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Australia Food and Drink Report Q4 2008
Business Monitor International, Nov 2008, Pages: 81
Australia Food Drink Report provides independent forecasts and competitive intelligence on Australia's food and drink industry.
The food and drinks market in Australia continues to exhibit considerable dynamism, with a number of major deals struck in the past few months. In August 2008, Australian dairy major National Foods – a subsidiary of Japanese brewing giant Kirin Holdings – agreed to acquire leading Australian dairy cooperative Dairy Farmers for around US$784mn. The agreed acquisition ends months of speculation concerning the attractive takeover target, with compatriot Warrnambool Cheese and Butter Factory (WCBF) and New Zealand rival Fonterra also set to build their market share in deals associated with the acquisition.
In regional terms, BMI’s Food & Drink Business Environment Ratings for Q408, Australia remains in second place out of 14 markets surveyed in the Asia Pacific region, on a par with the much smaller Taiwan. While, on the one hand, Australia continues to offer opportunities based on high per capita disposable income and consumption, on the other, major drawbacks include its small population (of around 20mn) and – more importantly – mature and competitive retail industry as well as the rising costs of production. However, the country’s mass grocery retail (MGR) sector is proving an attractive proposition for discount retailers, as illustrated by the success of German Aldi, with the US’ Costco also recently announcing its planned entry into Australia. In the meantime, unit pricing proposals by the Australian Competition and Consumer Commission (ACCC), following its investigation of grocery prices, continue to cause controversy.
Rising commodity costs have prompted a number of companies to close or scale down their Australian manufacturing operations, with Coca-Cola Amatil (CCA) in August 2008 announcing that it will reduce excess capacity in its subsidiary SPC Ardmona (SPCA)’s canned fruit facilities. Around the same time, UK confectionery major Cadbury revealed plans to cut jobs in Australia and New Zealand as part of a broader plan to reduce the size of its global workforce. Moreover, Cadbury is reportedly considering offloading its Australian soft drinks business, after rising input costs and a slowdown in consumer demand forced the company to reconsider its product portfolio. Finally, in July 2008, American coffee chain Starbucks announced the closure of 61 of its 84 stores across Australia, due to its failure to penetrate the country’s ‘very sophisticated coffee culture’.
Nevertheless, subsectors, such as premium alcoholic beverages (despite the expected increase in excise tax on beer and wine, following the recent rise in tax on ready-to-drink (RTD) spirits, and healthy foods, will continue to perform strongly, stimulated by innovation and changing customer demands. For example, US-based food giant Heinz has revealed that further acquisitions in Australia and New Zealand are an important priority for the firm, having enjoyed surprising success in both countries. Estimates suggest that 15% of its sales for the two markets come from products less than 18 months old.
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