Profitability of food suppliers down 28 percent: AFGC report

Results from the most detailed financial analysis of Australia's food and grocery manufacturing industry have been released.

The Australian Food and Grocery Council has released its first Competitiveness and Sustainable Growth Report, which was undertaken by KPMG and considered detailed survey data from Australian food and grocery suppliers between 2009 and 2012.

AFGC CEO, Gary Dawson, said "Previously we have had plenty of anecdotal evidence of how tough the market conditions have become for food and grocery suppliers. This report provides the hard data to assess market trends and chart a way forward for this critical industry."

The report provides data from real companies operating in Australia, and provides comparisons with international benchmarks.

Key findings from the survey include:

  • Profitability of Australian food and grocery suppliers has declined by 28 percent from 2010 to 2012;
  • Profitability of companies operating in Australia is now significantly below international comparators;
  • Supermarket retail turnover has recorded steady growth but Australian food and grocery suppliers are reporting falling turnover, with an upsurge in food and grocery imports;
  • Suppliers are significantly increasing the funding of price discounting by retailers, via their ‘trade spend’, which has increased sharply (6.4 percent growth per annum) over the past four years, impacting on profitability (6 percent decline per annum);
  • Rising trade spend has also been part funded by reductions in marketing and R&D;
  • A strong focus on cost containment has held labour costs and operating costs steady over the survey period;
  • Suppliers continue to invest strongly in their businesses, with a more than 30 percent increase in capital expenditure over the four year survey period.

Dawson said manufacturers are continuing to invest in boosting efficiency and productivity in their production lines.

"The overall picture is one of suppliers having to adjust rapidly to the shift in market conditions by investing in improvements to manufacturing systems to boost productivity and reduce labour and energy costs, and the funding of retail price promotions to try and maintain volume.

"Looking forward the ability of the Australian food and grocery manufacturing industry to increase its competitiveness and win export opportunities will require a continued focus on cost containment and capacity rationalisation, greater collaboration with retailers to drive growth and share the benefits of supply chain efficiencies, and a rebalancing of trade spend to boost brand building and innovation," he said

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