Australian Biography

Victor Smorgon - full interview transcript

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You said that you were very interested in areas where there was a monopoly and that that was a useful place to be in business. The obvious huge monopoly in Australia was BHP and steel. Did you find that an attractive target?

I did eventually. Not at first. We didn't think we could have enough resources to go as big as BHP. We debated whether we should go for paper, which is a monopoly because we came from out[side] [the meat] monopoly because there was three of them that had a monopoly. Really they dominated the whole market, probably get[ting] ninety percent of Australia's exports in meat trading, and we were very small. So we learnt the game of how to treat the position of the big boys and from that led us to think that we're going to go something. Let's go to something that's very big, because it's a lot easier to compete against the big boys than it is against the multitude of small boys, because there you've got to be much smarter than they usually are. So we then discussed whether it should be APM, or glass, or steel, or ICI [which] had chemicals, or they had all the box making. All these things were actually monopolies. So we decided on paper, because it was a lot easier to get the materials and we didn't know anything about any of those [other] industries at all. But then you ... my usual joke is if you can make sausages, you can make anything. And that ... [I have] several cartoons about it, which I'll show you later. And where I am ... When we went into the steel business somebody drew a cartoon of me: a sausage machine called Smorgon, and steel sausages coming out. But getting to the question you're asking is, we picked on steel eventually - the last of the monopolies that we attacked. And it started off [when] I was in New York, as I told you before, where I spent three months on, three months off, to give a chance to the younger people to carry on the business without me, although I was on the phone most of the time.

And one of the young people, his name is David Holckner. He's the son of my cousin and he's a brilliant engineer. And he took a year off to go round Europe in a Ferrari. I was very jealous. I wanted to go. I would have liked to go for a year. He took eighteen months. His contemporaries said, 'David, either you're with us or you're not with us. We're not going to work here and you go and play in Europe. Make up your mind whether you're staying in business or you're not staying in business'. So he decided to come back to the business. And by the way of [coming] back home he called to New York where I was at this time, and asked me what is he going to do when he gets back home. I said that, 'Of course your job is taken up by one of your other cousins. I can't take him off and put you back. It's got to be something else'.

I said to him, 'You know I always wanted to build a steel mill. Would you be interested in that?' So he says, 'Yes'. But he says, 'I only saw one steel mill in Sweden, a stainless steel steel mill'. I said, 'Oh you're one steel mill ahead of me. I've never seen a steel mill'. So he said, 'How do we go about it?' I said, 'Very simply, pick up a telephone and find out the publisher of any industry, particularly the steel industry. In the back pages of those journals are usually the second-hand dealers. Second-hand dealers know everything about everybody - about the whole industry'. And so he did that. That was immediate actually and I was listening in on the other phone and within an hour he found somebody. He got on to some publisher who publishes and [he said], 'Ring so and so and so and so', you know that's how it goes. And he found this man, who had ten mini steel mills for sale. So when he hung up, I said to him, 'Ring him back and ask him if he can make arrangements for us to go and have a look at the steel mill somewhere'. So within about an hour, an hour and a half, I got phoned back and the man [had] said, 'Yes', he just ... 'There is a man in Texas, about forty miles outside San Antonio, and he's quite happy for you to come and have a look'. So I said, 'Can we go tomorrow?' So he rang back again and said, 'Yes, he's happy to see you tomorrow'. It's winter, it's January, and we take a plane. There are a number of hold ups: snow here and hold up there. We arrive at three o'clock in the morning at the plant. And when I walk in ... we walk in and it's a sausage factory. It's exactly the same process. They take scrap and they put it into a big kettle and they melt it. They put some minerals, add, test what minerals they're short of, [then add a] particular pellet that they produce. It's like adding salt or pepper or whatever to a sausage. And then they put it in moulds - actually square moulds - that's the old fashioned way of doing it. Since then ours became a much modern system. And the next morning it shrinks slightly, so you are able to pull it out and stack it up, and then they put it through a rolling ... a separate rolling mill, which brings it down four inch or six inch billet into a wire if you like, a thin wire if you like. It's a gradual reduction in size.

So at nine o'clock the owner arrived, and he started ... we told him what we were about, and he was very happy to talk. David wanted to know all the costings and all the what it's name to compare with Australian costings. And David would have been about twenty-four, twenty-five at the time. And he was ... then this man had a nephew who couldn't visit other steel mills in America, being an American. So I suggested that David stay longer in America, go and stay two or three weeks longer and go and see a number of steel mills, so he'll get a better idea of what's happening. And so this man said, 'Do you mind taking my nephew with you, because with an Australian he can get in, but without an Australian he can't'. So both of them went off and they went through a number of steel mills. We came back to Australia and David did all our figure punches or whatever your expression is. Did the old economics on it and found that there was a profit in it, and the family then decided to go ahead. Then my brother, Eric, and he and I went back to America and bought all the equipment necessary for the ... some was new, some was second hand - for melting the steel to make it into billets. Meanwhile we bought that much in materials along the way, [and] the market had collapsed in Australia. The export of billet - we were only going to produce the billet - to South East Asia has collapsed, and BHP stopped producing it.

What year was that?

That would have been 1983-84, so that's twelve, fourteen years ago. And the ... so the family rings me to New York. I'm back in New York. They decided to call it off because of the market collapse. I said, 'I'm not going to argue with you over the phone. I'll make decisions when I come home. We'll discuss it and see what can be done'. When I came home I asked one of our important ... it wasn't a family person, but one of our chiefs, chief executive, a financial person, to find out what does BHP charge for finished product of angle iron, flats, wire, all these merchant type of things, which they produce in Australia and sell, and find out what prices they're selling at. When we saw what price they sold it at, and we knew the cost of the billet would be, the margin was huge. So we said, 'There's no risk. If we may make mistakes there's lots of room there to make mistakes'. And we then decided to put in a rolling mill. But then the question became about ... this boy's father is Charlie Holckner, who is a brilliant engineer, as good as his son, or the son is as good as his father. But they don't get on well together. So we had to make a decision that the son looks after the melt shop and produces the billet and the father takes over the billets and rolls it into whatever product we need. And that's what happened. And so then Charlie and I went to America and I forget, Indiana I think it was. Outside Chicago, the state next to Chicago. Anyway it's very close to Chicago. And we were offered a mill. We were offered numbers of mills, but one particular mill, had about eleven acres of machinery, about four machines, old-fashioned machines, with all the equipment on it. And we bought it for a million dollars after a few arguments, or a few discussions. And in that particular thing there was about two million dollars worth of new rollers, because rolling steel [takes] two rollers, depending what size you make your product, and both sides you make half of the product then when it goes through the two joined together, and the form is formed that way. So we still to this day, we're still using some of those rollers. There's still some of them left. So it was a real bargain from that point of view because for once those people couldn't sell that machinery. And Charlie stayed behind, and he took out the parts that he wanted for the rolling mill. Then I suggested that he stays there and has a look at the other rolling machines. He's very computer minded. He's modern in his outlook in machinery and very clever at it. Loves the toys, bells and knots and things. And he then ... he stayed there, stayed for about six months. He picked out really very little of that particular [plant], except for the rollers and the stands - the roller stands. We've still got them. Same thing for years, just as new, because there are number of plants which are much much modern, very very modern. And he picked up the best parts from every plant, and we made a completely new ... same process, same idea, but he took the best parts of every ... everybody has something new. Every plant has something that they had invented themselves. They took all these things and put them together and we build the most modern mill in the world twelve years ago. And he was responsible for that.

And from then on our production costs was considerably less than BHP's, and we went into the market. By that time BHP already knew from our experience with APM, or Amcor as it's called now, that we're honest, that we are aggressive and that we will get there, because we'd done it before. But at same the time, they compliment us with things: honesty, you could trust them, and all that sort of thing. So we didn't fight very much with BHP. They let us in. They let us in, mainly mind you, because they wanted to, but their customers wanted to. The first person I went to see was Sir Eric Neal. He was ... at that time he was Eric Neal. He was the chief executive of Boral. And we started building the plant, and it was half built and we invited him for lunch, because nobody believed butchers would know about steel. Everybody else tried it, and they'd only fail. Just words, you know they're just talking about it. Nobody believed that we were going to do that. So I said to him ... that's the reason we invited him for lunch at the plant, at the office, and at the same time showed him what we've already done. And I picked him up and took him up to the site where the steel mill was being built. Half of it was built and he sees already machinery being installed. He believes that it's going to happen. He didn't have any doubts after that. So on the way back to the office for lunch I said to him, 'I'd like to ask maybe a rude question, don't answer it if you can't. What should we expect from the market as newcomers into the industry?' He immediately said, 'As far as I'm concerned you're going to get a third of my business. But you're going to get more', because I won't tell you the reasons now, it's rude. But he said ... so we got fifty percent of the business from ... his business, immediately.

Was it rude about BHP, was it?

I won't say that. He became a director of BHP later on. But he soon became a very good friend. And everywhere we went we had the same response. They wanted a second supplier. At that time BHP was very arrogant, being a monopoly. I wouldn't mind being in their place mind you, but they were there. And they demanded a payment before they delivered any product. You had to order six weeks ahead, amy product you wanted, which usually was delivered about four months later and not six weeks later. They didn't give any service whatsoever. You had to go up and pick up the steel at the railway in every city. They didn't deliver. And cash up front. So we said to our customers, 'We will deliver wherever you want it, in any city you want it, at a time that you want it. And we will give you seven days credit'. And of course, that helped a lot. And we started getting orders immediately. Just to this day we're getting orders on the same basis. Most of Melbourne under the river road, the ring road, under the tunnel that they're building, it's mostly all our steel. And I joke about it, 'Be careful how you drive over it, it mightn't be strong enough'. But there's certain standards for steel which are measurable, and you can't say it's strong enough, you've got to prove it's strong enough. So every piece of steel has a ... every roll of steel, bundle of steel, has a ticket on it, approval, all the technical qualities on it. So there's no questions, which is exactly the same as BHP.

What about the export market?

We didn't look at the export market, because the market was big enough for us here. We've got thirty percent of Australia's market. And we didn't have the money to go into sizes. To give you an idea how big BHP is, they were producing seven million tons of steel. Not the type that we were producing, but all sorts of products: sheets, what it's name, rails, every possible type. And we were only in it for part of it, for the merchant side, which would be about fifteen, twenty percent of their total business, or probably less. And ... but we couldn't build up. Originally we started off building for 200 tons a year. We are now, ten years, twelve years later, we're now making 700 tons of steel a year, from scrap iron. And the market accepts us and the market is very pleased with us and they want more. It's not a problem of selling, it's a problem of making. Because you need a lot of money to build new plant. Every time you open a mouth in the steel mill business, it's ten million, twenty million, seventy million. It's all big money. We never had any problems with borrowing money, because we had the reputation with the bank and that reputation takes years to build up. So they knew that we'll get there. And we did, we are there. And we're still there. Steel is the only thing that our family owns jointly. But like with everything else, it was always an effort by everybody. It was not one man, it was always ... I started off most of the things, get them going, and then when it's finished, I walk away and start with the next story and introduce some new ideas, start debating that. But always together with the total family.

Of all the businesses you've been in, and there've now been quite a few, which was the most profitable for the family?

Paper was very profitable. Meat was very profitable. Meat was very, extremely profitable, because the times were right. Sometimes it's not only what you do, it's the times have to be right. And after the war the time was right for export, particularly, we were 100 percent export at that time, in meat. And we became very big in it, because we were able to organise very quickly, having all the qualities in the family to do that. And the leadership to do that. And so whatever the world wanted, the world at that time was England, and whatever they wanted we made it. And we made it in big numbers. And the bigger numbers you make, the cheaper it becomes, and more profitable it becomes. And then we got into paper. From first day we were making profit until the APM started dropping the price, and we started producing wrapping paper. And we made a mistake there, because wrapping paper was only about 8,000 tons of our total production. At that time they were producing about 180,000 of paper. Today they're producing round about a million tons or more of paper. We built it up to round ... about 200,000 tons of paper we were producing, 100 percent from waste paper. And ... but they resisted us, they were fighting us. I told you that story before, didn't I? Good. I'm trying to remember what I said. So there was a big fight on. They dropped the price on the paper. Well first of all, when we found out that we'd made a mistake, Charlie, who is the same man that I'm talking about in steel, he's the engineer, and my brother, they went and bought the wet end of the paper mill, made a paper mill that produced both board and paper. They were both needed for box making. One is needed for the corrugation, the other is needed for the top and bottom, which is two different papers. But it was all 100 percent recycled. And we found ways of talking to chemists, talking to people who supply different glues and different products for paper industry. We've always been innovative, always look for something that's different, something that nobody's done before. And you try that and it works. If it doesn't work, so you throw that away and start again 'til you find the right one. So we really developed a system of producing very strong paper for that purpose. It wasn't writing paper or white paper or printing paper, but it could be newsprint, but it's mostly for box making.

But I take it that there was no industry that you went into that wasn't profitable. But which was the most profitable of all of them, looking back?

Looking back, in meat.

Meat was the first love and the best.

The first love, meat. And now we're out of it. As a matter of fact, today it would be very bad to be in meat, because the whole market collapsed. The whole system's collapsed. America doesn't want to give ... It switched. The business in 1958 switched over to America. We started building the paper mill at the same time as we were still exporting to England and the American market opened up for Australian meat. And we also started selling rabbits there. And the rabbit story is another story. But we'll get to that. That was very profitable too.

What happened with the rabbits?

Well, rabbits was ... There was a need for ... In 1946 I went for a trip round the world to find out ... Father suggested I should go and have a look what's happening in the world, and what ideas we can pick up to do in Australia. And I was away for about four months and I visited about fourteen countries and in every country you learn something. We also tried to sell canned meats for export in different countries, which didn't work. But it did work in England. And in England I went through the meat market, which I think now is destroyed. I think it's a gallery now, I'm not sure what they make out of it. And there were stalls, and there was people selling meat on commission. And we then started ... Some of them were already customers that were buying meat from us. And talking from one to the next, and the next one, I saw rabbits on every stall. I said, 'Where do they come from?' 'Australia. Australia and New Zealand'. So, I'm from Australia, so why can't we get into rabbits. So I started finding out that it's all under license to import in England. Then somebody sold me there's only one firm that has a license but it is not importing. So I went to see them, and they said, yes, they'd like to get us into supplies. I made arrangements with them - before I sold one rabbit in Australia. I sold many rabbits in Australia before we started making them. And I came back and suggested to the family, 'Let's get into that business', and Sam Smorgon was the first one. He had just came out of the army and he's the one that looked into that and said, 'Let's. You can take charge of it and come with me and we'll start to organise it'. And we went round Victoria and found out how the rabbits are being gathered and we found that the mostly, right through Australia, [they were gathered] in chillers, home-made chillers, movable chillers. And my brother then made the chiller by insulating the back of a truck. What do they call the trailer, trailer, the ... you know the trucks that you see with ...

Yes. With the van and yes ...

And so he built that platform from straw, which was bound with wire as insulation, and put canvas around that, and made it all wood to cover it up. And put a diesel engine in front of the ... that truck. Not the truck itself, but the truck was ...

The table top behind it.

I can't think of the word. And so we took that to ... then you go to find out a spot. First of all we had to find a man that knows something about rabbits. So we got him - got a man that knew all about rabbits. So he told us how to clean them, how to ... what to do, how to bake them. And we had to get a supply of rabbits. And there were a number of people that were around the country that were doing it - were collecting rabbits, and selling them to other packers like Vestey's and Angliss and the other, Borthwick's. They were all in exporting at the time. So we went ... so Sam and I went around Victoria, right round the edges of Victoria, and right inside of Victoria and every time we'd come into town we'd go to a dairy which has a refrigeration. And every time there's a rabbit collector there. So we start asking questions. 'Would you sell to us?' 'Yes. If you give us a price we'll sell to you'. So we started off buying from them.

Then we decided we could do it ourselves. There's a lot of margin in between. So we started building this ... My brother started building the chillers. And the idea was you go out to the country, you find the leader, usually go to the pub, ask somebody, 'Who is the rabbit man here?' and start talking to him. 'Would you like to take control of a station. We'll put up a chiller and you'll look after it and you'll get the trappers and we'll supply the trucks, supply the refrigeration'. So you get somebody like that, and if they say, yes, he'd take on the job, then we'd go in the convoy of about ten or fifteen people in jeeps and look for country for where the rabbits are. And you don't see one rabbit. I'm there and I can't see a rabbit. And one man, one of the trappers says, 'There's millions here'. I said, 'Where are they?' He said, 'I'm telling you, there's millions of rabbits here'. And I can't see one rabbit. I said, 'How do you know?' He said, 'By the droppings. Either they're small or big'. And so we said ... He picked the spot, he reckons that would be the right spot. We go to the station owner or land owner and ask permission to put the chiller on his land, usually around the water hole. And he becomes the manager, and then all the trappers in those areas were amused about that. All they have is a piece of canvas, and they dig a hole - and a blanket - and they dig a hole in the sand, over here, so that when you lie down sideways your hip is supported by the ground round it. So the canvas doesn't let the moisture through, [and they] cover themselves with a blanket and that's how they live, nothing else. Then they've got a knife and a spoon and they cook for themselves and the people go around collecting the rabbits. They also supply them with the meat - bring the meat in for them and any other groceries that they want. That's how they live, just on their own. They trapped them by one of those traps that open up like this [OPENS HIS HANDS, JOINED AT THE WRIST] and close if you touch it. It's usually put around rabbit holes, and every three or four hours they go around and pick them up. They gut them. They tie up the legs and put them on a fence in a certain corner. When the truck driver starts work about five o'clock in the morning, he goes round to pick them up, bring them back to the chiller. That's continuously every day during the season, unless it rains or some[thing else].

But the interesting part about the trappers was that the majority of them, not all of them, they'd get a cheque at the end of the month, maybe a cheque at that time for £500, which was a lot of money. They'd come into the pub, put the cheque down on the counter and say to the owner, 'Let me know when it's finished'. And kept drinking. And I saw some sights that are unbelievable. They just go crazy. They have hallucinations. There this constant drinking and they start seeing things that ... I know of one particular case, and I had two of my daughters with me, and we saw him at the pub, this young Irish boy, and he just woke up from the shed, and back to the pub. He started flirting with the girls, and meanwhile he went back to drinking, and we went on to see another one of our stations. And the head guns comes with us in the car. About three or four hours later, a man stops, because we knew him, he wanted to talk to us, and he was getting a lift to go to the station where he worked, to the land where he worked. And he says ... he runs out to the car saying, 'Get those snakes off me. Get those snakes off me'. It was an unbelievable sight. It was a great experience for my young daughters to see what drink does to a man. And you have many stories like that and I saw quite a lot of that. But generally, they were very happy living like that. They weren't exactly ... They wouldn't work that way unless they liked it.

[end of tape]

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