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Australia Food and Drink Report Q3 2011
Business Monitor International, May 2011, Pages: 100
The Australia Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on Australia's food and drink industry.
The combination of the recent Queensland floods, strong Australian dollar and declining home values paints a delicate picture for the Australian consumer in 2011, and this is expected to have a particularly pronounced impact on discretionary spending. BMI is holding on to a cautious outlook for the Australian consumer sector over 2011-2012 and foresee a dip in private consumption, including retail spending, following a fall in domestic property prices that leads to a loss of wealth. In the longer term, Australia's healthy population expansion and stable economic growth continue to paint a reasonably positive consumer picture.
Headline Industry Data:
- 2011 Per Capita Food Consumption = -0.5%; forecast to 2015 = +5.5%
- 2011 Soft Drinks Sales = +2.6%; forecast to 2015 = +17.8%
- 2011 Alcoholic Drinks Sales = +2.2%; forecast to 2015 = +9.2%
- 2011 Mass Grocery Retail Sales = +2.7%; forecast to 2015 = +17.8%
Key Industry Trends:
Wine Troubles
Foster's Group has formally disclosed plans to demerge its wine and beer businesses at the end of April on the back of a disappointing first half to December 2010, with net income down 12% on the previous year. It is expected that the separate listing of both beer and wine businesses will make each division more attractive to prospective bidders. With no obvious conventional bidders, it is believed that private equity buyers could enter the fray for Foster's, although a beer acquisition from a private equity firm at values in excess of US$10bn would be unprecedented.
Price Wars Accelerate Quickly
Australian retailer Coles has recently slashed retail prices on its own brand milk offerings by 47 cents to just AUD2.0 (US$2.0) for a 2-litre bottle of private label milk, with rival Woolworths closely following suit. Although both retailers have claimed that they would be absorbing the cost of the price drop, this price move has nonetheless caused consternation throughout the Australian dairy industry given that the industry is already battling the impact of higher farming costs and the Queensland floods. With price wars extending to bread, eggs and other staples, the margin growth of domestic retailers is likely to take a hit as well, and it is therefore apparent this strategy of price cutting will do more harm than good to the various stakeholders involved.
Risks To Outlook Lower than Expected Growth in China
Concerns exist about a lower-than-expected growth out turn in China, Australia's largest trading partner and biggest buyer of Australian coal and iron ore. At worst, BMI do not rule out the possibility that Australia could slip into recession in 2011 in the event of a Chinese slowdown.
Natural Disaster Effects
In addition to the ongoing residential property correction, recent natural disasters such as the Queensland and Victoria floods as well as Cyclone Yasi could further penalise overall economic growth in 2011, although the ensuing reconstruction efforts may buoy real GDP expansion in 2012.
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