Advertisement
  • 60 years after he founded Redlea, John Velich has retired, bowing to price pressure from major supermarkets. (SBS Small Business Secrets)
For Croation refugee John Velcich, walking away from his 60-year-old business Red Lea Chickens was a painful, but necessary decision.
By
Source:
SBS Small Business Secrets
21 Jul 2016 - 2:47 PM  UPDATED 18 Mar 2018 - 1:00 PM

Since the company was founded by a teenage refugee, Red Lea Chickens has grown beyond its humble beginnings.

60 years on, owner John Velcich has bowed out, after years of pricing pressure from major supermarkets.

 "I decided, enough is enough, how much am I going to lose, am I going to lose everything? So I sold the business for much less than the business is worth," he said.

A large offshore company, PT Royal Industries Indonesia, bought Red Lea in 2016 - the chicken retailer had sunk $20 million into a newly renovated factory in 2011, planning for an expansion that never came.

"The business got so tough, competitive that the last five years, instead of making money I just started losing money," Mr Velcich said.

At its height, Red Lea owned 54 stores, six farms and a processing plant. Today, the company has shrunk, retaining its factory and six stores, having franchised most of its premises.

As a strategy, stores are almost always placed next door to their biggest competitors, supermarket giants Coles and Woolworths.

But the benefits of location still haven't offset the threat from big supermarkets, prepared to make a loss to keep customers coming through the door.

"Fifty years ago, the price of chicken was no different than now and just think, the wages have gone up 200 percent in 50 years," Mr Velcich said. Part of the reason the price hasn't changed is that production is cheaper, something Peter Apap has noticed, as one of more than 50 farmers who are contracted to Red Lea.

"Our piece in this puzzle is we get the little chicken as a day old and we grow the bird to the age that's required by the processor."

"Cost of production has gone down a lot over the whole 31 year period I have been in it and it's just got to do with volume."

When it changed hands, Red Lea was processing half a million chickens every week at 70 cents a bird.

To make money, the company has to sell the finished chicken products at a price that gives them at least a 2 percent profit margin. 

However, that is becoming more difficult in recent years, since increasing wages, rent and industry red tape have offset any benefits from the lower costs of production."Our turnover in processing I think is well over 60 million dollars a year - and the retail, it's before I franchise my shops was about another 25 million.

"I am retiring with absolutely beautiful, not wealth, but enough to live a good life the rest of my life," Mr Velcich said.

That's quite an achievement for this 80-year-old refugee who arrived in the lucky country as an under-nourished teen, only after spending three years in an Italian refugee camp.

Now John has the time to reflect on the business he built from selling chickens and eggs door to door in back in 1957, and he has never forgotten what it means to go without.

"This is the most beautiful country in the world, and anyone can make it here, anyone can be a success."

Want to find out the secret to small business success? Tune into #BizSecretsSBS at Sundays 5pm on SBS, stream on SBS Demand, or follow us on Facebook, Twitter or Instagram.