Market Gives Goodman Field's New Strategy A Tick

  Meandering food group, Goodman Fielder is planning to quit what it calls low margin and non- core assets, such as its edible oils business, and focus on manufacturing and marketing its branded food products, such as its buttercup breads.Goodman said yesterday it would sell its commercial edible fats and oils business, which include brands such as Crisco and Pilot, and look to divest non-core brands. & quot;In making the announcement today, Managing Director Peter Margin said, & quot;As a consequence of our decision to focus on our consumer brand portfolio, we will be exploring options for the divestment of our Commercial edible fats and oils business, & quot; the company said in the brief statement to the ASX & quot;The company will focus on strengthening its current portfolio of core brands through enhanced product innovation, robust brand support and targeted acquisitions. & quot;It will also consolidate its portfolio based on sustainable market positions and look to divest non-core brands. & quot;We believe that strong brands provide an effective insulation against commodity cost volatility and that innovation and marketing support are the keys to maintaining and enhancing the strength of our brands, & quot; Mr Margin said.That's if the finances of the offers and other terms were commercially acceptable.It was a move given a big tick by the market after a 28 page briefing to analysts revealed far more detail than the brief two page statement & #160;to the market generally.The shares jumped more than 10% to & #36;1.30.And yet on the same day the company released this statement to the market: & quot;Goodman Fielder Limited advises that it has been awarded an extension of its private label bread supply contract with Coles for a further 12 months. The contract is for the supply of white and grain loaf bread to Coles supermarkets nationally. No financial details of the contract will be disclosed. & quot;So on the one hand it's now looking to sell non-core and private label businesses to concentrate on & quot;consumer brands & quot; and yet did a deal with out second biggest retailer to maintain a private label supply contract.Obviously that contract is vital to maintaining throughput at its bread plants, and yet shareholders would be entitled to ask, what's the company doing if its branded bread lines (Buttercup for example) will be under cut by Coles selling bread made by the Goodman's in the same plants and sold under a private label name.There must be a commercial imperative there that's bigger than that explained in yesterday's analysts & #160;briefing.The new strategy is a result of the strategic review that the company has been conducting over the past several months.Managing director Peter Margin said the businesses to be sold had revenue of about & #36;550 million, compared to the company's total revenues in 2008 of & #36;2.7 billion.The businesses to be sold will include ingredients manufacturers that would still be needed in the productions of other Goodman's brands.Mr Margin said the company would not be introducing new brands, but reshaping the business to concentrate on consumer brands. Targeted acquisitions were also on the agenda.Non-core assets to be sold included products in New Zealand - Diamond, the country's biggest pasta brand, and DYC, a vinegar brand.The sales process is expected to take about six months to complete.Mr Margin said Goodman believed strong brands provided an effective insulation against commodity cost volatility. & quot;Innovation and marketing support are the keys to maintaining and enhancing the strength of our brands, & quot; he said.Goodman had concluded that the commercial fats and oils businesses did not fit comfortably with the company's major strategic focus, he said. It was unlike the rest of our portfolio, & quot;which is predominantly retail focused & quot;. & quot;The company will continue to focus on the goal of achieving competitive advantage by being the lowest cost manufacturer, developing the most efficient daily fresh distribution network and further enhancing our information platform, including developing our e-commerce capabilities with our major trading partners, & quot; Mr Margin said in the statement to the ASX.And yet the move to concentrate on brands is a gamble as Woolworths and Coles move to establish their own brands as major profit centres on their supermarket shelves.They are building a hierarchy of private label brands: premium, middle and lower quality, all sold at prices below the same sort of consumer brands from companies like Goodman, Nestle, Unilever, etc.Goodman has shown that it's prepared to deal in private labels with the Coles deal extension, but no one has explained the apparent contradiction.It's a trend seen overseas in majors like Tesco and Sainsbury's in the UK. Even Waitrose, a high margin, premium brand supermarket chain, has been forced to introduce cheaper products and brands to combat the impact of the intense recession on UK customers.Australian retailers, starting with the old Franklins, and then Woolies and Coles started cheap own brands at the bottom of the market.But the likes of Tesco, have shown that own or private label products can be stratified like brands, setting up intense competition with the owners of those brands and often forcing them to make the own label versions to keep factories economic and sales. & #160;  

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