Food retailers set to struggle as sluggish sales continue

Food retailers are in for another tough year, according to the Australian Food and Grocery Council CHEP Retail Index, which forecasts a modest rise in sales of just 2.1% for the June quarter.

The index is a collaborative project between the AFGC and CHEP Australia, which provides pallet and container pooling services. The index is powered by Deloitte.

It uses CHEP transactional data based on pallet movements, and is a lead indicator of the Australian Bureau of Statistics’ retail trade data.

The latest index has forecast a 2.1% rise for the June quarter, compared to growth of 2.5% in the March quarter.

The predicted slowdown in activity through the June quarter will put further pressure on retailers and manufacturers, who are already feeling the pinch of Australia’s elevated exchange rate.

However, the results of the index are consistent with ongoing weakness in household spending in Australia, driven by soft consumer sentiment.

The forecast for the March and June quarters also suggests the 2011 interest rate cuts by the Reserve Bank are yet to stimulate retail activity.

In trend terms, nominal retail spending growth fell to 2.5% over the year to February, according to the index.

This is the lowest growth since September 2011, and well below the average growth over the last decade of more than 5.2%.

At a state level, data from the ABS shows nominal retail spending growth in trend terms reflects Australia’s two-speed economy.

In year-on-year terms, nominal retail spending in WA is growing at close to 10%, while in Queensland and the Northern Territory growth is close to 4%.

In contrast, year-on-year growth is less than 1% in NSW, South Australia and the ACT, and around 2% in Victoria.

Dr Geoffrey Annison, acting chief executive of the AFGC, says sluggish retail conditions are making life very difficult for manufacturers in particular.

“Despite the challenges, food and grocery manufacturers are staying positive by seeking efficiencies across the entire supply chain, through improved processes and practices,” he says.

Phillip Austin, president of CHEP Australia and New Zealand, has an equally positive outlook.

“Beyond the cooler summer’s impact on the traditional seasonal peak in supply chain activity, we are seeing highly efficient current stock holdings across… wholesalers and retailers,” he says.

“[This] implies businesses along the whole supply chain will see a rise in activity as demand returns.”

The news comes on the back of an announcement by independent supermarket group FoodWorks, which said there has been a surge in interest in FoodWorks store ownership.

FoodWorks has more than 600 branded and unbranded stores in every state and territory, ranging from small convenience stores to major supermarkets.

It recently appointed two additional state managers, and three state operations managers.

“The benefit of being a FoodWorks supermarket owner is the freedom to make independent, localised decisions on product selection [and] marketing,” chief Rick Wright said in a statement.

“This is what builds lasting relationships with customers. Good decisions made at a store level will keep customers coming back, which the other supermarket brands aren’t able to do.”