No room for small food, beverage manufacturers in new market

Australia’s food and beverage industry is not doing as well as it seems, and substantial change is set to hit the sector, a new report says.

The smaller, less dynamic companies will be the ones left behind as larger players invest more in innovation and niche companies take a stranglehold of their individual markets.

It will leave these smaller companies unable to compete and at risk of being taken over or put out of business.

The report by research company Grant Thornton, supported by Monash University and the Australian Food and Grocey Council (AFGC) identified ensuing profit as the reason 1 in 3 chief executives would invest in product innovation.

The average spend on product innovations at most companies is between one and five per cent, and less on research on development.

While it seems like a small percentage of a company’s spend, the amount bigger companies are spending simply cannot be matched by the smaller guys.

The other major problem for smaller companies is the dominance of the big two.

But in this case the big two are not necessarily the big two supermarkets, but supermarkets as a whole and big companies.

Because, while big companies can spend huge amounts of money on developing, manufacturing, and advertising products on a large scale, ensuring they have top billing in all areas, they are quickly losing their footing to the home brand options now being sold by the major supermarkets.

The competition between these two players, supermarkets and big business, leaves the smaller players with no hope of competing, and so the dominance increases.

Grant Thornton’s Industry Leader for Food & Beverage, Tony Pititto, says the industry is changing more rapidly today than ever before.

“The industry is split – until now the divide has been masked by consumer demand and stable input prices,” he says.

“As the market changes, ultimately what we expect to see is a more concentrated industry landscape, dominated by large companies with strong brands, but with room for agile, niche players.”

Industry is adapting to the changes by embracing new ways of looking at the market and exploring new customer and supplier agreements, according to the report.

Companies are also developing strategic alliances and acquisitions to build their presence in niche markets.

Last week, specials website CatchOfTheDay, which offers members exclusive online offers on everything from toys to holidays launched a website devoted to groceries, after identifying a gaping hole in the market for such a service.

“CatchOfTheDay has been experimenting with selling groceries for the last 12 months,” a GroceryRun spokesperson told Food Magazine.

“For two days each month they would run a grocery shopping event, and it was amazingly successful," the spokesperson explained.

“They were selling two items a second, and the shopping event would net over $1 million in revenue in the 48 hours, so they knew there was a demand because nobody was selling groceries online.

The spokesperson said the website is not intended as a replacement for supermarkets or local butchers and grocers, but is just another way for customers to hunt around for the best deal.

The profits companies are making are becoming increasingly important, with over 80 per cent of those surveyed in the Grant Thornton report, saying they are expecting to fund future growth revenue through internally generated funds or existing debt lines.

All companies identified the impending carbon tax as a concern which will require changes to their business, with most estimating a cost of five per cent of sales in the first year, and about 10 per cent the two years following.

“It’s expected that the impact will be different for each sector, however an increase in utility and other costs will be common across the Industry,” Pititto says.

“Now is the time for all food and beverage companies to reassess their pricing models to ‘future proof’ their business.

“To warrant the surveyed optimism, the Industry must tighten cost controls, free up cash for innovation and review their strategies as a matter of priority.”

Image: Local Foood News