The planned closure of Cadbury's factory is a blow for Dunedin but doesn't reflect the manufacturing sector. Photo/Derek Flynn
The planned closure of Cadbury's factory is a blow for Dunedin but doesn't reflect the manufacturing sector. Photo/Derek Flynn
The river of chocolate that sustained thousands of Dunedin workers over the years looks set to run dry.
But while the closure of Cadbury's landmark factory will be a major blow to the southern city, no one is seeing it as a sign of wider problems in the manufacturing sector.
Commentators say the writing has been on the wall for a while now, but there was still shock when Cadbury's owner last week announced that it plans to close the factory, leaving some 360 people without jobs.
Mondelez International, Cadbury's multi-billion-dollar US parent company, cited increasing costs and distance to its markets as making it untenable to continue the business - even though it is still profitable.
That argument would have been familiar to many kiwi manufacturers; in a survey of manufacturers by the NZ Institute of Economic Research (NZIER), distance to markets was cited as the fourth biggest barrier to expansion.
Given that more than 70 per cent of Cadbury's New Zealand production is exported, the decision to move production to Australia and close its last manufacturing plant in this country next year was a logical - if tough - decision to make, said Mondelez.
"The company's proposal is the result of extensive consideration of the issues affecting local production," Amanda Banfield, area vice-president for Australia, New Zealand and Japan, said last week.
"We operate in an increasingly competitive industry and the factory's distance from its main market [Australia], low volume and complex product portfolio, make it an expensive place to manufacture our products."
While they weren't words that Dunedin wanted to hear, there is no sign that they reflect wider problems in manufacturing.
According to NZIER data, manufacturing accounts for $22.6 billion of GDP a year, or 11 per cent of the economy, and is responsible for almost 250,000 jobs.
In 2015, food production accounted for more than a quarter of manufacturing employment and Catherine Beard, executive director of manufacturing at Business NZ, says food and beverage production is consistently one of the strongest categories.
Chocolate production at Auckland's Devonport Chocolates. Photo/NZME
"I don't think [the closure] is a reflection at all of manufacturing in New Zealand," says Beard.
"We produce the performance and manufacturing index (PMI) every month which tells [people] how business is going, and it has been in expansion for a record amount of time.
"Food and beverage manufacturing is generally one of our strongest categories, so when you look at the stats, it is more often than not going well and expanding."
The manufacturing index has been expanding consistently since September 2012, which Beard says is an exceptional record compared with most countries. In comparison, Australia's PMI has been in decline for the past two years.
The New Zealand index shows growth has been particularly strong in building and construction, and the food and beverage sector.
Based on the latest ManufacturingNZ data, food, beverage and tobacco manufacturing made up 36 per cent or $5.85b of the sector.
Nor will Cadbury's closure mean the end of chocolate making in New Zealand. Trade Aid opened its chocolate factory in Christchurch in 2014, and Whittaker's operates its plant in Porirua. Both say they have no plans to shift manufacturing overseas.
Whittaker's marketing manager Holly Whittaker and head of marketing Philip Poole say the company has been New Zealand-owned for more than 120 years and operates a bean to bar model where it controls the entire manufacturing process.
"We manufacture here because we are committed to New Zealand and we're a New Zealand company, and by doing that we can control the quality of the product," Poole says.
"I suspect it could be done cheaper elsewhere, we've never looked at it, but that's not Whittaker's - we always go under the philosophy of better, not cheaper."
J.H. Whittaker & Sons head of marketing Philip Poole at their Porirua chocolate factory. Photo/NZ Herald
While Whittaker's feels for the Dunedin workers, and plans to expand at some point, the company says it will not be able to take over the Dunedin factory and all its staff.
Mondelez International's move reflects a wider shift in the company's operations in recent years.
Across the world, Mondelez has been closing factories in developed countries - including the US, Canada and Europe - and shifting production to developing countries to widen margins.
In February 2014, the Financial Times reported that Mondelez had hired consulting and strategy firm Accenture to help it cut costs.
The paper reported that Mondelez was trying to streamline operations and deliver US$3b in productivity savings over three years.
New Zealand Manufacturers and Exporters Association chief executive Dieter Adam says he is not concerned about the future of the manufacturing industry, but he does note that Otago has lost several manufacturing businesses recently, including Hillside Engineering and Fisher & Paykel Appliances near Mosgiel.
"We saw a 10 per cent drop in [New Zealand] numbers immediately following the GFC and since then it has been steadily increasing again," Adam says.
"The interesting thing is in Dunedin we have seen a lot of manufacturing job losses.
"In the last 10 years we've lost just over half of all manufacturing jobs there, compared with what has been happening on the national scale, which has been positive.
Cadbury Staff leave a meeting last week. Photo/Christine O'Connor
"We see that every now and then, one factory closes - it may be quite a small one, but it affects a number of other companies they have been supplying to, especially if they're one of the only ones left to provide a particular service.
"The [Cadbury] closure isn't unexpected, though - the writing has been on the wall for a while now."
Adam says manufacturing in New Zealand is shifting from large-scale production to specialised manufacturing, and the future of the industry in this country is in high-value jobs that require a lot of skill, although for food manufacturing, the New Zealand-made branding is a strong selling point.
Despite concern that manufacturers are increasingly looking overseas for cost efficiencies, New Zealand's manufacturing sector had one of the highest job listings in January according to recruitment company Seek.
Cadbury staff and Dunedin residents are hoping an way may be found to keep the Cadbury factory open, but for Mondelez, whose profit last year topped US$1.6b, New Zealand is just a speck in its global market.
A bittersweet history
Correspondence school children catch up on the latest methods of chocolate making during a tour of Cadbury Schweppes Hudson's factory in 1973. Photo/supplied
The Cadbury name has a long connection with New Zealand, from the company's home at Bournville, in England, to a Willy Wonka-esque factory in Dunedin - complete with chocolate waterfall.
Cadbury was born in 1824, when John Cadbury opened his first store in Birmingham, England, selling tea, coffee and drinking chocolate.
By the 1900s, John's sons George and Richard had taken over the business and founded Cadbury's first official home, at a site they named Bournville.
Alongside the Cadbury factory, the family built a "model village" of more than 300 houses for workers and their families, complete with schools and shops - although the family's Quaker religion meant alcohol was prohibited.
Over the following century the company expanded globally, developing some of its most popular products including Dairy Milk chocolate, and holding its position as one of the biggest British confectionery manufacturers.
In September 2009, US company Kraft Foods (now Mondelez International) made a US$16.2 billion bid to buy Cadbury, which was rejected.
Kraft then launched a hostile bid for the company and in January 2010 Cadbury ceded, selling for US$19.6b.
The merged company soon faced criticism, particularly after closing Cadbury's Somerdale factory at a cost of 1000 jobs, despite Kraft's promise to keep the plant open.
Continuing criticism prompted a parliamentary investigation, which resulted in company bosses being hauled before MPs.
New Zealand was an early market for Cadbury, which supplied the country with chocolate from Britain until a 1928 increase in duties on imported goods forced it to look for a local manufacturer.
The iconic Dunedin Cadbury's factory is to stop production. Photo/supplied
An amalgamation in 1930 created Cadbury Fry Hudson, expanding on Richard Hudson's existing Dunedin chocolate, confectionery and biscuit business, and Cadbury began production in New Zealand.
The company eventually opening a second factory in Auckland.
In Dunedin, it created Cadbury World in 2003 - a tour of the factory and facilities which ends at a five-storey silo featuring what is thought to be the world's largest chocolate waterfall.
Kiwis may have embraced Cadbury, but it has still faced its fair share of difficulties.
In mid-2009 the company faced controversy over its replacement of cocoa butter with palm oil.
Consumers objected to the taste, while environmentalists were angered by palm oil's role in the destruction of tropical rainforests.
By August the company announced it was reverting to the use of cocoa butter, although palm oil is still listed as an ingredient in some of Cadbury's fillings.
In 2007 Cadbury announced it was closing its Auckland factory, affecting around 200 jobs.
Cost-cutting has also resulted in the company downsizing many of its products over the years, most recently in 2015 when it cited manufacturing when trimming block sizes.
Now the planned closure of the Dunedin factory next year marks the end of a 90-year manufacturing presence in New Zealand.
Cadbury World will remain open for now, but it remains to be seen whether Kiwis will still want to share the Cadbury magic.
Biting into a $365m market
Cadbury's Dunedin factory closure is likely to backfire on the company, says one marketing commentator, by encouraging consumers to desert the chocolate maker and move to New Zealand brand Whittaker's.
Globally, the chocolate market is expected to reach US$131.7 billion ($183b) by 2019, up from about US$98b last year, according to sales data firm markets&markets.
In New Zealand, chocolate sales totalled $365 million in 2016, according to data from Nielsen. Chocolate block sales were worth $139m of the total according to Cadbury.
Cadbury New Zealand chief executive officer James Kane. Photo/Nick Reed
Mondelez-owned Cadbury still holds its place as the country's biggest chocolate brand, but New Zealand-owned Whittaker's is rapidly biting into that, with an estimated 41 per cent of the block market.
The remainder of the industry includes boutique operators such as Trade Aid and Devonport Chocolates.
Whittaker's was named New Zealand's most loved brand in an annual Colmar Brunton survey in September, and University of Otago marketing professor Juergen Gnoth says the Cadbury closure is likely to benefit Whittaker's even further. He says Mondelez is underestimating the loyalty of New Zealand consumers.
"I think Cadbury will definitely lose a lot of customers which will give Whittaker's a boost," says Gnoth. "New Zealanders are very loyal and particularly I think when it comes to food products.
"I think [Mondelez] are not looking at this trend enough."
Whittaker's head of marketing, Philip Poole, says the key to Whittaker's brand has been quality. He says the company operates by the philosophy of "better not cheaper", which has resonated with Kiwi consumers and helped lift its market share.
"It's been a pretty continuous process, particularly in the last five to ten years," Poole says.
"We've seen continual growth in our sales and certainly the plan for the future is to maintain the strategy we have to continue that growth."
Cadbury and Whittaker's milk chocolate. Photo/Brett Phibbs
The company exports about 30 per cent of its production to 21 countries. Marketing manager Holly Whittaker says Whittaker's has no plans to move manufacturing from its site in Porirua, where all of its products are made.
The rivalry between Whittaker's and Cadbury's has been ongoing, and spilt over into court several times in recent years.
The companies have argued over the Dairy Milk branding, and more recently Cadbury took Whittaker's to court over its Berry Forest name.
Cadbury argued that was too similar to its own Black Forest chocolate, but eventually lost the case.
