Supermarkets blamed for profit erosion

Heinz and Goodman Fielder have gone on the offensive against the two major Australian supermarket chains, blaming them for eroding profit performance.

Heinz’s chief financial officer and executive vice president, Arthur Winkleback told US analysts the demise of many Australian companies can be attributed to Australia’s supermarket wars.

‘’This is, as many of our peers have talked about, a very difficult environment,’’ Mr Winkleblack said. “The reality is with two key customers there has become an inhospitable environment for grocery manufacturers.

“With it being such difficult market, we’re going to take the measures…to address that. We’ve seen our margins squeezed as the pressure comes on.”

Heinz has already closed or restructured some of its Australian operations, moving some to New Zealand where costs are lower.

Meanwhile, Goodman Fielder, producing its first annual result under new chief executive Chris Delaney, has taken a clean-slate approach to its accounts, sending the company to a $A166.7 million loss for the year to June 30.

The loss included an earlier announced $A300 million write-down on its baking division, which comprised $A250 million in Australia and $A50 million in New Zealand.

The division, which contributes nearly half the company’s total sales, made a considerable loss after losing a private label contract in Australia, among other reasons such as rising prices for flour.

It said, “fierce retail competition drove price discounting, making cost recovery more difficult to achieve.” 

This came from severe price reductions on private label brands after several years of decline in this segment. Baking division revenue was down 4% to $A1.023 billion, while the company still retained 36.4% of the Australian fresh loaf market.

In its results presentation, Goodman Fielder said some of its lines were dropped by the supermarkets and branded promotions were less frequent, leading to a widening price gap against private labels.

Overall sales were down 3.9% to $A2.556 billion. Sales in the other four divisions, home ingredients, New Zealand dairy, Integro (edible oils and fats) and Asia Pacific (exports) were down between 2.1% and 4.9%.

Mr Delaney said major changes would be made to the bakery division, with a raft of new products coming on stream. He singled out Quality Bakers’ new gluten-free bakery at Huntly, near Hamilton, as an example of innovation.

The company was also establishing an artisan bread manufacturing facility in western Sydney to meet demand from this fast-growing segment. A pilot plant in Melbourne has been testing the market.

In commenting on the NZ dairy division, the company said it faced all-time high costs in raw milk, which “reduced consumer confidence and strengthened consumer resistance to prices.” It added: “This was made more challenging after our major competitor {Fonterra} froze the pricing on its consumer products.”

Under the company’s new proposed structure, New Zealand baking, home ingredients and dairy will run as a single unit among four main divisions, as will Australia baking and home ingredients. Asia Pacific and Integro will remain much as before

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Fantastic that some suppliers have the guts to stand up to these arrogant supermarkets.
What needs to happen is that a large group of them stop supplying supermarkets at all.
Set up distribution centres and get the power back. NZs Commerce Commission made a huge error letting a foreign owned Duopoly run our food distribution and the big companies need to fight back. I read that supermarkjsets are making $ 2.00 on a bottle of milk! - over 100% profit on milk while the country is up in arms about it. these supermarket owners are parasites.

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Now that would be interesting, seeing Heinz and Goodman Field creating a retail presence!

Possibly not a bad thing.

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This is the first time that I have heard someone say they are unhappy with Fonterra freezing commodity prices.
Perhaps we should let the market prevail after all... except for the oligopoly supermarkets, of course...

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Not freezing the commodity prices, just the wholesale prices. The commodity price still rises.

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If you look at the trading results of the supermarkets these do not suggest excessive margins and are consistent with a well run retail operator.

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So much for the commerce commission, totally infective. Don't wast time on the milk investigation investigate the super market monopoly .

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Jimbob apparently fails to realise that it is the AUSTRALIAN market to which the article refers. He can hardly hold the NZ Commerce Commission responsible for for dominance by a "foreign owned" (I guess he means 'Australian-owned') duopoly .

New Zealand's supermarket market may be a duopoly (which came about when the court overturned the Commerce Commission's decision not to give clearance under the new Commerce Act for the Progressive/Foodstuffs merger, instead favouring the decision made under the old Act that did grant clearance) but it is patently not one of foreign owners. One of the firms (Foodstuffs) is one hundred percent New Zealand-owned - it is a co-operative owned by the merchants who own each of the individual supermarkets that the co-op supplies. If there are surplus profits being made by the New Zealand co-operative operators, then perhaps, like the rugby jersey premiums, we are paying via the groceries to keep professional netball alive in NZ!

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Looking forward to the day Aldi sets up in NZ.
Only need to look at the way the duoploy quietly watched while Fonterra alone took the heat over milk prices.

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Agree with Pete, Aldi or any other competitor needs to get here and slam these parasitic supermarkets who have let the diary farmer take the heat while they were ripping off kiwis. Kiwis need to vote with their feet and buy products from producers and markets not supermarkets. make them compete for your dollar.

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Competition should be relative to what the so called free market advocates. Businesses should not be able to control more than 10% of a countries market.

These big companies just shut out competition, while the government & commerce commission just stand back and watch.

Supermarkets lock up their suppliers with contracts, and if you dont sign one you're out.

How are you going to compete against them when they have the purchasing power to negotiate cheaper prices than you can sell the same product at with no margin to cover costs. Course, they dont pass their cheap costs of purchasing to the customer, until competition comes along. And when competition comes along in the form of The Warehouse, they both take strategic stakes to limit their growth into the supermarket game.

Government, its a no brainer. Regulate & split them up so that suppliers become price setters not takers & the customer has more choice.

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