Competititveness and Sustainable Growth Report released

The Australian Food and Grocery Council (AFGC) has released the first Competitiveness and Sustainable Growth Report, which it says is the most detailed financial health check ever undertaken of Australia’s $110 billion food and grocery manufacturing sector.

The AFGC partnered with KPMG to conduct analysis of detailed survey data from Australian food and grocery suppliers from 2009 to 2012.

According to AFGC CEO Gary Dawson, the report represents a watershed in the debate over the food and grocery manufacturing sector’s viability, as it has withstood the challenges of high costs, the high Australian dollar, increasing import competition and retail price deflation.

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

“It presents real data from real companies operating in Australia, as well as providing comparisons with international benchmarks.”

Key findings from the survey include:

• The profitability of Australian food and grocery suppliers has declined by 28% from 2010 to 2012.
• The 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% growth per annum) over the past four years, impacting on profitability (6% 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% increase in capital expenditure over the four-year survey period.

“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,” Dawson said.

“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.”

The full report is available here.