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Food retail costs to subside

Supplier News

RECENT reports from the Australian Bureau of Statistics (ABS) and Rabobank confirmed what most of suspected late last year – rising costs.

The most recent ABS Consumer Price Index data shows the food price index rose 1.8% in the December 2005 quarter compared to the previous quarter, and easily outstripping the general inflation rate of just 0.5%.

Strongest price increases were evident in milk, cheese, bread and fruit and vegetables. However, bucking the general trend, the price of several major meat categories weakened during the period, while wine prices have been stable over the entire year, according to Rabobank head of Food & Agribusiness Research Dr Ben Russell.

However, the outlook for this year is more positive with Rabobank painting a rosier picture for food retail sales which are expected to exhibit moderate growth.

With consumers tightening their belts, growth in food retail sales in 2005 slowed to 1.8% in the first quarter - the slowest growth in 15 years.

Takeaway food outlets, cafes and restaurants were particularly hard hit.

Retail sales picked up as the year progressed, with third quarter sales 4.7% above the previous year’s levels, driven by a rise in supermarket and ‘other food retailing’ sales.

“Consumer incomes and confidence are likely to start on a solid footing, with interest rates currently on hold and the labour market strong,” Dr Russell said.

“Precluding another surge in oil prices, or a sharper correction in the housing market than currently evident, a repeat of last year’s difficult conditions looks unlikely.”

Other significant issues impacting on food retail in the coming year include the further development of retailer premium private label product ranges and the roll-out of a number of initiatives aimed at increasing supply chain efficiency, including factory gate pricing (FGP).

Under the FGP model, retailers become responsible for arranging collection of goods from a supplier’s factory, with the price of the goods determined by its value at the factory gate.

While Woolworths and Coles remain the dominant force in Australian retail, 2006 will see an increasingly important role played by both Aldi and Metcash .

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