Vanguard Luxury Brands: Australia’s number one house of craft and premium spirits

Vanguard Luxury Brands James France in The Australian Business Executive

Established in 2008, Vanguard Luxury Brands is Australia’s leading importer, marketer, and distributor of premium spirits, catering to the best bars, liquor stores, restaurants, and hotels across Australia.

Founder James France is a 30 year veteran of the spirits industry, founding Vanguard with the mission of providing the best spirits brands to the best bars in Australia. This vision is underpinned by a natural progression into supporting the best retailers in Australia with unmatched brands and excellent customer service. Having recently been sold to beer giant Lion, the company operates in all markets of Australia with an award-winning team of spirits professionals. Mr France spoke with us recently about his path into the liquor industry, the issues experienced by spirits distributors in the Australian market, and the recent acquisition by Lion that promises to propel the company to new heights.

Australian spirits

“I was working at Unilever originally, and then Philips Electronics,” Mr France explains. “There was an ad in the paper for a Senior Lifestyle Marketer, and I didn’t know what it was. I applied and it turned out to be Senior Brand Manager on Kahlua, with a company called Swift and Moore, which was a very big spirits company in those days.”

Coming into the industry with no liquor experience at all was fairly unusual, as most people in the marketing and especially sales side have come from other parts of the industry and carried their experience and contacts over.

“One way or another, most brands tend to come your way if you stay long enough in the industry, and this job took me to New York, where I worked on J&B scotch over there, and then I moved over to Remy Cointreau.”

An early highlight of Mr France’s career was launching premium brand Don Julio tequila in the United States. During this period, he visited Mexico several times to meet with Don Julio and his family, subsequently falling in love with tequila and agave spirits.

“I came back to Australia in 2000 when my visa ran out, and I realised that there was a real shortage of premium spirits. Australian spirits were very mainstream back then, and I’d been exposed to all these wonderful brands over in the US. Back then there was no such thing as Craft Spirits, but in fact a lot of these brands were what we would today call Craft Spirits.”

After assessing this gap in the Australian market, Mr France began contacting some of the brands he had seen in the US, and saw immediate interest in the idea of a new market, with many brands wanting to know more about his company.

“I thought – I’m really just a guy with a laptop. I really don’t have a company as such. But I quickly set up a company. A lot of it of course is just built on trust and reputation, and I set up this company based on some of the contacts I’d made when I was living in the US.”

Vanguard Luxury Brands James France in The Australian Business Executive
Vanguard was acquired by Australasian alcohol beverage giant Lion, which has for many years been one of the two companies in a duopoly of the Australian beer industry

One of the contacts he pitched to was a large tequila brand that loved the pitch, but were reluctant to go with a start-up. Other brands, however, took the leap of faith to join Mr France’s growing portfolio.

“We import products on an exclusive basis and do all the sales and marketing for them around Australia. We really do build the brands based on those sorts of relationships. The more successful you get, the more companies knock on your door, wanting to be distributed by you.”

One area of the business that Mr France believes remains uneven is the level of taxation for spirits in comparison to other alcoholic beverages. In 2010, the Henry tax review said that alcohol should be taxed on standard drinks, however there are discrepancies depending on the alcohol involved.

“For example, wine is taxed on value. You can buy a $3 bottle of wine, and the tax that you’re spending per standard drink is 7-10 cents per drink, whereas if you buy a bottle of spirits, you’re spending $1 per standard drink on tax. We’re spending up to ten times what a cheap wine company would be spending on the same amount of alcohol.”

Mr France is adamant that the government must step in and equalise this discrepancy, which will even the playing field and help the burgeoning spirits industry currently being held back by the scale of these taxes.

“If the spirits industry becomes more affordable for people, then that helps the farmers, it helps everybody across the board in the industry. So it will actually create jobs, and will make it a much fairer and more responsible playing field. The Australian Distillers Association is lobbying the government very seriously on this, and I hope they’re successful in the long run.”

The best brands for the best bars

In late 2021, Vanguard was acquired by Australasian alcohol beverage giant Lion, which has for many years been one of the two companies in a duopoly of the Australian beer industry, the other company being iconic Aussie brand Carlton & United.

Vanguard Luxury Brands James France in The Australian Business Executive
Established in 2008, Vanguard Luxury Brands is Australia’s leading importer, marketer, and distributor of premium spirits, catering to the best bars, liquor stores, restaurants, and hotels across Australia

“It’s really those two powerhouses, and they are enormous companies with thousands and thousands of employees. The market is changing now, with larger independent breweries entering the business and diluting that duopoly somewhat, but ultimately it’s still up to two very large companies.”

In early 2018, Mr France was contacted by Lion about getting into the spirits industry, which had identified craft and premium spirits as a big opportunity. They enquired about whether he was interested in selling the company.

“The company was doing very well, and with our flagship brand Four Pillars Gin the expectations kept increasing the more successful we got. I got to a point where I really needed some serious muscle to back the company and take us to that next level.”

After looking closer into the business, Lion recognised the potential in Four Pillars also, and subsequently made similar overtures into purchasing the brand. After successful meetings, Lion is closing in on purchasing both companies, taking a commitment to Australian spirits very seriously.

“Four Pillars is obviously our biggest brand, Australian gin. It’s got about 50% of the Australian gin market share now. We have a really big focus on other Australian brands, like Strangelove Sodas, Gospel Whiskey, Morris Whiskey, Crawley’s Syrups, Marionette Liqueurs. We’ve got a few absolutely gorgeous import brands – we love Michter’s American Whiskeys and Fortaleza Tequila and all associated brands there.”

With seven whiskeys from across the world, including two from Australia, six agave spirits – four tequilas and two mezcals – as well as several liqueurs, Vanguard has an extremely well-rounded portfolio to address all customer needs.

“I based the portfolio on a very simple strategy that I stuck to like glue over the years, and that is ‘the best brands for the best bars’. That has really helped us stay on focus and carve out a niche for ourselves in the market.”

Vanguard Luxury Brands James France in The Australian Business Executive
With its impressive portfolio of Australian and imported spirits, and the backing of beer giant Lion helping take the company to the next level, Mr France’s business has proven itself to be quite a gem

The key difference between Vanguard and its competitors comes down to two factors – the portfolio and the people. Mr France is well aware that these two issues are usually the most defining in the market.

“To be very immodest, we have the best portfolio in Australia,” he says. “People in the trade are gobsmacked by what a wonderful portfolio it is, and we back that up with fantastic people. People that you really want to work with. We take the business seriously, but we don’t always take ourselves so seriously, and that works very well for us.”

This success has resulted in industry recognition, with the company receiving the Australian Liquor Industry Award (ALIA) for ‘on-premise supplier of the year’ – on-premise being bars and restaurants rather than retail – in three of the last six years.

“On-premise is the one where brands are built, so to be regarded by the industry as being the best in Australia is something we’re very proud of. We really want to hang onto that positioning in the top-end of the on-premise market as being the company to go to when putting together a premium on-premise portfolio.”

The introduction of Lion has forwarded this desire even more, with the company beginning to move beyond its core pillar of ‘the best brands for the best bars’ and positioning itself as ‘Australia’s number one house of craft and premium spirits’.

“It’s a wonderful industry,” Mr France concludes, “and I’m so glad to be seeing such wonderful Australian brands that are being locally and globally recognised across the board. It’s a very exciting time.”

With its impressive portfolio of Australian and imported spirits, and the backing of beer giant Lion helping take the company to the next level, Mr France’s business has proven itself to be quite a gem. Find out more about Vanguard Luxury Brands by visiting www.vanguardluxurybrands.com.au.

ASX launches new S&P/ASX Agribusiness Index – AgBiz

Ken Chapman The Australian Securities Exchange in The Australian Business Executive

Agribusiness has always been an iconic part of ASX’s history and identity. From the origins of our derivatives market as the Sydney Greasy Wool Futures Exchange through to today’s capital markets, ASX’s involvement in the agribusiness sector is broad and deep.

Over the coming decades, primary industries, such as food and fibre will be shaped by multiple interacting changes and challenges. In a recent ABARE report, five megatrends were identified that are shaping the primary industry sector in Australia and globally. These are:

1. Accelerating planetary climate risks. Climate and commodity prices will become more volatile, while emerging markets for carbon and ecosystem services could transform landscapes and business models;
2. Booming consumer growth and demand. A growing, empowered middle class in Asia will demand higher volumes and quality of food and fibre, incl. more protein – with rising expectations for health, provenance, sustainability, and ethics;
3. Conflict complexity and competition. International trade and geo-political relations – along with food and fibre markets, supply chains and relationships – will all become more complex as nations compete for dominance and security;
4. Exponential advances in technology. Exponential advances in digital technology, automation, genetics, and synthetics will disrupt and change how food and fibre products are made, marketed, and delivered. E.g. – source to table tracking; and
5. Demand for capital. Maintaining profitable and competitive food and fibre enterprises will require innovation and change leading to increased demand for capital in all stages in the value chain.

Financing this dramatic transformation in primary production will necessitate and drive increasing demand for capital and investment. Indices play an important role in attracting investment capital and enabling market performance to be measured and monitored. Most people are familiar with ASX’s key market indices – such as the S&P/ASX 200 Index or one of the many sector specific indices such as the S&P/ASX Resources Index or the S&P/ASX All Technology Index which was launched in February 2020. Inclusion in an index means greater profile for the index constituents and importantly attracts investment from passive and active index tracking managed and exchange traded funds. Given the prominence of the Agribusiness sector in Australia, it is perhaps surprising that until now, there hasn’t been a benchmark representative of the sector.

In partnership with S&P Dow Jones Indices, ASX has launched the S&P/ASX Agribusiness Index (or AgBiz Index for short), setting a new benchmark for monitoring the performance of ASX-listed primary production companies across a range of different subindustries. The AgBiz Index constituents are drawn from the top 1,000 ASX listed companies (by free float adjusted market capitalisation) and not only contains agricultural product producers, but will also contain constituents from fertilizer and agricultural chemicals, paper products, food distributers, brewers, distillers and vintners, packaged foods and meats, pharmaceuticals (including medicinal cannabis), water utilities and rural land REITs. The Index has a single index constituent cap of 10% to ensure no single company dominates. Launched as an end of day index on 31 May 2022, it converted to a real-time index on 1 July enabling fund managers to track performance accurately to market moves during the trading day.

Ken Chapman The Australian Securities Exchange in The Australian Business Executive

As at the May 2022 rebalance, there were twenty five constituents – the largest five being Treasury Wine Estates, A2 Milk Co, Nufarm, Graincorp, and Elders. The AgBiz index also contains other familiar household names such as Costa Group, Bega Cheese, Australian Agricultural Company, Inghams, Tassal, Bubs Australia and Lark Distilling.

An interesting aspect to the Index is its performance during periods of market stress. For example, take the period February 2020 to March 2020 – the beginning of the COVID pandemic, which saw a sudden and broad market correction. From the market peak of 20 February to the trough of 23 March 2020, the Index had one of the smallest falls of all sectors on the ASX (See the graph below).

Through the S&P/ASX Agribusiness Index, ASX is bringing greater awareness to this important sector and supporting agribusinesses to grow and prosper by enabling them to tap into one of the deepest pools of investment capital worldwide.

Additionally, the Index provides new and exciting opportunities for investors to build long-term wealth by assisting companies grow to meet the future challenges of feeding a hungry planet.

Ken Chapman is Head of Strategic Delivery, Capital Markets for The Australian Securities Exchange (ASX), www2.asx.com.au.

Economic War Games: Are they worth the effort?

Dan Hadley Management Consultant and Economist in The Australian Business Executive

The 1983 science fiction thriller, “WarGames” provided viewers with a view into the deadly possibilities of thermonuclear war. Starring Matthew Broderick as David Lightman (a high school teenager interested in computers, hacking and games), the film sees the main character, accidentally hacking into the United States nuclear launch capabilities at NORAD. Speaking to the Computer known as “Joshua” or WOPR (War Operation Plan Response) David thinks he is playing a fun computer game, whilst he unwittingly puts the entire US Military on high alert who believe a Nuclear War with the (then) USSR is about to ensue. The film, though very entertaining, causes the viewer to think about how escalating events could lead to world ending outcomes. The film is best known for Joshua’s 80’s robotic voice asking the question: “Shall we play a game…?” referring to the game of nuclear war.

Governments across the West have imposed an array of financial, travel and trade sanctions on the Russian economy. Five months after the invasion and the West’s response, we can see the effect of these measures on Russia, the globe as a whole and Russia’s ability and willingness to continue waging war. The ultimate goal is the end of the war and to stop any possible escalation to global war.

Measures to date and their effects thus far

The game of economic warfare is as much a two-way street as military warfare is. One player makes a move and a response will follow of some kind. The initial short-term impact on Russia was substantial within the first 30 to 60 days of commencement. However, the Central Bank of Russia (CBR) moved to stabilise its exchange as a strategic response. This entailed a freeze on approximately half of the CBRs international bank reserves.

With the Russian Rubel falling more than 40%, the CBR also moved to exercise capital controls and raised interest rates. Although this had the effect of restoring value to the currency, its status as a non-convertible currency means it has a much lower practical value.

The CBR proceeded to double its previously planned interest rate to 20 percent after the war began. Following mid-April, the CBR then began gradually cutting the rate. As of mid-June, the Russian interest rate and banking sector levels of liquidity have returned to those of pre-Ukraine invasion.

Russia has also suffered reduced access to imported technologies through embargos. Coupled with a large migration of foreign private investment and Russian skilled labour, Russia is likely to face long-term side effects, even if war ceased today. Netflix has ceased streaming services, Disney won’t release new productions into Russia and McDonalds have closed stores. As much as 12 percent of foreign firms have scaled back Russian based activities, 35 percent have suspended their operations, and approximately 24 percent have announced a complete withdrawal as of mid-June according to a study by Yale University.

Efforts by Western countries to no longer use Russian energy sources such as oil and gas have also had a partial “strangulation” effect on the economy. Although not all countries have engaged in this, a significant reduction in the demand for Russian energy has been felt. This comes with the price of paying higher energy costs from Western sourced options but seems to be a price many will pay to help Ukraine.

While foreign sanctions had the effect of freezing the majority of Russia’s foreign assets, the Red Bear continues to receive revenue from its remaining exports of oil and gas. Russia continues to sell approximately $1 Billion USD (equivalent) per day. A large percentage of this does make it into the Russian Government’s hands due to fuel taxation. Current estimates put the current war effort from Russia at $325 million USD (equivalent) per day.

The West’s efforts to cut the level of structural energy dependence on Russia is significant as it represents a long-term goal of energy independence and the change from feeding the very war machine they are seeking to stop. This rapid move away from Russian energy comes with a high cost for many countries and industrial sectors. This filters down to the end user with increased transportation costs for food and other items. If there is a lesson for the West in all of this, it’s that interdependence can have negative consequences and be used against us.

Is it really working?

Russia continues to be the globe’s second largest producer of oil and continues to earn large amounts of revenue from selling its oil globally, particularly to Asian nations. These sales from Countries such as China, continue to help fuel the war in Ukraine. Over the long term however, the Russian oil sector will suffer severely. This will arise due to the increasing difficulties in Russia accessing required input technologies like horizontal drilling services as well as the exodus of foreign operators. Russia’s oil industry is interdependent on other countries in this regard.

Another side effect of this dance with the oil industry is the likely effect on the Russian airline industry. With the world’s largest land space, transportation by air is vital for nearly all Russian industry sectors. Approximately 65% of Russia’s 1,100 civilian aircraft are foreign owned. Russia may see a significantly reduced domestic and international airline capacity causing massive strains on instar-state logistical abilities. Furthermore, Russian-produced airline planes are highly dependent on input parts and raw materials from other countries, particularly those in the West.

The last time an economy of Russia’s relative size saw such an extensive scope of economic sanctions and restrictions was in the 1930s with efforts against Italy and Japan. Economic sanctions in the modern era deliver larger global shocks than ever before and are easier to counter for the sanctioned country. These sanctions hurt other countries though as Russia is a major contributor to the global food chain exporting grain, oil, barley and other key food stuffs. As such, economic sanctions are a double-edged sword. Cutting the enemy means taking some cuts yourself. Economic warfare requires patience, strategic planning and commitment as they take time to produce the desired effect.

Other likely sanctions and Western economic strategies we may see include Western Governments placing prohibition orders on insurance companies insuring Russian oil companies and other sectors, increasing the risk of doing business exponentially. We are also likely to see a flurry of import levies and taxes on importing any number of Russian goods. All of these are aimed at collectively creating a heavy load of pressure on the Russian Government.

Remembering the people on the ground

Even with a focus on Economic warfare and the effects on both Russia and the West, it’s important for this article to note the most affected parties in this equation, the Ukrainian people. At the time of writing this article, a total of over 14,000 Ukrainian citizens are believed to have perished in the fight for freedom. The Ukraine economy, responsible for so much of the global food production has been devasted, homes have been destroyed and despite a valiant fight, land is being taken. Important too, are the Russian people, dead against this war and keen to see it come to an end. Thousands of Russian citizens have been detained in prison for protesting the Russian Government’s invasion of Ukraine.

Conclusion

Most people would agree that war is ultimately useless. Great wars of history have had their winners and their losers. The most worrying element of the current Russian-Ukraine crisis is that it holds the potential to escalate things to a point where there would be no winners, only losers. Economic warfare measures hope to end a war before it escalates. This situation is anything but a game and one hopes things can change before they get uglier.

WarGames was also famous for another quote. At the end of the film, David and the WOPR’s creator Professor Stephen Falken must find a way to stop Joshua from launching nuclear missiles of its own accord. In a strange end twist, David forces Joshua to play tic-tac-toe against itself in an attempt to make it learn and understand that not all games and scenarios can be won (futility). David hopes that it will understand the concept of mutually assured destruction before launching its real missiles.

Just as Joshua obtains the final launch code, it runs through every possible scenario of both tic-tac-toe and thermonuclear war in an attempt to find a winning strategy. After rapidly playing through all of them and not finding a single scenario where anyone survives or wins, Joshua delivers a thought-provoking quote in reference to global thermos nuclear war itself:

“A strange game… The only winning move is not to play…”.

Dan Hadley (MBA, BCOMM, CMC, IML) is a Management Consultant and Economist based in Adelaide, South Australia. His services include strategic advisory services, risk management and consultation in Quality, Safety and Environmental Management systems as well as economic consultation, www.linkedin.com.

Spin, narrative, & modern story telling: When changing language impacts credibility

Mark Gell Reputation Edge in The Australian Business Executive

Developing “narratives”, which is the new phrase for “spin”, is a balancing act between what is credible while at the same time developing a position on an issue or matter in a world which is now overloaded with information.

Just the change from the word “spin” to “narrative” is an attempt to give spin credibility. It is still spin.

Over the last ten years it has been estimated that there has been 50 times increase in information. Predictions are this will increase to 100 times over the next three years. If you consider that the internet has opened the door to a mass increase in access to information, getting cut through for your message can be difficult.

We are beginning to see people try and shift definitions and play semantics to change a narrative from a negative connotation. I call this super spin.

The most recent example is the definition of a recession in the United States. The traditional definition of a recession is two quarters of negative growth. But the US administration is now saying that the technical definition of a recession is not two quarters of negative growth rather defining it as “a broad-based decline in economic activity and that should show up in lots of different measures, not just one, even one as important as GDP.”

So why are they changing the definition?

The administration clearly does not want the big “R” word in circulation in the run up to the mid-term elections in the US. It does not fit the narrative, or spin, that the administration wants circulating prior to elections.

Enter the media. The media’s role in society is supposed to be keeping government and society in check and report what is really happening. One side of the US media over is running the administration’s line that the economy is transitioning with the other side of the media are saying it is a recession as it fits the technical definition.

So can we rely on the media to provide clarification? Enter the fact checkers who say the administration has not changed the definition. This is even though they continually say there is not a recession, yet there has been two consecutive quarters of negative growth.

Let’s unpack this further. Stepping back from the intellectual debate taking place through the administration, media and playing out on Twitter, the underlying issue is clearly a psychological one.

As soon as the big “R” word becomes the lexicon, people begin spending less and start to save. With inflation, tax and interest rates increasing, consumer funds are going towards non-productive areas of the economy.

If the psychology goes too far to the negative it becomes a self-fulfilling prophecy.

Now let’s look at the facts.

Yes, there has been two negative quarters of growth. But they are past quarters and may not reflect what is happening today. If societies mindset gets too negative, then managing out of a recession will be difficult.

Let examine some other examples where semantics have changed and undermined trust. The pandemic period is a classic example.

Through mid 2021, the narrative became “this is the pandemic of the unvaccinated”. The strategy behind the government narratives, and heavily supported by pharmaceutical companies, was if you get vaccinated you won’t get COVID. Move on a year, the data does not back this statement.

So, the narrative shifts to get vaccinated and the symptoms won’t be as great. It changed. The consequence of the change is decrease in trust in our government officials and pharmaceutical companies. But obviously people took the benefit of the doubt as there are high vaccination rates in most countries.

What we are seeing here is what I call narratives that breach the credibility gap. In Australia we ask ourselves the question, “will it stand the pub test?”. In other words, is what they are saying plausible and credible and will it stand up to the test of time.

So how do we relate this to business?

I have been developing narratives for businesses for almost three decades. There are some basic principles I have applied which have stood the test of time.

Principle 1 – Plausibility

Is the company’s narrative to its customers and its people plausible?

A recent example of questionable plausibility was in a legal firm’s mission statement. It read “Together, we create the extraordinary.” The statement was criticised in the financial media which pointed out that legal firms have an overriding purpose to “protect their clients’ interests.

This garnered a response from a third party (not independent) suggesting the financial media outlet do better.

The mere fact that a non-independent third party felt compelled, or was asked, to write to the paper brings into question the plausibility of the statement “Together, we create the extraordinary.” Obviously, we all like to believe we are extraordinary, but what does that mean? What does it look like? How do you measure it? What if you make a mistake, you have no room to move?

Another example is where a company which was restructuring and cutting employees by one third and had conflicting narratives. On the one hand they were saying to their employees we need to cut costs and on the other they said they were investing for the future. The narratives were in conflict and not plausible in the mind of the employees. It led to very low employee morale.

So, the first check point is plausibility.

Principle 2 – Validation

The next check point is how do we validate our narrative? In other words what are the proof points?

It’s one thing to develop and release a narrative to you employees and customers, it is another to demonstrate the journey to deliver against that narrative. In developing a narrative, it will probably not stand the test of time if it is released in a vacuum. The narrative needs to be grounded in validation so people can be measure success against the path the messaging has defined.

One company I worked for used to undertake annual 360-degree surveys of its people measured against the company’s values. It went one step further. It published the results of each survey in its Annual Report to shareholders. It was very bold and was recognised by third parties as leading the way.

The CEO of that company was validating the company’s stated strategy and operating values on annual basis. It was cutting edge at the time if you consider this was done 25 years ago.

Which brings us to the third principle. Bring in the data without fear or favour.

Principle 3 – Consistency of data

After a company has developed how it is going to validate its narrative, the data needs to be developed to support the validation. If the data bears no relation to the validation, then a credibility gap will develop.

The other key to data is consistency. In the same way when you switch a computer on, the expectation is it will boot up. People get used to seeing the same data interpreted the same way. When customers and employees see constant changes in information presented to them, they get confused and stop engaging and ultimately switch off.

I have seen company’s inconsistently present data. For publicly listed companies it begins to impact the trust towards the information being presented which ultimately can show up in the share price trading below its peers.

In a world where information must be absorbed and analysed more quickly, presenting an argument or information in a consistent manner will improve reputation over time.

Inconsistent information, or worse, trying to change the meaning of the information presented leads to a breakdown of trust and people begin to focus on the motive for presenting information in that manner rather than the issue at hand.

Crisis situations are good example where these principles come into the foreground very quickly. By following the three principles of plausibility, validation and consistency closely during a crisis, the impact of the event on reputation can be minimised.

Often during highly stressed periods associated with managing a crisis, people are inclined to want to respond to matter too quickly and release information that is neither plausible or can’t be validated and changes quickly as new facts emerge. This can be very damaging to a company’s or individual’s reputation and can often lead to a change in CEO or ruin an individual’s reputation overnight.

By using the three principles outlined above, the probability of losing trust in your narrative or messaging will be minimised and reputation can be built over time.

Remember, it takes a lot of time to build a reputation and it can literally be ruined overnight.

Mark Gell is a Founder and Partner of Reputation Edge. He has provided counsel to political leaders, CEOs and Boards for almost 40 years, www.reputationedge.com.au.

Was John Curtin Australia’s greatest Prime Minister?

David Lee Connor Court in The Australian Business Executive

Many historians regard John Curtin as one of Australia’s best prime ministers. Historian and Curtin biographer John Edwards is in no doubt that he was the greatest ‘in steadying the nation at a time of peril, but also in determining the shape of Australia’s politics and economy for the following half century’. Yet Curtin did not even have four years as prime minister, while his predecessor, Robert Menzies, accrued a total of eighteen years in that office and other prime ministers, John Howard and Bob Hawke, were in office twice as long as Curtin was.

Who was John Curtin and why does he still regularly appear at the top of rankings of Australian prime ministers?

Curtin was born at Creswick in the colony of Victoria on 8 January 1885, the son of poor Irish-born immigrants. His father worked in various jobs: as a warder in Pentridge Prison, as a policeman and in hotels across Melbourne. The young John Curtin’s education was patchy, and he left school at the age of fourteen. Befriended by the local Labor MP, Frank Anstey, Curtin immersed himself in the Victorian labour movement, won acclaim as an orator, and left his Catholic faith. Elected General Secretary of the Timber Workers’ Union, he was prominent in the campaign to oppose conscription for overseas service in the First World War. Involvement in this campaign saw Curtin imprisoned briefly in 1916.

In his youth and into middle age Curtin battled with alcohol. Marriage to the Tasmanian Elsie Needham and his move to Western Australia in 1917 was the making of Curtin. He lived a more settled family life, and for ten years he successfully edited the labour paper, the Westralian Worker.

In 1928 Curtin won the marginal federal seat of Fremantle, a year before the election of the first Australian Labor government in thirteen years. Despite Curtin’s recognised skill as a debater, the new Prime Minister, James Scullin, kept him out of the ministry fearing rightly that he had not overcome the temptation of alcohol. Curtin’s time as a backbencher during the short-lived Scullin Labor Government from 1929 to 1931 was an unhappy one. Scullin’s government was hamstrung by the policies of the independent board of the Commonwealth Bank and the Opposition-controlled Senate. Curtin, moreover, clashed with Scullin and Treasurer, Ted Theodore, over the direction of economic policy. A split in the Labor Party led to the fall of the government in 1931. Labor suffered catastrophic election losses in 1931 and again in 1934 and political power rested firmly in the hands of the United Australia Party (UAP) and the Country Party throughout the 1930s. Out of office, Curtin was left with the conviction that future Australian national governments must be able to control the banking and financial sector and hence the economy. Curtin himself lost his seat in 1931, but he won it back in 1934 and in the following year was elected by a majority of one and against Scullin’s wishes as Leader of the Federal Parliamentary Labor Party. From then onward he stopped drinking.

Any assessment of Curtin’s political achievements must range beyond the prime ministership to include the significance of his leadership of the Opposition from 1935 to 1941. Curtin was perhaps the only Labor figure who could have settled the bitter civil war in the Labor Party in the 1930s and early 1940s. Curtin reconciled with the adherents of Jack Lang in 1936, putting Labor in a more competitive position for the 1937 election. The New South Wales Labor Party split again in 1940. But even with this handicap, Curtin almost wrested power from the coalition parties in the general election of 1940, even though Curtin himself only won Fremantle by a hair’s breadth. Positioning Labor to recover from serious defeats and years in Opposition was an accomplishment he shared with later Labor Prime Minister, Gough Whitlam.

A comparable achievement was his deft leadership of the Opposition in the hung Parliament after September 1940. After that election, two independents held the ring between Labor members on one side and the combined forces of the UAP and the Country Party on the other. Curtin offered constructive support to Robert Menzies’s wartime Government and restrained impetuous colleagues pressing impatiently for power. He waited until the collapse of the UAP-Country coalition government and, when he took power in October 1941, it was with legitimacy and support. This was a surprising achievement given the intractable internal divisions that he had to navigate and the headstrong colleagues such as Herbert Evatt, Jack Beasley, Eddie Ward and Arthur Calwell, with whom he had to deal.

Curtin’s idea of an Advisory War Council, an all-party group advising the government on the conduct of the war, proved to be a successful instrument for managing of the House of Representatives in circumstances of minority government from 1940 to 1943; it also prepared senior Labor figures for ministerial office. His decision to reject Menzies’s offer to join a national government was well-judged; it would certainly have unsettled Labor and possibly provoked a split and destroyed his leadership. Curtin proved to be a deceptively cunning player in the chess game of politics.

Not long after Curtin’s Labor government came to office, the Japanese bombed the US naval base at Pearl Habor and the Pacific War began. The Japanese conquest of the British naval base in Singapore in February 1942 left many Australians for the first time with a fear that they might themselves be invaded.

The views of historians are divided over whether Curtin ‘saved’ Australia in 1942. He proved to be prescient in calling for stronger air defences and criticising the degree of Australia’s commitment in the United Kingdom and the Middle East from 1939 to 1941. Some historians, however, have argued that Japan did not have the intention or capacity to invade Australia in 1942 as Curtin and many others feared. What, they ask, was Curtin saving Australia from? Early in 1942, however, Curtin could not have known that Japan had decided not to invade Australia, and an invasion was not the only way that Australia could have been wrecked as either an economic or military power. Nor could he have been assured that the great naval encounters in the Coral Sea and Midway would necessarily be in America’s favour. Had they been in Japan’s favour, Australia could well have been subject to naval blockade and raids on its northern coastline. In these circumstances, his insistence on the return of the Australian Imperial Force Divisions from the Middle East, in the face of objections of British Prime Minister Winston Churchill and US President Franklin D. Roosevelt, represents an extraordinary act of courage and fortitude. After the fall of Singapore, Curtin saw no alternative but to forge a close and necessarily dependent relationship with General and Commander-in-Chief of the South-West Pacific Area Douglas MacArthur. The Curtin-MacArthur relationship from 1942 and 1945 entailed a loss of sovereignty that occasionally proved detrimental to Australia’s national interests, but the US-Australian partnership offered wider benefits, including much needed lend-lease American aid that helped Australia end the war as a much more prosperous country than it had been in the Depression years.

On the home front, Curtin’s claims to greatness include his leadership for nearly two years of a minority Labor ministry that was able to govern in extraordinary circumstances with a combination of competent administration, occasional compromises with the Opposition and superb management of the media. Curtin’s increasingly national war leadership and successful mobilisation of Australia in ‘total war’ then helped Labor to achieve what was its most emphatic national political victory in 1943.

The scale of Curtin’s triumph in the general election of 1943, an election in which he was recognised now as an inspirational national leader, meant that Labor was strongly placed as the nation moved from war to post-war reconstruction. It would oversee return to peacetime conditions in which many of the foundations of modern Australia were laid. The Labor governments led by Curtin and then Ben Chifley were able to rebuild Australia according to the political goals for which Curtin had striven all his life.

These included national control of the economy and of banking if not necessarily nationalisation. Major policy objectives were full employment and adequate provision of social services. The success of Robert Menzies’s second period as Prime Minister from 1949 to 1966 was partly based on pragmatic and skilled management of the political settlement inherited from Curtin and Chifley. Australia emerged under Curtin’s leadership a more independent and fully sovereign state. Another contribution was in not pressing in 1942 for a constitutional referendum for sweeping new national powers. This meant that the Australian Federal system of government remained intact but of a different character. For the Commonwealth, now with uniform income taxation, would be financially dominant.

Was Curtin Australia’s greatest Prime Minister? Rankings of prime ministers, it must be admitted, are a questionable guide to the worthiness of major political figures and especially those at the top. Prime ministers must be appraised in the circumstances in which they find themselves, the demands made upon them, the skills they bring to bear and the personal and character tests they face. For few of Australia’s prime ministers has the road been so long and hard, the support so unsteady and uncertain, especially among their own ranks, as it was for John Curtin. It is easy in hindsight to quibble about Curtin’s performance from winning the Labor leadership in 1935 to his death in 1945. The great mark of his achievement is that Labor was ready for national office when its opponents were revealed as catastrophically wanting; he steered the country through an existential crisis with purpose and assurance; and, when he died and a new era was in sight, Labor was in good order to shoulder the new burdens.

David Lee is an Associate Professor in history at the University of New South Wales, and author of John Curtin, published by Connor Court: www.connorcourtpublishing.com.au.

Franchising and the ATO: Finding the fall guy

Stewart Levitt Levitt Robinson Solicitors in The Australian Business Executive

The Australian Government should have a full understanding of the workings of the Australian Franchising industry which has an annual turnover of $172 billion dollars, generated through 94,524 outlets, employing 565,251 people. Australia’s franchising industry is second only in size to the United States’, in terms of the number of small businesses which operate under a franchised model and referable to gross turnover. 75% of franchises are concerned with the delivery or distribution of food – usually fast food.

In modelling the pandemic Jobkeeper Relief Package, former Treasurer, Josh Frydenberg, ought to have been focused not only on saving jobs but also, on the potential to recoup the Government’s largesse, through maintaining business revenue, so that the money doled out might flow back to the Federal Government’s coffers down the line.

Lockdown loot

Many Franchisors and Master Franchisees (de facto Franchisors who acquire the exclusive right to operate as the Franchisor in Australia from an overseas operator) – “Franchisors” – have skimmed the profits from increased revenue generated from take-out food sales during the pandemic lockdowns, leaving just crumbs, if even crumbs, for their Franchisees and Sub-Franchisees (“Franchisees”).

Typically, fast food Franchisors offered generous incentives to Franchisees’ customers, in the form of vouchers, discounts and rebates, while also cutting prices, so that their particular franchised business could gain a competitive edge against rivals. Almost all food was ordered online and then delivered but with the opportunity for drive-by pickup.

If ordered online, Franchisees were commonly charged an ordering fee by the Franchisor; all of the price reductions and delivery charges as well as discounts and vouchers, were charged as overheads which had to be borne by Franchisees. Franchisees were forced to increase staffing levels, pay workers’ penalty rates, as applicable and meet all of the other on-costs of increased turnover. While sales increased, the bottom line did not and for many franchisees – indeed, for the great majority – net profit actually declined for Franchisees, even as their turnover increased.

Fair Work reforms following the 7-Eleven exposé of underpayment of wages in franchising which my firm joined in bringing to air, only went so far as to make Franchisors co-liable when they do not take steps to ensure that Franchisees’ employees are paid all of their entitlements under applicable Industry Awards. Franchisors make sure, after they have taken their own enormous cut, which includes big mark-ups on the price of wholesale supplies, which their Franchisees have no alternative but to buy from them, as well as rent, royalties, marketing fees and other charges – from what little is then leftover to the Franchisee, that the Franchisees’ employees rank after the Franchisor but before the Franchisees for payment.

Franchisees, who have usually invested heavily to buy their franchised business – somewhere between $300,000.00 and $1,200,000.00 – using their own, family and borrowed money, mostly supplied by the ANZ or sometimes another Bank – and guaranteed by the Franchisor – are too often, financially squeezed to the point of having nothing or almost nothing left with which to make their loan repayments, feed their families or draw a living wage, for working 50 to 60 hours per week. They are forced to work themselves, not just in a management role but on the “pizza production” line or breaking their backs for burgers. The Franchisor has to guarantee the Bank’s loan because the Franchisees are mostly newbies to Australia, with no local collateral or trading history, and would not be granted finance to buy any other business, where there was not a local “backer”, like a Franchisor.

Franchisors control the revenue

Wives and children are brought into the process, too, to knead the dough and try to make sure that it stretches far enough. They provide their own cheap labour to the franchised business. The larger food Franchisors, in particular, gain control of most of the Franchisees’ revenue which they only partly pass on to the Franchisee, after they have taken the lion’s share for themselves, and deducted the cost of ingredients, rent, labour expenses and on-costs.

Apart from the Franchisee, the big loser is invariably the ATO, because there is not enough money left over for a Franchisee to afford to pay the recurrent liability, which the Franchisee is required to report to the ATO, by way of lodging a Business Activity Statement (BAS) and to pay PAYG tax and GST each quarter.

I have met with food Franchisees across Australia, engaged in selling lines as diverse as pizza, poultry and burgers – and as a result of unconscionable franchising systems, they have not been able to lodge and pay BAS statements for GST and PAYG tax, for at least two (2) quarters and in the worst cases, for as many as sixteen (16) quarters.

In an industry of this size, this has gobsmacking consequences for the public purse. It is not the fault of the Franchisees. So many Franchisees have been made inappropriate and unconscionable loans. Banks typically finance Franchisees, who are often neophytes to Australian business and finance, buying into a franchised business relying on the strength of a Franchisor’s guarantee to the Bank and representations about how prospective Franchisees will profit from buying the franchised business.

Franchisees are mostly immigrants from Asia and South-Asia, and have academic or IT backgrounds, with little or no Australian business experience or local knowledge. They are usually relatively young (under forty (40) years of age) and contribute some family overseas money to the purchase – after all no one came here as a foreign student without family money to back them up – but have no Australian assets or at least, if they have a domestic residence, it is already mortgaged by the time that they buy their franchised business. Banks clearly do not follow the “Know your Customer – Know your Client” (KYC) guidelines. The Franchisees know next to nothing about our labour and taxation laws.

Usually the only security taken by the Bank from the Franchisee is a personal Guarantee by a director – which can ultimately extend to forcing the sale of the director’s principal residence – and the principal security taken is a Personal Property Interest charge over the franchised business. This means that after years of grinding work to repay the finance borrowed from the Bank, the Franchisee may end up with nothing or next to nothing left over, after the Franchisor has cleaned up. When the Franchisee is faced with nugatory, if any, net profit, and the ATO finally gets round to serving a Directors Penalty Notice for unpaid B.A.S (GST and PAYG tax), a Franchisees’ company may be forced into administration, so that the Franchisee’s directors may avoid personal liability to the ATO. Frequently the Franchisee’s directors have nothing left to lose anyway.

Appointing an administrator to the franchisee company automatically results in forfeiture of the franchised business to the Franchisor, leaving the Franchisee exposed to the Bank. The Bank recovers first against the value of the franchised business, with the Franchisor standing next in line to pick up what is left, controlling the distribution of the residue. Faced with an administration or winding-up order against the Franchisee company, the Franchisor steps in to make sure that it gets paid ahead of the rest, effectively frustrating the priorities prescribed under section 556 of the Corporations Act, 2001, applicable on the winding-up of a company, as applied to the remaining assets from the insolvent franchised business.

Throughout the franchised fast food industry, because of the Franchisors’ systems, the Franchisee will be trading insolvent or on the verge of insolvency, for months if not years, before the ATO makes a move. Many of the Franchisors operating in Australia in the fast food franchise industry are multi-national corporations who engage in profit-shifting and transfer pricing.

They have structures in place which make it easier for them to ensure that they are not fully taxed in Australia. Since 2017, Dominos Pizza Enterprises Limited, the Australian Master Franchisee which operates Dominos Pizza out of New Zealand, Belgium, France, the Netherlands, Japan, Germany, Luxembourg, Denmark and Taiwan and has over 28,000 stores, have also been delivering pizza to the accountants and tax attorneys who support Luxembourg’s role as a tax haven for large corporations around the world.

7-Eleven, McDonalds and Craveable Brands (Oporto, Red Rooster) are all ultimately controlled from outside Australia.

Luxembourg attracts as much foreign direct investment as the United States. A favourable tax regime encourages corporations to establish special purpose entities in Luxembourg to take the benefit of the lack of withholding taxes on interest and royalty payments which may allow these payments to escape taxation in the jurisdiction where these receipts were generated. They eat pizza in tax havens, too, and there may be nothing sinister in the fact that 80% of profits shifted from EU countries wind up in tax havens located in the EU, namely Luxembourg, Ireland and the Netherlands, (the Dominos Australian Master Franchisee sells take-out pizza in the Netherlands, too).

Whilst Luxembourg may be the big winner in terms of revenue, Australia is a big loser when it comes to tax collection and this appears to be pursuant to a system or strategy operated by franchisors around the country, which starve their franchisees of the ability to be able to feed their families, meet their essential, subsistence commitments and to discharge their BAS liabilities, once the Franchisor has peeled off its major share of the spoils.

The Albanese Government has been cracking down on tax defaulters but in picking off Franchisees with Directors Penalty Notices, it is actually attacking the victims of scams and ensuring that its recoupments from small business franchisees will be minimal, while remaining as blind as the Morrison Government before it, to the real mischief: the strategy devised by Franchisors to ensure that they are paid ahead of the ATO and that ultimately, it is only Franchisees and the Australian public who are left bereft, when there is no dough or any feathers left over, from the pizza-makers and chook-pluckers.

In 2019, the then Minister for Small Business, Michaelia Cash, hosted representatives from Franchising Industry interest groups in Canberra, at a series of consultations (I was one of the delegates for Franchisees), to discuss reform of the Franchising Code and the deficiencies and inequities which the franchising regime in Australia has produced.

This resulted in a new Franchising Code in 2021, which addressed many of the disclosure issues. However, the formula for franchisee oppression is contained in the “Manual” which Franchisors are still not bound to disclose and do not do so, in advance of signing-up Franchisee lemmings. Disclosure Documents and Franchise Agreements only supply basic information, while Franchisors tend to deploy and implement their oppressive rules and demands aimed at all Franchisees, in a document called a “Manual”, which includes stipulations as to what supplies Franchisees must buy, from whom and how often, and at what inflated prices – mostly above wholesale market.

Additionally, while the new Code has expanded the number of Franchisor offences and increased penalties, there is rarely effective enforcement.

A complaint made by my clients about a Melbourne-based Franchisor, in respect of flagrant actions by the Franchisor which achieved prominent national media coverage – is still under investigation two (2) years later and nothing has yet happened to the Franchisor as a consequence. The matters, disclosed to the ACCC involved serious legal contraventions in Sydney, Melbourne and Brisbane but ASIC is conducting its investigation from Perth!

The plight of Franchisees and Sub-Franchisees, as little more than indentured workers who pay a fortune for the honour of repaying the Bank and providing almost all the meat on the bones of the franchised business to the Franchisor, over five (5) to ten (10) years of hard labour, goes largely unaddressed in Australia.

Many of the Franchisees will earn less money than their workers, even if the workers have been underpaid, because Franchisees are running at a loss and building up debt to the ATO, while Franchisors rake off most of their income at source.

Reform is possible. The new Labor Government, through Treasury and the Deputy Commissioner of Taxation, should stop targeting Franchisees. Legislation must be promptly introduced which makes it unlawful under a Franchise Agreement for a Franchisor to pay itself from revenue generated from the Franchised business, ahead of the payment of wages and salaries (including an indexed management salary to the business proprietor, provided that he is hands-on, of $80,000.00 plus superannuation), and the remittance of all GST and PAYG tax due to the Commonwealth. It is to be observed that the Franchisor invariably has set up systems where all revenue generated from franchised business is received by the Franchisor to distribute only after taking its own big cut, while the Franchisee is left to cover all business expenses including tax, with too little to go around.

In other words, the Franchisor who characteristically strips out its share ahead of the Franchisee, the workers and the ATO, should have its portion of the take postponed to fourth place in the pecking order.

The Australian Tax Office crafted a $1 billion dollar tax settlement in July, 2022 with Rio Tinto in relation to transfer pricing, having resolved a similar dispute with BHP in 2018. It is one thing for the Federal Government to come to terms with the mining industry and its modus operandi and quite another, to recognize what is happening under its very nose, with massive small business defaults, as a result of what is, in practice, a pan-Industry scheme, to exploit Franchisees and deprive the ATO of the revenue which it ought to receive ahead of Franchisors. The Australian Treasury should cease being the victim of a multi-national – and domestic – tax avoidance “franchise”.

Stewart A Levitt is Senior Partner with Levitt Robinson Solicitors, specialising in corporate law, banking & finance, and class action law, www.levittrobinson.com.