Income sauce

Further consolidation and cost cutting is ahead for the grocery wholesaling industry. By JASON BAKER of IBISWorld.

By Jason Baker

Further consolidation and cost cutting is ahead for the grocery wholesaling industry as buoyant economic conditions support moderate growth for the sector.

 

Grocery wholesaling revenue grew on average 2.2% a year over the five years to 2006-07, with historically low interest rates and high consumer sentiment increasing demand.

The restructure of supply chains and the growing number of house brands in supermarkets have put pressure on branded products. Large retail chains have continued to expand via acquisitions as well as opening new large stores.

This year, industry revenue is predicted to rise 2.2% to reach $17.4 billion thanks to rising real disposable income, moderate population growth and solid growth in GDP.

Operators are expected to compete for growth in turnover by increasing their market share at the expense of other operators, or through mergers and acquisitions. We predict the industry will continue to rationalise and continue to be dominated by the major participants, such as Metcash.

Most of the participants in this industry are small, privately owned independent operators that serve niche markets, specialise in particular products or products that are not covered by the major participants. Others are located in rural areas and provide products to restaurants, motels and so on in their local area.

But the bigger participants, which are getting bigger, include Conga Foods, PFD Food Services, which distributes among other brands Kraft, Nestle, Simplot, Masterfoods, Unilever, and Nestle.

Supermarket giant Woolworths has a stake in the industry as the owner of a number of small wholesalers, including Grocery Wholesaling Pty Ltd, Australian Independent Wholesalers, Universal Wholesaling and a 60% stake in Statewide Independent Wholesalers.

Almost two thirds of wholesalers supply supermarkets and department stores, about 20% distribute to restaurants, motels and schools and hospitals, and 15% to independent retailers.

IBISWorld predicts that marginal profit margins will force the industry to focus on business restructuring programs and cost-reduction initiatives in the coming years.

Over the next five years, IBISWorld forecasts the industry will expand at an average rate of 2.1% a year as economic growth and consumption steadily grow.

These sound economic fundamentals will provide ideal operating conditions for the food manufacturers in this industry, as both supply and demand side conditions appear favourable.

IBISWorld supplies business information databases, including industry reports, company reports and business indicator reports. www.ibisworld.com.au