Australian food and grocery suppliers feeling the pinch

The financial squeeze experienced by food and grocery suppliers is getting tighter, according to the Competitiveness and Sustainable Growth Report.

“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,” said Australian Food and Grocery Council (AFGC) CEO Gary Dawson.

“A key finding is that one dollar in every four earned by suppliers is being returned to retailers to fund discounts, rebates and promotions.

“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.”

Other key findings:

• The profitability of Australian suppliers is now well below our international counterparts - and we’re falling further and further behind.
• Despite a growing demand for premium food in key export markets, Australia is losing market share in China, Indonesia, Thailand, Malaysia and Japan.
• 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.

“This report underlines the importance of levelling up the playing field between retailers and suppliers,” said Dawson.

“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. 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.

“Without a viable domestic food processing sector, Australia will not fully capitalise on the opportunities of the Asian ‘dining boom’.”

Conducted by KPMG for the AFGC, the Competitiveness and Sustainable Growth Report is a detailed analysis of real financial data from food and grocery suppliers from 2010 to 2013. It is available from www.afgc.org.au.