Survey: “Innovation the key” for Australian food companies to counter financial pressures

Posted by AFN Staff Writers on 27th September 2011

One in three Chief Executives in the Australian food and beverage industry, surveyed by accountancy organisation Grant Thornton has identified product innovation as the main driver of improvements in profitability.

Grant Thornton, in conjunction with Monash University and the Australian Food and Grocery Council (AFGC), has just released the results of its survey of the views of Australian food and beverage industry CEOs.

However, according to the Grant Thornton findings, smaller companies are struggling to keep up, partly because they have less to spend on research and development.

Summarising the survey’s findings, Grant Thornton said the ability for companies to innovate is driving segmentation across Australia’s food and beverage industry. According to Grant Thornton, “Larger players are investing in product innovation, while the niche players are carving out new markets to get ahead. This leaves behind the smaller, less dynamic companies which are becoming less profitable and more susceptible to being acquired.”

The survey report also says, “Larger companies, with deeper pockets can more readily afford to promote their brands and sustain premium pricing. Supermarkets, on the other hand, are continuing to introduce competitively priced, private label products. As a result, some smaller companies are being squeezed out: unable to compete either on brand exposure or price.”

Grant Thornton’s Industry Leader for Food & Beverage, Tony Pititto said today, “The industry is split. Until now, the divide has been masked by consumer demand and stable input prices. As the market changes, ultimately what we expect to see is a more concentrated industry landscape, dominated by large companies with strong brands, but with room for niche players.”

“It’s evident that the industry has been in savings mode, with 82% of respondents expecting to fund future revenue growth through either internally generated funds or existing debt lines.  CEOs also expect M&A activity to continue with only 25% not considering M&A activity over the next two years which will inevitably change the industry landscape,” he added.

Mixed Optimism

The survey noted a sense of optimism, despite the shortage of external funding for innovation. In commenting on this, Mr Pititto noted, “An increase in utility expenses and other costs will be common across the Industry.  Now is the time for all food and beverage companies to reassess their pricing models to ‘future proof’ their business. To warrant the surveyed optimism, the industry must tighten cost controls, free up cash for innovation and review their strategies as a matter of priority.”