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Australia Food and Drink Report Q3 2009
Business Monitor International, June 2009, Pages: 94
The Australia Food Drink Report provides independent forecasts and competitive intelligence on Australia's food and drink industry.
Australia's economic prospects have continued to deteriorate as a result of the global slump, with this having a marked effect on the country’s food and drink sector, as discussed in this recently published Australia Food & Drink Report for Q309. While the economy will receive a boost from the wide range of policy measures unveiled in the first months of 2009, these are unlikely to prevent it from slipping into a more prolonged period of downturn, with the slowdown led by falling rates of private consumption growth and investment.
As discussed in the report, Australian retail sales rose by a seasonally-adjusted 0.2% month-on-month (mo- m) in January. Sales were supported by the lag from an AUD10.4bn (US$7.2bn) fiscal stimulus measure, in the form of cash handouts, distributed in December. The second round of cash payments, AUD12.3bn (US$8.5bn) – distributed in mid-March – is expected to have a similar impact on sales growth in March and April. However, it is widely believed that the retail sector will not report the sort of growth that the package was designed to trigger, as most consumers have not spent the majority of the payment. In fact, according to local estimate, only 25% of the December handout was spent, even as the government ramps up measures to encourage this course of action as a means of helping lift the local economy. As Australian retailers wait to see what impact a second cash handout will have on consumer spending, the sector continues to brace itself for what looks set to be a challenging 2009, as consumer spending begins to track plummeting consumer confidence and the economic slowdown continues to weigh on private consumption. In another bad sign, unemployment reached 5.2% in February, Australia's highest level in four years.
Despite this poor state of the economy and the retail sector, in March US wholesale retail giant Costco confirmed that it is on course for Australian retail market entry in 2009, revealing that a Melbourne store is due to open its doors in July. Many expected Costco to delay its plans for the Australian market, as Australia's unique population demographics had already hampered the company in terms of competitive real estate procurement. Further risks were present in terms of the already fiercely competitive nature of the market, both consumer and wholesale, and the weakness of Costco's brand in the country relative to its peers. Exacerbating these existing concerns, weak consumer confidence was viewed by many as a deal breaker. Costco, however, has argued that weak trading conditions could be conducive to the growth of its format.
Another retailer seeing an opportunity in the downturn is market leader Woolworth’s. The retailer has said that it hopes to benefit from the current crisis by increasing its property portfolio as a number of smaller retail chains collapse. According to the report in the Australian Financial Review, Woolworths has said that it could also take advantage of its relative economic strength by purchasing property it would then try to sell at a later date, highlighting the fact that there will always be winners and losers during such downturns.
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