined not to fall into the usual third generation clich, where the first generation creates the business, the second builds it and the third wastes it. He spent time with Lindt in Switzerland learning how to make chocolate, and travelled to the United States to understand shop styles and marketing.

He took over running the business from his father Claude in 1959, aged 29, and immediately had to make a decision about how to respond to the decline of picture theatres as a result of television.

He did three things: he revolutionised the way the chocolate was made and invested in the equipment so that it was much higher quality, he decided to sell through his own stores instead of going for volume through supermarkets, and he went to Melbourne. Haigh's first new store after Rundle Mall in Adelaide was opened at 26 Collins Street Melbourne in 1965 (it's still there).

His father Claude had had to take over the business in 1933 when Alfred died suddenly at the age of 56. Claude was a bookkeeper and horse-fancier who didn't know how to make chocolate, relying on the factory manager who Alfred had brought from Mt Gambier in 1915.

But Claude, being male, got the business; his sister Alvina got real estate and cash. The same thing happened at the next generational change: Claude had four children – two girls and two boys. Margaret and Rosemary were given shares in the properties; Alister and Simon took over the business and still run it together today.

They have also held out against the trend towards bringing in directors and managers to help with governance – the board consists of John, Alister and Simon – but now that Haigh's has joined Family Business Australia they are moving towards doing that.

The introduction of dividend imputation in 1987 not only brought investors looking for yield into listed companies, it also allowed family businesses to separate ownership from management.

Before franking credits, a family member had to work in the business for any cash he or she took out to be tax-deductible to the company, but the end of double taxation of dividends in 1987 allowed non-management family members to receive money that was, in effect, treated like salary.

So like many family businesses, Haigh's has therefore been able to separate ownership from management. There are five shareholding entities: John, Alister and Simon still directly own the shares they inherited from Claude and Alfred, and there are two family trusts for the non-managers.

It means that if Alister's and Simon's seven children, the fifth generation of the Haigh family, find that their veins don't run with liquid chocolate, as their fathers' and grandfather's did, they can get someone else to run the business for them.

But for the moment, Alister and Simon are gearing up for the company's 98th Easter, which is a chocolate shop's Christmas. Ten years ago the brothers came up with the Easter Bilby as an Aussie alternative to the rabbit, but I'm pretty sure they would still sell more Easter Bunnies. Unlike the one about male heirs, some traditions are hard to break.

Every week Alan will be writing about an Australian family business success story. If you know of a family business that deserves recognition, emailfamilybusiness@businessspectator.com.au

If you are in a family business and would like to participate in a research project on succession issues conducted by Swinburne University and Pitcher Partners, clickhere.

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