Kraft peanut butter alongside Bega peanut butter, which was Kraft’s spread.
Kraft peanut butter alongside Bega peanut butter, which was Kraft’s spread.

The three words that sunk Kraft

IT WAS  the great intercontinental peanut butter battle, pitting a plucky Australian cheese firm against a US corporate giant.

In the bruising bust-up between Bega and Kraft, it was announced this week by a Federal Court judge that the Australian underdog had triumphed, and the US firm would be barred from selling peanut butter in the famous yellow jars it invented.

Yet the judge had one final kick in the guts for Kraft. Not only had it lost its trademark design to Bega, it also deceived consumers when it printed just three words in small print on the front of its new jars of peanut butter.

Kraft said it had been "Loved since 1935". The judge begged to differ.

There's no doubt the court case has been an absolute shambles for Kraft.

It wouldn't have had to attempt to relaunch its own peanut butter in Australia - and take Bega to court - if it hadn't, somewhat absent-mindedly, lost control of the ownership of one of the country's most iconic grocery products in the first place.

A Federal Court judge has ruled Bega now rightfully owns the distinctive peanut butter jar lids, labels and jars despite rival Kraft creating them. Picture: Peter Ristevski
A Federal Court judge has ruled Bega now rightfully owns the distinctive peanut butter jar lids, labels and jars despite rival Kraft creating them. Picture: Peter Ristevski

HOW DID KRAFT LOSE CONTROL OF ITS OWN PRODUCT?

Rewind to 2012, and Australia's Kraft peanut butter is owned by the huge US food company Kraft. So far, so simple.

The company then split into two and transferred its Australian operations to a new firm called Mondelez.

By 2017, Mondelez was more interested in its Cadbury chocolate and Oreo biscuit business and sold the spreads, which included Vegemite and peanut butter. Aussie-owned Bega was an eager buyer and paid $460 million for the Port Melbourne factory and the recipes and took on the staff. The Kraft name was not part of the deal, so Bega removed it from the jars.

But that wasn't enough for Kraft. It took Bega to court first in New York and then in Australia. It argued the peanut butter "trade dress" - the shape of the jar, distinctive yellow lids and label design - were not part of the deal. Bega may have bought the factory, but the jars were ours, insisted Kraft.

Why were the jars a big deal? Becuase now merged with Heinz, Kraft wanted back into Australia's $110 million peanut butter market that it used to control two thirds of and had somehow let slip through its fingers.

It couldn't use the same recipe or factory, so it subcontracted Sanitarium to whip up a new peanut butter formulation and, in 2018, started selling it in almost identical jars to what was now Bega peanut butter.

Justice David O'Callaghan wasn't convinced. On Wednesday he acknowledged the trade dress had been created by Kraft, but it had been bought fairly and squarely by Bega.

As a result, Bega was now "exclusively entitled" to use the yellow lid and red and blue peanut label.

Bega chairman Barry Irvin with jars of Vegemite in 2017 when the cheese company bought that brand and the peanut butter business from Mondelez, which had been part of Kraft previously.     Picture: Kylie Else
Bega chairman Barry Irvin with jars of Vegemite in 2017 when the cheese company bought that brand and the peanut butter business from Mondelez, which had been part of Kraft previously. Picture: Kylie Else

'LOVED SINCE 1935'. NOT.

However, things are even worse for Kraft because, as part of the case, Bega alleged the Chicago-based firm had misled Australian shoppers with just three words.

Bega noted the 2018 jars of Kraft peanut butter, with the new recipe within, sported the phrase "Loved since 1935" beneath the logo.

The Australian company, named after the New South Wales town where it's based, also took umbrage at a press release that said Kraft peanut butter would be "back in 2018".

The cheese company's lawyer Anthony McGrath said Kraft's slogan was a huge stretch.

"The only peanut butter that had been loved since 1935 was that which had been produced by Kraft Foods Limited (in the past) … and it was Bega that had then bought that business in 2017," he said.

"So it was Bega that could describe the product as being loved, but certainly not Kraft."

Mr McGrath said the slogan was an "obvious attempt" by Kraft to create a "misleading impression" to shoppers.

Kraft’s peanut butter alongside Bega peanut butter, which was previously Kraft’s spread. The judge said Kraft’s new slogan ‘Loved since 1935’ was misleading given Kraft’s new peanut butter spread had only launched in 2018. Picture: Benedict Brook
Kraft’s peanut butter alongside Bega peanut butter, which was previously Kraft’s spread. The judge said Kraft’s new slogan ‘Loved since 1935’ was misleading given Kraft’s new peanut butter spread had only launched in 2018. Picture: Benedict Brook

Not so said Kraft, which argued they were merely talking about the brand and not about the original recipe.

Bega pushed back: "Consumers aren't buying a brand; they're buying a product," said Mr McGrath.

"And that's the vice of the advertising in the form of the 'Loved since 1935'. (Kraft Heinz) is seeking to attach themselves to a product that they had never produced and give the impression as though they had."

Judge O'Callaghan agreed with Bega and said it was "likely to mislead or deceive a consumer to say that 'Kraft peanut butter will … be back'. That peanut butter is surely the very peanut butter product that Bega acquired, along with all the other assets. It was thus not Kraft Heinz's to bring 'back'."

The "Loved since 1935" slogan also broke Australian consumer law.

Kraft tried the same argument in reverse. They asked the judge to rule Bega had misled consumers through a series of ads that stated "Kraft peanut butter is now Bega peanut butter". The judge dismissed the point, stating that was exactly what had occurred - Bega had replaced Kraft.

Yes, Kraft created the distinctive packaging, but Bega had legitimately bought it.
Yes, Kraft created the distinctive packaging, but Bega had legitimately bought it.

However Judge O'Callaghan did side with Kraft on one point - a Bega ad saying the spread was "Now Australian owned and made" was misleading, as Kraft peanut butter, while US owned, had been made in Australia.

Bega executive chairman Barry Irvin was jubilant: "For us, at the end of the day, we were always clear on what we purchased, and we knew that those colours were important in the purchase, and what the judgment has said is that all belongs to the business and was part of the goodwill of the business, and that has now been confirmed as ours,'' he told The Australian.

Kraft Heinz is reportedly "disappointed" at the outcome and is considering its options. But its defeat is so comprehensive that without being able to use the packaging familiar to generations of Australians, packaging it invented, it must be now mulling whether to exit the peanut butter market altogether.

Kraft Heinz Australia has been contacted for comment.


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