Price Determination in the Australian Food Industry A Report

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THE PERFORMANCE OF GLOBAL BRAND MANAGERS The major players We have extracted a comparison of the recent performance (over the past two full financial years) of major multinational food companies. In recent years these global players have shifted more of their emphasis towards brand management than food manufacturing, preferring strong alliances with suppliers of ingredients or finished products to heavy ongoing investments in plant and other fixed assets. These tend to perform less favourably as investments compared with investments in brand equity. Hence there is evidence of businesses with dominant brand positions in most markets in which they operate providing strong cash flow, high balance sheet gearing (the ratio of debt to equity) and a high proportion of investment in intangible assets including goodwill in acquired businesses. Goodwill is required to be carried on the books according to global accounting laws. Each of these groups is now firmly locked into strategies which take advantage of global sourcing of inputs to reduce exposure to the high-cost operating environments in their countries of origin. Reported growth rates of the major food groups loses meaning due to the extent of their geographic spread and the fluctuating influence of currency on their home-reported results. Figure 119. Returns of global food companies, two-year average Hienz Kraft ROE EBIT/sales Unilever Nestlé Price Determination in the Australian Food Industry A Report 0 10 20 30 40 50% Figure 120. Balance sheets of global food companies, % Hienz Kraft Unilever Nestlé 0 100 200 300 400 500% Source: Whitehall Associates’ analysis of financial statements intangible: tangible gearing 110
THE PERFORMANCE OF AUSTRALIAN BRAND MANAGERS Comparison We have compared the reported performance of listed and other major Australian brand managers with the ratios of the major players in terms of margins and overall returns on equity capital. In this analysis, comparisons are made with: • the stated global margins of the major multinational food companies; and • the reported margins made in the Australian-based subsidiaries of global brand managers. Australian data on global companies has been taken from the most recently available IBIS reported information and Australian Securities and Investments Commission search results. In this analysis: • although the diverse businesses that are based in the Australian industry have an exposure to different market segments from global counterparts, the earnings before interest and tax of Australian companies are not significantly out of step with the returns their foreign counterparts earn within the Australian food industry; • earnings before interest and tax in this industry on average are lower than the levels that multinationals can earn in total in their business; • returns on equity capital employed are generally lower than those seen in the global context. This has much to do with the mix of capital investments made by global players; and • Australian companies listed in this comparison have a greater involvement in primary manufacturing alongside management of their brands compared to the mix of on-balance sheet investment focus of the global majors. The Australian companies do not have the critical mass of market in the Australian food industry to adopt the brand investment and acquisition strategies followed by the larger companies. Figure 121. Returns of global and Australian food companies, two-year average GWF GF NF Berri GC Sunrice SPC Simplot Heinz Kraft Unilever Nestlé -5 0 5 10 15 20 25 30 35 40 45 50% Source: Whitehall Associates’ analysis of financial statements global ROE global EBIT/sales ROA EBIT/sales Abbreviations GWF George Weston Foods GF Goodman Fielder GC Golden Circle NF National Foods Price Determination in the Australian Food Industry A Report 111
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Price Determination in the Australi
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© Commonwealth of Australia 2004 T
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FOOD AND AGRICULTURE BUSINESS GROUP
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FIGURES Price Determination in the
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• The current focus of retail cha
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• assertions as to market power i
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Overview - main drivers of prices i
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Food lines The analysis of food pro
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Figure 1. Overview of the approach
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Figure 2. Corporate profitability I
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Figure 4. Major drivers of prices a
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5.3 The greater influence of prevai
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DAIRY - PACKAGED MILK Overview of t
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Figure 10. Whole milk, 2 litre, sup
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Prices through the chain Our analys
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Figure 16. Natural cheddar cheese:
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Farmgate prices Farmgate prices are
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DAIRY - ANALYSIS OF PRICING OF DAIR
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Figure 25. Dairy butter and blend s
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‘Step-ups’ are paid by several
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THE MEAT SECTOR Analysis of the det
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The approach taken The pricing anal
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The changing value chains - various
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The approach taken Assumptions used
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Figure 39. Lamb market sales, ’00
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Figure 41. Lamb: Major drivers of p
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Observations The price comparison s
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Figure 46. Pork products, supply ch
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Figure 48. Value and cost-adding fr
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Supply chain management Wholesale m
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Figure 51. Fresh vegetables: Major
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FRESH HORTICULTURE - WHOLESALE MARK
Page 72 and 73: FRESH HORTICULTURE - ANALYSIS OF PR
Page 74 and 75: market access - in the United State
Page 76 and 77: The industry’s product mix The ke
Page 78 and 79: PROCESSED FRUIT AND VEGETABLES Anal
Page 80 and 81: Figure 69. Frozen vegetables, peas,
Page 82 and 83: PROCESSED PINEAPPLES - ANALYSIS OF
Page 84 and 85: Figure 75. Fresh fruit, with juice,
Page 86 and 87: GRAIN AND OILSEED PRODUCTS Analysis
Page 88 and 89: Figure 79. Flour, 1kg, supply chain
Page 90 and 91: Figure 82. Share of retail price of
Page 92 and 93: OILSEEDS - OVERVIEW Background The
Page 94 and 95: Figure 87. Oils and fats, supply ch
Page 96 and 97: The amount represented by the retai
Page 98 and 99: Industry risks The key area of risk
Page 100 and 101: • The major cost faced by egg pro
Page 102 and 103: Figure 96. Consumer price index, fo
Page 104 and 105: • Many such operators have indica
Page 106 and 107: SUGAR PRODUCTS Analysis of the dete
Page 108 and 109: Figure 103. White sugar, 2kg, suppl
Page 110 and 111: Projected export returns for the co
Page 112 and 113: • Export prices are driven by glo
Page 114 and 115: Retail prices • The average retai
Page 116 and 117: Industry risk • The overall retur
Page 118 and 119: 4. The performance of Australian fo
Page 120 and 121: THE PERFORMANCE OF AUSTRALIAN VERSU
Page 124 and 125: THE PERFORMANCE OF PRIMARY MANUFACT
Page 126 and 127: Our purpose in preparing this secti
Page 128 and 129: GROCERY RETAIL - WHAT DETERMINES PR
Page 130 and 131: The consumer trend towards eating o
Page 132 and 133: GROCERY RETAIL - PERFORMANCE OF GRO
Page 134 and 135: 6. Issues for consideration ISSUES
Page 136 and 137: PRODUCER INTEGRATION Does integrati
Page 138 and 139: Industries have in several cases ta
Page 140 and 141: Examples include: • 1 litre milk
Page 142 and 143: Figure 132. Targeting the stomach H
Page 144 and 145: MAJOR ADJUSTMENT - WHAT’S HAPPENI
Page 146 and 147: THE IMPACT OF DROUGHT The sector Di
Page 148 and 149: Price Determination in the Australi
Page 150 and 151: Oczkowski, E, Murphy, T 1999, Influ
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Price Determination in the Australian Food Industry A Report

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