A tale of two industries: beverage success while food finding its feet

Australian beverage manufacturers ended 2023 with a strong $2.93 profit margin on each dollar invested, according to a new report from inventory management software provider Unleashed.

The beverage industry’s Q4 profit margins in 2023 is a significant rise from the $1.75 figure reported in Q4 2022, and reflects an upwards trend for Australian manufacturing, in a quarter where nine sectors saw their highest profit margins in two years.

For beverages, a combination of lower lead times of 12 days (3 days below the Australian average of 15) and strong customer demand for local beverage products has led to an uptick in profit margins, according to the report.

Despite a profit uptick for the broader beverage industry, brewer Dereck Hales of Bad Shepherd said a multitude of issues continue to pressure smaller operators.

“Competitive pressure from large retailers and large producers in the form of cheaper white label products, tap contracts and lower cost alternatives are all causing stress for the local manufacturer,” Hales said.

While beverage and food producers often index closely together, Australian Food manufacturers didn’t enjoy the same rise in profit margins during Q4 2023. Food producers had an average profit margin of $1.87 per dollar spent on inventory, more than $0.30 cents below the Australian average of $2.22.

The main concern for the food manufacturing industry is the upward trend in overstock levels (the cost of stock over and above the optimum levels for a business), now at an average of $222,370, up from $135,970 in Q1 2022.

This trend puts increased pressure on businesses to move stock, and can create difficult decisions for businesses already in a tough spot.

Over the ditch in New Zealand, food producers bounced back to the best Q4 since 2021, but the same recovery has not been seen in Australia.

In positive news for food producers lead times are down to an average of 14 days, a day faster than the Australian average.

Murray River Salt Production Manager Brian Hermans said transport and logistic issues are having knock-on effects for many food producers.

“Getting stock in on time and delays with freight, especially exporting or importing, has been the one thing that has made things harder.”

Tucker’s Natural founder Sam Tucker said rising costs are affecting every element of the production process, and this was hurting small food producers.

“Rising costs are a significant threat; ongoing increases in raw materials, energy and labour can heavily impact profit margins. Inflationary pressures and higher operational costs are very challenging for food manufacturers,” Tucker said.

Unleashed Head of Product Jarrod Adam said that in this environment the ability to take advantage of demand can come down to supply chain efficiency.

“Short lead times allow firms to carve back inventory levels, creating a virtuous cycle of improved cash flow — as well as lower supply chain costs — that leave them more flexible and able to invest in response to demand,” Adam said.

Australian manufacturing in general faced a roller-coaster year which saw profitability drop to the lowest point since 2021, but ended Q4 with an average profit of $2.22 for each dollar invested in inventory.

The Manufacturing Health Index draws on GMROI (gross margin return on inventory investment) — a measure of the profitability made on inventory — across 16 manufacturing categories. The data from Unleashed’s software shines a light on performance, and customers were also surveyed to gain firsthand insights into the specific challenges and opportunities they face.

Australia’s return of $2.22 for Q4 2023 is outpaced by its UK contemporaries at £2.33, but well above New Zealand’s $2.05.

The nine Australian industries that posted record profitability this quarter were: automotive and auto supplies, industrial machinery, office equipment and supplies, beverages, furniture and fixings, clothing footwear and accessories, electrical and electrical components, health medical supplies and equipment and sport entertainment recreation.

The report is available for download here.

Image credit: iStock.com/lostinbids