What’s next for Rosella tomato sauce?

Maker of iconic sauce placed in receivership

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The maker of iconic Australian tomato sauce brand, Rosella, has been placed in receivership, following the appointment of administrators late last week.

Creditors for Gourmet Food Holdings had been unsuccessful in finding a buyer for the group’s businesses, including Rosella, organic soups maker, Pitango, based in New Zealand and biscuits maker Waterwheel, based in Victoria.

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The failure of Gourmet Food follows the recent high profile collapse of chocolate maker, Darrell Lea in September, and shows the impact of the major supermarkets focus on home brands – known in the trade as private label products – at the expense of brand name products. Both Woolworths Limited (ASX: WOW) and Coles – owned by Wesfarmers Limited (ASX: WES) have been expanding their private label brands range in stores, with ‘branded’ goods being pushed into smaller displays or off the shelf altogether.

Both companies have been aggressively focused on reducing costs, as competition has pushed prices down over the past 18 months or so. Australian suppliers are being squeezed, and increasingly, products are being sourced from cheaper overseas producers. Goodman Fielder Limited (ASX: GFF) has seen its margins slashed as the big two (Woolworths and Coles) force the company to cut its prices, and even Coca-Cola Amatil Limited (ASX: CCL) has been forced to renegotiate its contracts.

For Australian producers, higher labour and supply chain costs mean they struggle to compete with their international competitors, and are losing out when it comes to supplying supermarkets. We could yet see more local producers forced to the wall, unless they can find a way to sell their products profitably.

Some suppliers have even decided that they can’t compete with private-label brands and have moved to selling their products through other channels, such as online only stores like groceryrun.com.au. Without the expense of retail stores, like rent and staff, the online stores hope their lower costs will enable them to compete effectively against the major supermarket retailers.

The Foolish bottom line

Retailing is a tough business at the best of times. Rosella sauce lovers will be hoping Gourmet Food can be revitalised, but the company may need to change its business model.

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Motley Fool writer/analyst Mike King owns shares in Woolworths. The Motley Fool’s purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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