The new chief executive of Coca-Cola Amatil, ex-GrainCorp boss Alison Watkins, needs to have a talk with Simplot’s chief executive Terry O’Brien and the chief executives of both Woolworths and Coles. In the process, she will learn how to save SPC Ardmona without government assistance.
So let’s first look at what Simplot, Coles and Woolworths are doing, and compare that to SPC Ardmona. Coles and Woolworths believe Australians want locally grown and processed vegetables. Simplot is Australia’s largest producer of frozen vegetables. The problem was that previous mangers of what is now the Simplot operation signed bad labour agreements and, like so many food producers, became uneconomic as a result. Simplot’s biggest problem was its Bathurst plant, which required substantial investment that couldn’t be justified given the high labour costs.
Faced with the same situation, most food processors would simply have shut and moved to New Zealand or elsewhere. Heinz is the classic illustration. But O’Brien, helped by Coles and Woolworths, devised a different path – one that Coca-Cola can theoretically follow at SPC.
Simplot’s vast, inefficient plant at Bathurst will now specialise in corn (and Chiko rolls) and operate only in the hours of the day where there are no shift allowances or penalty rates. It is not ideal but it means the plant can produce frozen and processed corn at an economic price. By limiting shift allowances and penalty rate costs they have halved the labour costs at Bathurst. Simplot will not increase pay rates and the deal is subject to workers agreeing to a totally flexible labour force with no labour demarcations.
By contrast, down the road from Bathurst, Electrolux was facing the same situation as Simplot. But the Swedish company thought the whole situation was too hard. Electrolux did a Heinz and simply closed the plant and made the goods elsewhere.
However the O’Brien solution goes much further than just Bathurst. Simplot processes vegetables at Devonport Tasmania and Echuca Victoria. Over the next three years Simplot will revamp Devonport and upgrade Echuca so that both plants are also efficient. Simplot managers and workers must adopt the most flexible practices to make this work. In each of these plants, and particularly Devonport, Woolworths and Coles have placed great faith in Simplot’s management and workers and are prepared to pay above the import market price to give the company money – and three years – to fix the problems. This is a real subsidy (which ends in three years), because Aldi and Costco will buy their processed vegetable via imports and so therefore have a clear cost advantage (How Coles and Woolworths are revolutionising food processing, October 31).
So why wouldn’t Coles and Woolworths do this for SPC? The simple problem is that the management and workers at SPC are not up to it, and their management and work practices belong to a totally different era. Worse still, SPC makes canned fruit, which consumers no longer want. A substantial investment is therefore required in a new plant to package fruit in the way supermarket customers want to buy it.
The government has appointed some excellent people to look at the SPC problem but the panel includes Greg Combet. While the deep-seated problems at SPC are not Combet’s fault, he played a role in the ALP industrial relations legislation that compounded SPC’s problems. In theory, Combet could transform the work and management practices at SPC to bring them into line with the 21st century – but it would require a total about face. That’s not an easy task, and in any event I am not sure the management at SPC is up to managing in the modern era. It is not just the workers that have the problem.
My guess is that if there were proper management and work practices at SPC, and Coca-Cola Amatil were prepared to invest in new plant to make what consumers want, then Coles and Woolworths would do another Simplot deal that combined the Bathurst and Devonport techniques.
But there is little confidence that Shepparton has all the ingredients ready to step into the 21st century. Probably the only way out for growers to is erect a new plant – say 100km away – that makes what customers want and uses 2014 flexible practices. Perhaps it would even be necessary to put up a sign saying “SPC managers and workers not welcome”. I hope I am wrong about that and that SPC’s managers and workers can embrace the current century, and that Coke can install the plant necessary to make what supermarket customers want.