Suppliers look to investment in NPDs

Suppliers to Australia’s supermarkets are making investment in new product development their top priority to drive growth, according to the second UBS – AFGC Supplier Survey.

Australian Food and Grocery Council (AFGC) CEO, Gary Dawson, said the survey reinforced that structural change is underway in Australia’s food and grocery market with retail competition intensifying.

“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.

“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.

“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.”

“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.

“The UBS detailed analysis also demonstrates a greater profitability for suppliers in providing more value added “fresh” products, reflecting a growth strategy for industry in responding to consumer demand for healthy products,” said Mr Dawson.

Other key findings of the study include:

  • Australian grocery retailing market growth is well below trend driven largely by 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.

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