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Marketers await the long knives

By Duncan Bridgeman

Friday 9th May 2003

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Graeme Hart will meet Goodman Fielder's New Zealand advertising agencies next week in what promises to be a further cost-cutting exercise at the food group.

The Burns Philp deputy chairman has already scythed his way through Goodman's Australian operations since the month-old takeover, axing some 300 staff and closing down a small number of regional bakeries.

Now he is expected to turn his attention to this side of the Tasman, with more staff redundancies expected as well as cut- backs in advertising of some of Goodman's minor brands.

Although Mr Hart has promised top brands will not be hung out to dry, he has made no secret of a more focused marketing expenditure in future.

That could see a significant reduction in advertising for some of Goodman's third-, fourth- and fifth-tier brands, such as Edmonds, Diamond Pasta and White Wings. Many other small-snack-food brands are also likely to be left on their own as Mr Hart measures product profitability against the perceived brand value.

Despite a common knowledge among advertisers that brand value and profitability go hand in hand, the Goodman restructure will be ruthless.

Goodman's advertising spend has yet to be touched in Australia, according to brand equity manager Lisa Miles. But the advertising industry is speculating Mr Hart could slash more than $A12 million from the $A32.5 million spent on advertising last year.

In New Zealand, Auckland agencies Colenso BBDO and Publicis Mojo handle Goodman Fielder's advertising.

Neither would comment to the media ahead of next week's meeting but it is understood there is a fair amount of nervousness about what might happen.

Mr Hart has implemented a general review of Goodman's businesses, assets and investments that will dictate if some will be sold off. The initial review is expected to be completed by June.

The exact nature of what his plans are for the New Zealand operations remain to be seen but a strong indication of what lies ahead can be taken from Mr Hart's previous foray into New Zealand Dairy Foods.

Apart from initial staff cuts when Dairy Foods combined its food and beverage divisions ­ including shedding half the marketing team ­ the company scaled back its advertising dramatically before lifting the tempo with a new campaign toward the end of last year.

But even now, more than a year after Dairy Foods was purchased by Mr Hart's Rank Group, the marketing budget is still being clipped, according to sources.

Mr Hart would also have kept a close eye on the fairly recent Hewlett Packard and Compaq merger ­ one of the very few successful high-tech mergers ­ and noticed the decisiveness in which that was achieved.

Less than a year after its merger with Compaq, HP was approaching $3 billion in savings from 12,000 layoffs, office closures and consolidating its supply chain.

Marketing and public relations at the two computer giants were quickly integrated and under-performing products were spectacularly killed off.

Mr Hart has moved quickly to take $A25 million of costs out of Goodman and every indication is that will continue.

The food group's New Zealand division includes the manufacture and marketing of snacks, spreads, oils, loaf bread, baked goods and frozen meals.

For the year ended June 2002, the New Zealand division generated revenue of $A511.4 million and earnings before interest and tax of $A68 million.

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