Arnott's Ltd.

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Arnott's Ltd.

11 George Street
Homebush
NSW 2140
Australia
Telephone: ( +61) 2 9394 3555
Fax: ( +61) 2 9394 3873
Web site: http://www.arnotts.com.au

Wholly Owned Subsidiary of Campbell Soup Company
Founded: 1875 as William Arnott's Steam Biscuit Factory
Employees: 4,900
Sales: AUD 7.4 billion ($5.2 billion) (2002 est.)
NAIC: 311821 Cookie and Cracker Manufacturing; 311911 Roasted Nuts and Peanut Butter Manufacturing; 311919 Other Snack Food Manufacturing

Arnott's Ltd. is the leading Australian manufacturer of biscuits and cookies, which are marketed under the Arnott's brand name. The company commands more than 70 percent of the Australian market and boasts that its products are present in 97 percent of all Australian homes. Arnott's biscuit assortment reads like an honor roll for Australian tea time, with such perennial favorites as Tim Tams, Mint Slice, Full O' Fruit, Iced Vo Vos, and Jatz. The company produces a full range of biscuits, spanning such company-designated categories as plain biscuits, chocolates, creams, and fruit. The company also makes salted snack foods, such as chips, crispbreads, and crackers. The last-named category was boosted by the 2002 acquisition of Snack Foods Ltd., which brought the company two popular brands, Kettle and Rix. Arnott's remains largely focused on the Australian market; nonetheless, the company has also enabled parent Campbell Soup Company to gain a foothold in the Asian region. Arnott's operates factories in Papua New Guinea and in Indonesia, complementing its five factories in Australia. The company's national production presence also enables it to tailor its recipes to meet specific regional tastes. Campbell Soup Company gained full control of Arnott's in the late 1970s. Since the early 2000s, the company's revenues have been estimated at more than AUD 7.4 billion ($5.2 billion).

Building a Biscuit Company: 1850s–1930s

Born in 1827, William Arnott began his career as a baker's apprentice in his native Pathhead, Scotland, before emigrating to Australia in 1847. Arnott settled in Maitland in southern Australia and at first worked for other bakers. In the 1850s, however, he followed the gold rush, setting up a bakery business in the mining fields and catering to the growing population of miners. With money earned from this business, Arnott returned to Maitland and opened his first bakery shop.

After floods destroyed Maitland in the early 1860s, Arnott moved to Newcastle, opening a new shop in rented space on Hunter Street. Arnott began supplying biscuits for the Newcastle shipping industry, and his Ships Biscuits became highly popular as food for long sea voyages. By the end of the decade, Arnott was able to buy the entire Hunter Street building and open a new, larger baker's shop.

Arnott began adding new products, such as sweet biscuits and cakes, and in 1875 set up his first factory, in Newcastle, in order to produce for a larger market. William Arnott's Steam Biscuit Factory soon needed a workforce of 50 in order to turn out some 1.5 tons of biscuits per day. By the early 1880s, Arnott's growing popularity—boosted by the 1882 launch of its Milk Arrowroot—had led the company to Sydney, where it quickly became one of the city's biggest biscuits suppliers. In order to ensure his supply of milk, Arnott bought his own dairy herd during the decade as well.

William Arnott died in 1901, and the company was taken over by his five sons, who were to lead Arnott's on a new era of brand success. The company became one of the earliest Australian producers to advertise its goods under its own brand name, marketed under its trademarked parrot logo first introduced in 1888. The company also began devising new recipes, a number of which became long-standing best-sellers into the 21st century. Two of these in particular, the Iced Vo Vo and the SAO, both launched in 1906, became Australian cultural icons. Other products launched at the time were the digestive cracker Malt 'O' Milk, the Kiel Finger (later renamed the Scotch Finger), Ginger Nuts, and Milk Coffee.

With demand outstripped its production capacity, Arnott's began looking for a site for a new factory and in 1906 broke ground on a six-and-one-half-acre plot in the Homebush section of Sydney. Once considered a remote location, the Homebush area later became one of the central points of the city of Sydney, in part because of Arnott's growing presence there.

After converting its production to supplying troops during World War I, Arnott's resumed its growth in the inter-war period, launching such successful products as the Adora Cream Wafer and the Orange Slice, both launched in 1922, and the Monte Carlo, introduced in 1926. By the end of the 1920s, the company boasted some 150 biscuit varieties which it delivered to an ever-widening circle of customers with the company's own fleet of 19 Albion trucks.

The Depression once again slowed the company's growth, especially since Arnott's scaled back its production to just three days per week at times in order to avoid cutting its workforce. Maintaining its employees placed the company in position to rebound strongly as the economy improved, and by the end of the decade Arnott's production topped 43 million pounds per year.

Strategies for Survival: 1940s to the 1960s

Arnott's once again turned production to support the Australian war effort in the 1940s, while also supplying C-rations to the U.S. forces. During this period, the company dropped most of its biscuit, cake, and cookie varieties, trimming down to just under 20 brands, although these included such company mainstays as the Iced Vo Vo and the SAO. With the end of the war, Arnott's resumed full-scale production for the consumer market, although initial production had by then dropped to just 12,500 tons per year.

The rising economy during the postwar boom years gave Arnott's renewed vigor, and by the end of the 1950s the company's total production had nearly doubled. That decade also marked the appearance of a new generation of important Arnott varieties, including the Jatz crisp, which also became one of the first Arnott products to be featured in television advertising. In the raw materials shortages of the late 1940s, the company devised a new biscuit, the Choc Ripple, using leftover bits of other biscuits. The product proved so popular that the company decided to develop a true recipe for the biscuit, which also inspired the popular Choc Ripple Cake recipe.

The Australian biscuit industry faced a crisis in the 1950s as the popularity of American products turned consumers toward new biscuit and cookie varieties arriving from overseas. Arnott's took steps to head off the American "invaders," launching its own versions of popular American treats, such as the Delta Cream in 1954 and the yeast-based Plaza biscuit, created after the saltine cracker.

This was not enough to keep out the Americans, however. By the mid-1950s, U.S. food powerhouse Nabisco had begun making a serious effort to enter the Australian market, targeting acquisitions of existing companies. In order to fend off any takeovers, Arnott's led the consolidation of a number of prominent regional Australian baked goods companies, including Adelaide's Motteram & Menz, western Australia's Mills & Ware, Queensland's Morrow, and Melbourne's Brockhoff Biscuits, creating the Australian Biscuit Company.

By the 1960s, the combined business had renamed itself Arnott's. The larger company had gained a number of new brands, particularly from the Brockhoff business, which contributed its hugely popular Chocolate Teddy Bear, among others. The early 1960s also saw the launch of a new iconic product for Arnott's: the Tim Tam. Launched in 1963, the Tim Tam was named, according to company legend, for the 1958 Kentucky Derby winner. The chocolate biscuit quickly proved a winner for Arnott's, becoming its best-selling product, selling more than 30 million packs sold each year by the end of the 20th century.

Until then, Arnott's products had typically been sold in tins. The growth of modern self-service supermarkets, however, forced Arnott's to develop new packaging types. By the end of the 1960s, the company had largely abandoned its former tins.

Takeover Pressure: Mid-1960s to the Late 1990s

Into the mid-1960s, the company found itself in the midst of a biscuit "war" after Nabisco launched a new effort to break into the Australian market. In 1964, Nabisco made a takeover offer for Swallow & Ariel, a popular biscuit company based in Melbourne. Arnott's countered Nabisco's bid, and the two sides began a bidding war that eventually set the price at more than double the opening bid, with Arnott's successful in buying a 51 percent stake in Swallow & Ariel. In response, Nabisco set up its Australian operation from scratch. Not to be outdone, however, Arnott's began producing similar products to Nabisco's own, squeezing out its larger U.S. rival by the weight of its own brand name at home.

Buoyed by its success as the dominant biscuit player in Australia, Arnott's began preparing a new era of growth for the 1970s. The company went public in 1970, using the proceeds of the public offering to fuel its increasingly diversified interests. By the end of the decade, the company had moved toward vertical integration with the acquisition of a number of biscuit ingredients supplies, including four mills and preserves and peanut manufacturing facilities. In addition, Arnott's also acquired its own packaging operations during the decade. The company also took advantage of its solid position as Australian biscuit leader to pick up the Australian operations of its chief rival, Peak Freans, in 1975.

Company Perspectives:

Our principles. Arnott's is the number one grocery umbrella brand in Australia and boasts some of the largest brands in the country. We are committed to providing people with challenging and exciting careers. We are proud of our culture which encourages people to achieve their best in a stimulating team environment. We have six guiding principles: our people create value; we can only achieve working in a team; there is no substitute for quality in everything we do; innovation is essential and rewarded; we must make a difference in our communities; we are committed to winning in retail channels. These principles guide us through every stage of our business from product development, manufacturing, distribution and sales and marketing.

Yet Arnott's public listing—and its rapid diversification—exposed it to a fresh attempt at a takeover by Nabisco in the 1980s. In order to counter the U.S. giant's takeover approach, Arnott's turned to another American company, Campbell Soup Company. Campbell took a 14 percent share of Arnott's, defeating Nabisco's takeover attempt.

The struggle to retain its independence ultimately led to the resignation of the last member of the Arnott family to be involved in the company and the appointment of the first managing director to come from outside of the family. At the same time, Arnott's had been hit hard by an effort, launched in the 1980s, to diversify into snack foods. The company appeared unable to translate its success in biscuits to that of the still-larger snack food market, and in 1990, with losses mounting, Arnott's pulled the plug on its new operations. Soon after, with the Arnott family's announcement of its intention to sell out its control of the company, Arnott's became the subject of a take-over battle. By 1992, Campbell had emerged as the early leader, raising its share of the company to 33 percent, prompting an outright takeover offer.

Arnott's under Campbell: Late 1990s–2000s

Arnott's resisted Campbell's efforts. The slumping Australian economy, however, forced the family's hand. With profits shrinking, Arnott's slowly yielded to the American company, which gained a 70 percent stake by 1994. The company, already hit hard by losses, was dealt a new blow in 1996 when it became the subject of an extortion plot, with a threat to poison its products in an attempt to free a convicted murderer. By 1997, after several years of negotiations, Campbell finally succeeded in gaining full control of the Australian legend.

Campbell's interest in Arnott's came in large part because of the perception of Australia's proximity to the potentially huge Asian Pacific market. Arnott's had already begun exporting its biscuits in the 1970s. With its brand name already established in many of the Asian markets, Arnott's became Campbell's regional spearhead, supported by new production facilities in Papua New Guinea and Indonesia.

Under Campbell, Arnott's also began a renewed attempt to move into snack foods. That effort started in 1996 with the AUD 20 million purchase of the Kettle Chip Company. The move was even seen as heralding a new era of a biscuit-less Arnott's. As managing director Chris Roberts told The Advertiser at the time: "The most important step into the future is into the snack food market and out of biscuits."

Fortunately for Australia's biscuit lovers, Arnott's remained committed to its long history as Australia's top biscuit brand. The company continued to develop new biscuit recipes, such as the late 1990s Tiny Teddy biscuits, the most successful new product in the company's history, selling more than five million biscuits in little more than a month.

In the early 2000s, Campbell pumped some AUD 30 million into Arnott's in order to expand the company's production plants in Sydney, Adelaide, and Brisbane. As part of that plan, launched in 2001, the company announced its intention to shut down its Melbourne facility.

The following year, Arnott's took a new step toward developing its revived snack foods division, paying more than AUD 250 million in order to acquire Snack Foods Ltd. That purchase gave the company control of a new range of brands, including the highly successful Rix brand. By the end of that year, Arnott's sales were estimated to have topped AUD 7 billion ($5 billion). In the meantime, the company's Kettle brand had been performing strongly for the company, leading Arnott's to launch new Kettle varieties—Kettle Crunch and Kettle Sensations in 2004.

Principal Competitors

Associated British Foods PLC; Yamazaki Baking Company Ltd.; Morinaga Milk Industry Company Ltd.; Nabisco Biscuit Co.; United Biscuits UK Ltd.; Goodman Fielder Proprietary Ltd.

Key Dates:

1847:: Scottish native William Arnott emigrates to Australia and begins working as a baker.
1875:: After establishing a successful bakery shop, Arnott opens his first factory in Newcastle.
1906:: A new factory is constructed in Sydney.
1956:: The company merges with Morrow, Metteram and Menz, Mills & Ware, and Brockhoff to form Australian Biscuit Company.
1963:: Tim Tam biscuits are launched.
1970:: The company goes public as Arnott's on the Australian Stock Exchange.
1985:: Campbell Soup Company gains a minority stake after a takeover attempt by Nabisco.
1992:: Campbell Soup acquires a 33 percent stake in the company.
1996:: The company acquires Kettles Chip Co. for AUD 20 million.
1997:: Campbell Soup acquires full control of Arnott's; Tiny Teddys become the most successful product launch in the company's history.
2001:: The company announces a plan to spend AUD 30 million upgrading three manufacturing facilities.
2002:: Snack Foods Ltd is acquired for AUD 250 million.
2004:: The company introduces Kettle Crunch and Kettle Sensations brands.