Why Primo Foods can’t keep up with demand

Australia’s biggest ham, bacon and salami company, Primo Foods, lifted prices by about 6 per cent in May to claw back rising costs, and expects to raise them again as broader inflation accelerates in a business where demand is outstripping supply.

A growing shortage of workers has resulted in Primo being unable to operate its five factories at full tilt, with 140 positions vacant in a group with a workforce of 2300.

Demand is rising from shoppers at the big supermarkets, Woolworths and Coles, and commercial customers including pizza chains Domino’s and Pizza Hut.

Primo chief operating officer Bruce Sabatta says labour shortages mean the company can’t keep up with growing orders.

“We’ve got demand outstripping what we can produce,” he said.

The company, which is owned by Brazilian meat giant JBS, operates four factories in NSW and Queensland, and one in New Zealand.

Mr Sabatta said on top of the 140 vacant roles, it was also hoping to employ an additional 130 people to allow it to step up production further. “It’s a frustrating situation.”

The vacancies are a mix of skilled and unskilled positions. Before the pandemic, some of those positions would have been filled by backpackers or those on short-term visas.

Mr Sabatta also attributes the rise of the gig economy, where people are shifting towards being Uber drivers or delivering parcels, as another reason.

“People have got quite a few options now.”

Primo Foods is working closely with community organisations in western Sydney to try to fill gaps at its Chullora factory.

It comes as inflation is accelerating in Australia, with the latest CPI numbers for the June quarter due out on Wednesday. Westpac is forecasting the annual rate of inflation to jump to 6.1 per cent.

Mr Sabatta, who has been in the top job at Primo for five years, said there had been restructuring along the way since JBS acquired the business in 2015, but over the past seven years the number of cartons shipped had increased by 60 per cent.

JBS, which also operates a large but separate meat processing business in Australia, along with the Riverlea pork business, last year bought the Tasmanian salmon farming company Huon Aquaculture for $425 million.

It was its first foray into seafood and came after Rich Lister Andrew Forrest, who held a large stake in Huon, was critical of JBS’s record of bribery and corruption in Brazil, and some of its farming practices.

A first-quarter earnings update for JBS globally in May split out revenue from the Australian operations for the first time. It showed revenue for JBS Australia was approaching $2 billion for the quarter. Analysts have deduced that Primo Foods alone is likely generating annual sales of between $1 billion to $1.2 billion.

Mr Sabatta declined to comment on Primo Foods’ financial performance. But he did say it had a strong 2020 and 2021 when government restrictions and pandemic lockdowns resulted in a spike in at-home consumption.

“It was an unbelievably challenging time,” he said.

Input costs are climbing fast, and the impact of a big rise in international shipping costs has been substantial. Primo Foods imports a large amount of pork from the United States and Europe.

Mr Sabatta said the company was grappling with an acceleration in raw material and transport costs. The 6 per cent price rise in May would only go so far in offsetting some of the rising costs. “We see a lot of inflation coming through and hitting us,” he said.

Asked if there was another round of price rises to come in the next few months, he said it was still being assessed. “We’ll have to look at it. We’re still working through the implications”.

Primo Foods generates about 70 per cent of its sales from retail channels, with a large chunk from big supermarket chains Woolworths and Coles.

Food service supplying cafes, restaurants and big sporting stadiums makes up about 25 per cent. Large customers in quick service restaurants such as Domino’s Pizza, Subway, Pizza Hut, Donut King and the Grill’d burger chain represent a growing channel.

Mr Sabatta said Primo Foods exports to 13 countries, with the biggest destinations Japan, South Korea and the Pacific Islands.

The group has also made headway on product innovation, with self-contained “snack” packs with pre-packaged meats, crackers and cheese.

The star performer among the new products is “Stackers”, which was launched in 2020, which are all-in-one packs of cheese, crackers and salami.

This had put Primo products in different supermarket aisles. The group has also made strong inroads in building up a sausage business. Across the entire Primo Foods business, there are more than 900 product lines.

The group has also embarked on a co-branded range of products with biscuit company Arnott’s involving Jatz crackers.


Extracted from AFR

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