A new joint survey from UBS and the Australian Food and Grocery Council (AFGC) has found Australian supermarket suppliers are investing in new product development as a top priority.
In releasing the results of the latest ‘UBS-AFGC Supplier Survey’, AFGC Chief Executive Officer, Gary Dawson, said the survey showed that structural change is underway in Australia’s grocery sector as competition intensifies.
“The survey reflects the difficult domestic trading conditions, with a modest outlook for both sales and profit growth for Australia’s food and grocery manufacturing suppliers,” Dawson said.
“It confirms retailer profit margins in Australia are compressing but they remain well above international peers. For suppliers the opposite is true – after years of declining profit share there has been some claw back of margin in the last twelve months, but profitability of Australian suppliers remains well below international peers.”
Investment in product development to drive growth
“Suppliers are responding to this low growth environment by relying less on price increases and trade spend, and increasing their investment in product development and capital expenditure on efficiency gains to bring about growth,” Dawson said.
“Investment in New Product Development is the highest priority to drive growth. In addition suppliers see export opportunities as a growth driver with 77 per cent of the suppliers surveyed already exporting and an additional 10 per cent considering export options.”
Dawson said the report showed profitability for suppliers was greatest in value-added “fresh” products, catering to the increasing demand for ‘healthy products’.
Other key findings:
Australian grocery retailing market growth is well below trend largely because of discounting and shopper taking advantage of promotions. Reduced trade spend (i.e. suppliers paying for retail discounts, in store promotions, etc) and reduced participation in loyalty programs reflect that suppliers have less to give retailers. Suppliers expect modest sales growth over the next 12 months, and profit growth also to increase although at a slower rate than the last 12 months.
