AUSTRALIAN per capita consumption of soft drinks, while higher than in the United Kingdom and comparable with Canada, is considerably lower than the United States.
The pattern is similar for fruit juice. However, comparisons with the United States probably exaggerate the opportunities open to the industry owing to the very much higher per capita consumption of wine, beer, tea and milk in Australia.
Growing real disposable income in Australia is likely to result in increased consumption within the home, as well as encouraging growth in take-away meals and restaurant meals, both of which tend to increase consumption of soft drinks and fruit juice. However, growth in household consumption expenditure will slow, adversely affecting growth in spending on beverages.
While there is little potential for producers in this industry to significantly increase their exports, there are opportunities for the establishment and development of joint venture operations overseas.
Asian investments have substantial earnings potential but it is likely to be some years before this is realised.
Production
Given the outlook for population and demand, the volume of output from this industry is forecast to increase at an average rate of no more than 0.5% per year.
The industry expects that during the outlook period ‘new age’ drinks, which include sports drinks, fruit flavoured drinks, flavoured iced teas and packaged water, will continue to display the strongest growth while growth in energy drink sales is also expected.
Additionally, sales of bottled water are expected to increase significantly over the next few years but at more modest rates that in the past ten years.
As with other food products, the beverage industry has sought sales growth through niche markets. Smaller producers may attempt to supply relatively small segments with specialist and/or premium products.
Given continuing concern about the use of artificial colourings, flavourings and preservatives, the industry can be expected to develop a range of premium products, which are more appropriate to the demands of the health conscious consumer.
These products may be produced by small-scale, specialist operators.
Revenue
IBISWorld forecasts that in the five years to 2008-09, industry sales revenue will increase at an average annual rate of 1.4% to $3.66 billion.
Strong growth in GDP and higher growth in real disposable incomes are expected in 2004-05 while the popularity of soft drinks and high energy drinks should continue to be strong. However, the limited size of the Australian market will see a slowing of revenue growth for soft drink, cordial and syrup manufacturers. Therefore, assuming that weather conditions are conducive, growth in revenue for this industry is expected to be 3.5%, rising to about $3.53 billion in 2004-05.
Value added
The dominant players will concentrate on growing the market and on product differentiation, rather than competing away profits through intense price competition during the next five years.
It is anticipated that over this forecast period, the industry will encounter some pressure from a moderate increase in input costs, but this will tend to be offset by efficiency gains (e.g. through volume growth and better supply management).
Sugar prices (expressed in US dollars) are expected to stabilise over the outlook period. However, IBISWorld forecasts that the Australian dollar will continue to appreciate against the US dollar until 2005, which will cause a real decrease in some input costs (including sugar and imported concentrates).
Employment, wages and salaries
The industry’s workforce is expected to decrease at modest rates over most of the outlook period, down from 6,111 to approximately 5,928 people by 2008-09. This will be the result of continued mechanisation of the industry (and the resulting rises in output efficiency) combined with slower growth in revenue.
The ratio of wages/salaries to industry revenue is currently around 8.8% and this is expected to gradually fall to 8.3% by 2006-07 as greater labour efficiency takes hold due to consolidation of manufacturing facilities brought about by acquisitions.
International trade
Exports are forecast to rise at an average annual rate of 4.6% during the period to 2007-08, up to $57.3 million.
The major expansion in exports will take place to the end of 2005-06, but will most likely be at a lower rate than 2003-04 mainly due to a strengthening Australian dollar, which makes Australian beverages more expensive to buy overseas.
By the end of 2005-06, exports will be around $63.6 million (1.8% of revenue).
Profitability
The profit ratio (value added less labour costs, divided by revenue) for the soft drink, cordial and syrup manufacturing industry will most likely increase slightly during the outlook period.
While labour and some raw material input costs will probably rise, gains from greater output efficiency and a smaller workforce should enable the industry profit ratio to increase from 16.2% currently to around 17.4% by 2008-09.
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