Food and grocery suppliers across the nation are facing tough times. Their ability to pass on increasing costs to supermarkets is dwindling amid growing scrutiny from politicians and public inquiries. This has led to more promotions and reduced shelf prices, squeezing supplier profits.
Public and political pressure, intensified by inquiries like the Greens-led Senate investigation, has spotlighted major chains, particularly Woolworths. This pressure is forcing supermarkets to lower prices at the register to stay competitive and appease community frustration over rising food costs.
A recent Jarden survey involving 55 top supermarket suppliers reveals a grim outlook. It highlights stagnant sales volumes, rising expenses, and harsh regulatory conditions, all of which push down prices at the expense of suppliers.
Ben Gilbert, a Jarden analyst, notes that supermarkets are dropping prices through promotions and discounts not just to stay competitive but also as a strategic response to the political climate. Despite expectations that food price inflation might slow down, similar to trends in the UK and the US, the drop has been sharper and quicker, spurred by regulatory and competitive pressures.
Suppliers, who seemed to manage cost recovery through price hikes over the past year, now anticipate more difficulty in doing so amid persistent cost increases. About 30% of them now cite the cost of goods as their primary concern over the next year, a significant jump from earlier in the year.
With supermarkets slow to adjust prices in line with rising supplier costs, the burden is increasingly falling on suppliers. They’re seeing a decline in profit margins as their expenses rise by about 4.7%, while planned price increases are capped at around 1% over the next six months.
The dynamic is changing as supermarkets like Woolworths, Coles, Aldi, and Metcash gain a larger share of the profits at the expense of suppliers. The competitive landscape is also getting tougher, with new market entrants and expanding product ranges by existing players like Amazon and Bunnings, further challenging the traditional supermarket model.
Overall, suppliers are navigating a more complex market environment, marked by rising costs, challenges in increasing prices, and shifting retailer behaviours influenced by regulatory pressures. This makes for a more competitive and challenging scenario for suppliers, with the risk of further margin declines.
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