THE DISTILLERY: Fresh-bread furore

Three jotters home in on Wesfarmers' baked goods, while another offers a simple explanation for Newcrest downgrades.

Wesfarmers is the focus of three business scribes this morning. The Western Australian conglomerate is in the news for its battle with the consumer watchdog over the definition of fresh bread and sackings in Geelong for its struggling department store Target. Also in this morning’s edition of The Distillery, Newcrest Mining’s suspicious broker downgrades get a closer look from two business reporting veterans.

But first, The Australian Financial Review’s Chanticleer columnist Michael Smith recounts that it was former Victorian Premier (and would-be Melbourne Football Club president) Jeff Kennett that started the bread debate with Wesfarmers.

“Kennett was not happy that Coles was marketing its Cuisine Royale items as being baked in Australian stores when the process actually started in Ireland…After a 12-month investigation, the ACCC launched Federal Court proceedings against Coles on Wednesday. It is alleging false, misleading and deceptive conduct in the supply of bread. At the heart of the issue is the way Coles, Woolworths and other large retailers bake and market their bread. It is common practice for bakery items to be par-baked in one location, blast frozen, then sent to stores where they are popped back into the oven to regenerate the crust. The ACCC has taken issue with Coles for promoting those products as ‘baked today, sold today’ and/or ‘freshly baked in-store’.”

The Australian’s John Durie notes that Sims has made it quite clear that the supermarkets will be a central focus of his as head of the ACCC.

“This is one reason why Goyder was expecting legal action. Sims rejects the political accusations out of hand but it must be said he won't lose any points in Canberra for taking action against the big two supermarkets. The Australian bread market is worth about $4 billion, of which so-called in-store baked products, including hot bread shops, account for $650 million, with overall supermarket sales around the $2.1 billion mark. Ironically enough, the par-baked bread, which is effectively heated up in store by the supermarkets to create the ambience of a real baker, comes from the big bread makers. Goodman Fielder supplies Woolies and George Weston supplies Coles. The manufacturers also supply private-label bread, with GW supplying Woolies and GFF supplying Coles.”

Meanwhile, Fairfax’s Elizabeth Knight puts into context why Wesfarmers dealt another blow to the city of Geelong (following the decision by Ford Motors to pull out) by sacking hundreds of staff from its Target office.

“Dealing with Target is important for Wesfarmers, whose mantra on shareholder returns is legendary. This underperforming brand is a bad look for Goyder – yet selling it to a competitor or subsuming it into another Wesfarmers retail brand such as Kmart must feel like failure or, at least, a missed opportunity.”

Elsewhere, the Herald Sun’s Terry McCrann argues that there is a simpler explanation for the suspiciously timed downgrades to Newcrest.

“Just possibly, the three investment banks were somewhat late to an assessment that should have been bleedingly obvious for over a month.”

The gold price has been in a dive. While the analysts certainly wouldn’t have been anticipating a writedown of that scale from Newcrest, they could have just been late to the party.

Business Spectator’s Stephen Bartholomeusz reports on the straight bat that Newcrest is playing to the queries from the ASX.

“Was it purely coincidental that last Tuesday UBS put out a 'sell' recommendation, followed by similar advisories from Citi and Credit Suisse on Wednesday, just ahead of Newcrest’s announcement of the review outcomes on Friday? It stretches credulity that it was but Newcrest is adamant that (a) its board hadn’t come to any conclusions on its management’s business plan and 2013-14 budget until Friday morning and (b) that it treats its disclosure obligations seriously – ie it doesn’t selectively brief analysts.”

In other sharemarket news, Fairfax’s Malcolm Maiden says the correction that he said was probably in order earlier this year has now gone a bit too far. Things aren’t as bad as the ASX200 currently implies.

Meanwhile, The Australian’s economics editor David Uren notes the observation from Treasury boss Martin Parkinson at the Senate estimates committee last week that Australian living standards have improved out of sight over the last 20 years.

Living standards rise as a result of productivity gains. So it’s befitting that we finish with this offering from The Australian Financial Review’s Matthew Stevens.

“Evidence presented unchallenged to the Fair Work Commission confirms that Maritime Union of Australia had routinely enforced ‘productivity caps’ at Patrick Stevedores’ Port Botany and Fremantle container terminals.”

How is that not a bigger story?

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