As the Australian economy undergoes a period of what is really quite savage structural change, customers and suppliers are being forced together in some very different ways.
Woolworths, for example, has been forced to acquire the Austral commercial refrigeration business from the administrators of the collapsed Hastie Group, as Austral provided 60% of Woolies’ refrigeration needs.
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Similarly, Woolies has invested in a small Western Australian brewer called Gage Roads Brewing in a $12 million deal that will help secure supply from the company, which makes a range of craft beers and also brews several house brand beers for the supermarket giant. Woolworths already owns 25% of the listed company and will now have a representative on the board.
In recent weeks we’ve also seen a number of examples in the car industry of the big car makers forced to step in and bail out component suppliers, the most recent being Ford and Holden’s deal to take over $6.5 million in debt from parts maker Autodom to ensure certainty of supply.
This deal and the Woolworths acquisition of Austral (which still faces the hurdle of ACCC approval) are examples of a customer being forced to bail out a supplier. But in this period of structural change, there are also occasions when the supplier needs to help a customer.
Every time a stricken retailer goes into administration, for example, suppliers are called on to lend a hand. But it’s also happening in manufacturing, where the pace of change is requiring some quick thinking.
Anthony Pratt, head of the Visy packaging empire, is one of Australia’s biggest manufacturer’s, with customers throughout the economy.
One of the largest individual groups is of course the food and beverage industry, and the opening of a new recycled plastics plant in Sydney saw Pratt calling on Australia to take a leadership position in the area of food export to Asia’s emerging middle class.
“We can be the clean food bowl of Asia in Australia so if there was an industry that is worth backing, it’s the food industry. Australia grows things so well,” Pratt told The Australian Financial Review.
It would benefit the country and it would benefit Visy.
“Increasingly in Asia, because of concerns about health and safety, they want a product that is shelf stable and can last, and is tamper-proof, so packaging is important in getting there in an attractive and efficient manner.
“If we can do that we’ll help secure the future of Australia’s food and beverage industries which make up more than 70% of Visy’s customer base.”
What’s interesting is the lengths Visy is going to support its customers.
As one of the biggest exporters of shipping containers in Australia – it moves some 60,000 every year – Visy has set up an initiative called Freight Forward to use its buying power to get customers cheaper freight rates.
Visy also have a relatively new trading operation in Singapore and a new Singapore-based consultancy business called Build Run Repair, which advises (mainly internal Visy divisions) on building new plants and waste-to-energy projects.
Pratt’s subtle turn towards Asia marks an important strategic direction for Visy. But his smart strategy of helping his customers get there is an example of how structural change is changing the way business is done in some of our most important sectors.