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