Heinz CFO says Australian grocery sector is ‘inhospitable’
The remarks were made by the company's CFO and executive vice president Arthur Winkleback at a briefing of US analysts to discuss the company's first-quarter earnings.
The company posted a 6.3% drop in net profit to $226.1m on sales, which were up 14.9% to $2.85bn in the first quarter. It said sales from emerging markets now represented almost a quarter (23%) of group sales, compared with 18% a year ago.
In Asia Pacific, Winkleback said: “We have a tale of 2 cities. Results in the Asia and Emerging Markets were very strong, but results from developed Pacific markets were unfavorably impacted by poor performance in Australia.
“…For perspective, much of the decline in gross margin came from Australia, where we have appointed a new managing director, and are attacking the cost structure to stabilize performance in what has become an inhospitable grocery market.”
At the briefing, Winkleback singled out two key retail customers, although he did not name them, saying they were ‘squeezing’ the market.
“I think being very, very cost competitive is going to be critical,” he said.
The two biggest players in Australia are Coles and Woolworths, who have been in a price war since January this year, when they slashed the price of their home-brand milks, placing pressure on name-brand suppliers.
Both supermarket operators have also dedicated a large part of their shelf space to their own cheaper private label items, which has also affected sales for branded product makers.
This is the second time a Heinz official has come out against Australian supermarkets in recent months. In June, Heinz CEO Bill Johnson publicly said that Australian shoppers would be the biggest losers from the supermarket's initiative to strip out brands for private label items.
Kate Carnell, chief executive officer of the Australian Food and Grocery Council (AFGC), said that the situation has not been helped by the changing consumption patterns, where consumers are leaning towards cheaper private labels at supermarkets like Coles and Woolworths, mainly because of stretched incomes.
Most of these products are imports, said Carnell, which have seen a higher penetration because of the strengthening of the Australian dollar, causing the cost of imports to fall.
Kate added that she did not expect the situation to change anytime in the near future, and that food companies will continue to be under pressure, with the supermarket price war coupled with rising input costs.
Heinz shifting production
At the end of May this year, Heinz Australia announced that it was closing its Girgarre factory in Northern Victoria, affecting 146 employees and three tomato growers, to shift its production of sauces to Hastings, New Zealand.
In addition, the company also decided to shift production of some food products from Wagga Wagga to Hastings, which resulted in the loss of 38 jobs.
