Mars bar manufacturer’s problem with Australian supermarkets
The maker of Mars Bar, Snickers, and Milky Way says it’s got no choice but to shrink the size of its sweet treats – but it’s laying the blame elsewhere.
Times are tough in the sweet business of chocolate.
Manufacturer Mars says it’s struggling with Australia’s high wages, transport costs and energy, as well as soaring prices for ingredients like cocoa.
The history of Mars Bars
Mars bars are the most traditional of chocolates: a 1930s combination of soft nougat, caramel and solid milk chocolate, first produced in the United Kingdom by an American confectionary scion.
Forrest Mars was the son of Franklin Mars, who founded the Mars empire.
Mars junior also invented Maltesers and M & Ms – the world’s sweet tooth made him a billionaire and his company one of the world’s most-famous.
Today, Mars makes everything from packaged rice to pet food.
Mars best TV ads
Mars has been responsible for – let’s be honest here – some of the world’s greatest ads.
Remember Mr T, the musclebound star of the 1980s sitcom The A-Team?
He starred in a series of ads for another Mars product, Snickers. This one featured a soccer player diving to the ground with a fake injury. Mr T rolls onto the field in a tank and points the cannon directly at the whining soccer player’s face.
“Quit your jibber-jabber!” he shouts. “You ain’t hurt. You pathetic! If I ever catch you acting like a crazy fool again, you gonna meet my friend, Pain!”
Snickers had another ad featuring actor Betty White – one of the Golden Girls – playing American football.
Mars manufacturing in Australia
Today, Mars manufactures products for Australian markets at factories including in Ballarat – including, a now-discontinued line of popcorn-flavoured Maltesers, inspired by a particularly Australian trend of dumping a bag of Maltesers in your bucket of popcorn at the movies and allowing it all to melt together into one heart-stopping salty sweet combo.
Eli Greenblat is The Australian’s retail expert and a senior business reporter. Mars Bars are his favourite chocolate – provided they’re served chilled.
He says the multinational Mars company is an important part of the Australian manufacturing landscape.
“There are about 130-odd factories. Six of those factories are in Australia,” he says. “And those factories are very important … not just producing for Australia and New Zealand, but also some exports into Asia.
“They make a whole range of foods here – chocolates especially – but also Mars own a very large portfolio of pet foods: Pedigree, Whiskers, Dine. They also own and manufacture chewing gums – Wrigley’s, Hubba Bubba – and a range of food ingredients, being Masterfoods and Dolmio.
“But they’re very important in terms of investing in innovation, investing in manufacturing capabilities, investing in employment in Australia, and especially in regional Australia, where their factories are mostly located.”
But Mars says manufacturing here is just too expensive.
“They cite a number of things: labour inflation, energy – they’re a big user of gas and other key energy inputs, like freight and handling – supply chains,” Greenblat says. “It’s just a very expensive place to operate.
“And … they do need to make a return on their investment, but also they do profitable, and profitable in a sustainable way, so they can reinvest in those manufacturing sites, reinvest in innovation, technology, and of course, their staff.
“And they’re not the only ones. A few global manufacturers – Nestlé, Unilever, Procter and Gamble, Kellogg’s – have all now called out Australia as a very expensive place to do business.”
Mars says its gas prices have more than doubled in the past two years alone, just to keep its six Australian factories running.
Mars’ submission to the supermarket inquiry
Mars Australia has put in a submission to a federal parliamentary inquiry into supermarket power, and it’s listed all its gripes with the Australian market.
“They have said that it is quite a concentrated marketplace, especially compared to where else they operate … where you’ve got Woolworths and Coles who dominate,” Greenblat says. “And remember, Mars is a very powerful supplier, they’re not a small mom-and-pop operator. They’re one of the biggest suppliers in the world.
“They didn’t say they’ve got any problems at the moment with Coles or Woollies, but they said that given the concentration, if there is an argument with one, that’s a problem, an argument with two, that’s a very big problem.
“They still try and maintain pretty good relationships, but I think, given the Senate has asked them the question, they have answered and have been pretty bold in what they’ve said.”
Soaring cocoa prices sees ‘shrinkflation’ surge
One of Mars’ biggest inputs is – naturally – cocoa.
Prices are soaring internationally. There are numerous causes, but the main one is a lack of supply.
There’s been bad weather in West Africa which has damaged cocoa crops, there are a bunch of diseases affecting the trees, and other industries like mining are crowding out cocoa farmers.
The other factor is that cocoa is a commodity – that is, a raw material that’s traded around the world and is basically uniform. That means just like coffee, or wheat, or iron ore, cocoa beans are basically the same whether they’re produced in Africa or Asia or South America.
And, just like other commodities, there’s a futures market for cocoa, where investors trade contracts to buy or sell cocoa in the future. It’s a way of betting on what the economy will do in future.
And that’s also part of what has sent cocoa prices up: the price of the beans is pegged to the futures market, which has been incredibly volatile.
Internationally, there are reports some chocolate manufacturers are dealing with the problem with shrinkflation – that is, using less.
“Mars called this out in their submission,” Greenblat says. “Nestlé did the same, where they’re very careful, in passing on those higher inflationary costs to their consumers. They know there’s not much room for that, so, really, all they can do is become more efficient – cut their own costs.
“But there’s just so much you can do with that.
“And then ultimately reducing the pack sizes. And they’ve done that with their chocolate bars. Other products have certainly shrunk and the price has stayed the same, or maybe gone down a touch, but not the same as the reduction in the package. And that is the essence of what Shrinkflation is.
“So in that way, they’ve tried to limit the increase in price for the shopper, but they’ve had to cut the size of it. And people will notice that … when they pick up a chocolate bar – they’ll see it certainly has shrunk.”
What is the Australian supermarket inquiry?
It’s been a tough year for the supermarkets.
Woolworths and its biggest competitor, Coles, have been the subject of a Senate inquiry into supermarket prices – including allegations of price-gouging.
Outgoing Woolies CEO Brad Banducci and Coles CEO Leah Weckert – along with other retail bosses – fronted up to the Senate inquiry to explain.
On Tuesday, after trawling through submissions from 150 retailers, the Parliamentary inquiry handed down its final report.
It called for a huge overhaul in 14 recommendations, including the introduction of a pricing and competition commission to police the way prices are set, and breaking up Australia’s supermarket duopoly.
The problem is, Labor’s not keen on the divestiture bill currently before parliament.
“Some of [the recommendations] are pretty strong and I think we’ve got no chance of getting up,” Greenblat says.
“This, of course, is a Greens-led Senate inquiry, which the Albanese government allowed to happen. And some of those recommendations you would think would never happen.
“Divestiture powers – which the government has already said it won’t support – that’s where the courts could allow the forced break up of large corporations if they’re seeking to misuse their market power.
“Another recommendation is the establishment of a new body, some kind of commission on pricing, which could investigate further the way that the supermarkets set their prices.
“Another one is changing consumer and competition law that would allow the ACCC to prosecute companies that are seen to have excessive pricing or price gouging. Now, how could you even prove that? How would you show that? What is excessive pricing? What is price gouging? It’s not entirely clear.
“So there are a few problematic ones. And what we’ll see if the government will allow any of those to go through. The federal government’s got about three months to respond to the sort of inquiry report.”
What is the government’s supermarket divestiture bill?
So, is this a missed opportunity to force some real reform to supermarket sector?
“It could be,” Greenblat says.
“And I think it shows, perhaps, the domination of the Greens on that Senate inquiry and what they wanted to push through and what they wanted to talk mostly about.
“And many people around that inquiry have seen it as a missed opportunity to really get into some key issues facing suppliers, facing farmers.
“That committee, of course, was made up of Greens, Labor, Liberal, National independents. [And] there was a split on the committee where they wouldn’t support an industry-wide divestiture power recommendation.
“So that divestiture could apply to any company anywhere in the economy.
“They did, on the whole, support a recommendation where those divestiture powers would apply just to supermarkets. But that is pretty unworkable.
“For example, let’s say that the courts forced a supermarket to sell off a bunch of supermarkets in far north Queensland. Who would buy those supermarkets? What would you do with them?
“It’s just unworkable and I don’t think will happen.”
This is an edited transcript of our free daily podcast, The Front. Listen wherever you get podcasts.
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