Flat consumer environment is the biggest challenge for Kiwi suppliers

At the conference last week in Melbourne, Australia, members from across the supplier base in New Zealand said that consumer spending in the country is flattening out—a pressure which is having a multiplier effect on other issues.

Katherine Rich, chief executive of the New Zealand Food and Grocery Council (NZFGC), told FoodNavigator-Asia at the conference that the flatness of the local economy was the primary concern amongst the council's members. 

“Of all the product categories in New Zealand, very few have seen any growth in sales over the last 12 months. Barring infant formula and some chocolate products, every other product category has seen lower sales,” she said.

Rich said that the food industry now has to adjust to a new reality—consumers are now more judicious in terms of the products they buy and how much they pay for them. 

A promotions market​

Rich said that one of the commonly discussed topics among suppliers was the level of discounting in the New Zealand retail market—there is a huge amount of promotional activity and that is hurting suppliers.

She pointed to New Zealand retailers, who revealed at the conference that nearly 60% of all food and beverages purchased in the country’s organised retail market are on promotion.

“This means customers are waiting and buying products only when they are on special price,” she said, adding that this went against the previous natural cycle in retail purchases. 

Naturally, this "new normal" is seeing retailers gain more clout in the country—though suppliers admitted that the situation is as dire as in neighboring Australia, where the actions of Coles and Woolworths are under intense scrutiny. 

But some signs are there. In September, only an industry-wide outcry against plans by Foodstuffs to impose a 3% “promotional rebate” on suppliers saw the retailer back down. The supermarket giant planned to implement the levy from October 1. 

Suppliers feared that the move could also see rival Progressive Enterprise impose a similar levy for its Countdown stores—the two retail giants together control 95% of the domestic grocery market.

Innovate and collaborate​

Rich said that New Zealand’s food and grocery manufacturers need to innovate and collaborate more if they want to survive what looks like a prolonged flat spell in the economy.

She said that one of the things unique to Kiwi suppliers is that they are a confident lot and they do not depend on government largesse to bail them out in any sort of way from the current climate.

“They are able to look into themselves and their operations, and look for ways to improve and innovate to survive in these tough economic conditions,” she said, adding that local suppliers have to invest in research and development.

Concerning retailer issues, Rich said that given the smaller size of the fast-moving consumer goods market, the situation is not uncontrollable. Relations between suppliers and retailers have become more constructive and collaborative than in countries like Australia, the UK or parts of Europe.

“Suppliers and retailers talk to each other, and even though they have some disagreements, both parties recognise that there will be robust negotiations,” she said, adding that eventually, there will be a consensus beneficial to both parties.