Beverage and packaged food wholesalers in Australia are being put under extreme pressure by the country’s dominant supermarkets, which have been bypassing them by going directly to the manufacturers.
According to a study done by research firm IbisWorld, supermarkets have been increasingly purchasing their products directly from manufacturers over the five years leading to 2013-14.
This has substantially constrained revenue growth and reduced the importance of wholesalers in the overall supply chain, said the report.
Researchers found that wholesale bypass has also been propelled further by the vertical integration of many large food makers, such as Coca- Cola Amatil, thereby increased their ability to bargain while supply retailers. As a result, they can act as both wholesalers and manufacturers.
Lauren Magner, a research analyst at IbisWorld, said that profitability “has also declined for wholesalers due to the negative impact of rising input costs and volatile oil prices.”
Revenue, thanks to all of these factors, is therefore expected to fall at an annualised 0.4% over the five years to 2013-14 to reach $7.7bn, while the industry is also expected to contract with revenue forecast to fall by 2.9%.
A second blow to Australian wholesalers lies in the increasing trend among Australians of eating healthy, which has added extra pressure on the industry.
Concerns over health and nutrition have increased and consumption has declined for some of the industry's biggest product segments, such as soft drinks, confectionery and salty snack foods.
Health and innovation
“This has prompted a wave of product innovation in upstream manufacturing industries with companies producing healthier alternatives such as low-fat potato chips and zero-sugar versions of popular soft drinks,” said Magner.
However, many smaller wholesalers have missed out on this trend due to the large number of vertically integrated manufacturers of snack foods, confectionery and soft drinks.
IbisWorld found that a dramatic increase in manufacturing input costs for sugar, dairy, wheat flour and cocoa beans has meant that average selling prices were generally raised along the supply chain to offset the increase in production costs.
But the weaker bargaining power of wholesalers generally meant many operators in the industry have had to absorb higher costs into margin levels and were not able to pass on higher costs further down the supply chain.
Over the medium term, the report found, that the industry will decline in response to the ongoing rise of private labels, wholesale bypass and the continued dominance of the big two retailers, Coles and Woolworths.