Financial squeeze getting tougher for food and grocery suppliers, AFGC
A detailed financial health report on Australia’s $111 billion food and grocery sector has found suppliers being squeezed between high manufacturing costs and dominant retailers, according to the Australian Food and Grocery Council (AGFC).
The Competitiveness and Sustainable Growth Report, which was conducted by KPMG for the AFGC, provided detailed analysis of real financial data from food and grocery suppliers, covering the last four years 2010-13.
AFGC CEO Gary Dawson said the report found Australia now has the highest manufacturing costs in the world, and that retailers are extracting even greater payments from suppliers to fund discounts and promotions.
“This report demonstrates how tough the market conditions have become for food and grocery suppliers, squeezed between the unstoppable force of dominant retailers and the immovable object of high labour, utility and regulatory costs,” Mr Dawson said.
“A key finding is that one dollar in every four earned by suppliers is being returned to retailers to fund discounts, rebates and promotions,” Mr Dawson said. “The rapid growth in payments extracted by retailers represents a direct profit shift from suppliers to retailers and reflects the dominant position of the two major supermarket chains,” he said.
The AFGC said the two major retailers extracted an additional 5 per cent more from suppliers than other retailers, which reflected their market power. This ‘trade spend’ has been growing at four percent per annum, while volume has been flat and profitability declining sharply, according to the AFGC.
“This level of funding flowing back to the major retailers is simply unsustainable, with a direct impact already on marketing, R&D and innovation spending,” Mr Dawson said.
Other key findings of the report included:
Australia has the highest manufacturing costs in the world, with labour, utilities and regulatory costs all among the highest globally;
A strong focus on cost containment by suppliers has brought some reductions in supply chain costs through initiatives such as automation to boost efficiency and productivity;
Capital investment is growing, which is a positive sign for the future, although much of this investment has been focused on ‘staying in business’;
Profitability of Australian suppliers is now well below international peers, and falling further behind, raising questions about the willingness of major companies to make major investments to upgrade Australian facilities;
Despite growing demand for premium food in Australia’s key export markets, we are losing market share in China, Indonesia, Thailand, Malaysia and Japan.
“Looking forward, the key challenge for Australia’s food and grocery sector is to improve its competitiveness in order to secure growth opportunities domestically and in export markets,” Mr Dawson said.
Important to get Code of Conduct in place quickly
Mr Dawson said the report underlined the importance of “levelling up the playing field between retailers and suppliers”.
“It is important that the draft Food and Grocery Industry Code of Conduct move through the current regulatory review process to get it in place as soon as possible,” Mr Dawson said. “The Code will provide greater contractual certainty and transparency. In addition, the ‘root and branch’ review of Competition Policy provides a welcome opportunity to examine and address the current market imbalances,” he said.
“Without a viable domestic food processing sector Australia will not fully capitalise on the opportunities of the Asian ‘dining boom’,” Mr Dawson said.
On May 20 2019, the online publication The Spoon released its 2019 ‘ Food Tech 25 ‘ list of the top...
Westward American Single Malt Pinot Noir Cask Finish, a truly elegant expression of Westward Whiske...
SUPERMARKET staple McKenzie’s continues to display market agility and nous introducing a new range o...
Monash University is hosting an industry breakfast on food fraud and Asia.
Food Standards Australia New Zealand (FSANZ) will now permit the sale of low-THC hemp seed products ...
Metcash’s Fresh Pantry brand will be launched on JD’s e-commerce platform under the deal, delivering...
Murray Goulburn is now paying an additional 15 cents more per kilogram of milk solids for its 2017 f...
Over half of Australians say they would spend more with a retailer who offers a loyalty program over...