Australian supermarkets’ ‘low price’ campaigns difficult to sustain in 2014, CIMB analysts

Posted by AFN Staff Writers on 31st July 2013

Australian supermarkets could find it difficult to maintain ‘low price’ campaigns in financial year 2014, due to likely food price inflation, according to global financial services provider CIMB Group.

In an exclusive for Australian Food News, the CIMB report, prepared by CIMB Group analysts Daniel Broeren and Alexander Beer, found that upward pricing pressure was likely to occur across a large proportion of Australian supermarket staples in the 2014 financial year.

“We expect part of this will be passed through in the form of retail pricing, giving rise to higher overall food inflation than in recent years,” the analysts said.

Dry goods food sector most affected

The dry goods sector, which CIMB Group analysts said typically makes up 57 per cent of a shopping basket, will be the most affected by the various raw inputs and the Australian dollar’s relative value. The dry goods sector is made up of all non-perishable items, such as confectionery, canned goods and beverages. Data analysed showed that there is typically a lag of about six months between the value of the Australian dollar and food prices.

“As such, we expect pricing pressure to start in second quarter of the 2014 financial year,” the analysts said.

Dairy and bakery prices also to rise

The analysts said they also predicted that inflation would occur in Dairy and Bakery categories.

“In Dairy, we expect AU$1 milk to remain, while other dairy products (cheese, butter and cream) should experience inflation,” the analysts said.

The report notes that Dairy Australia has forecast Australian farm-gate prices will increase by 10 per cent in FY14, due to drought conditions in major dairy regions in the US and New Zealand.

Low global and domestic wheat stocks, and a weakening Australian dollar are expected to contribute to a price inflation in the Bakery category, according to the analysts. Again, the AU$1 bread is expected to remain, but price increases of 10-20 per cent secured by Goodman Fielder and George Weston for private label bread is expected to flow into retail shelf prices.

Difficult for supermarkets to hold back prices

The CIMB Group analysts said it could be difficult for supermarket groups Coles and Woolworths to keep prices from rising.

“Coles and Woolworths continue to push the publicly acceptable line that they will hold back price increases wherever possible,” the analysts said. “Perception and reality are different things, however, and we expect some pricing relief to pass through,” they said.

CIMB Group is Malaysia’s second largest financial services provider and one of ASEAN’s leading universal banking groups. Headquartered in Kuala Lumpur, the Group is now present in nine out of 10 ASEAN nations and elsewhere.