Source: http://www.qbr.com.au/index.cfm?storyid=27995&cp=displaystory

Australian grocery manufacturers are feeling the effects of slow consumer spending with most saying retail business conditions have been in decline over the past 12 months, a report by ACNielsen has revealed.

The findings extracted from ACNielsen’s bi-annual Retail Barometer survey capture responses from over 100 senior leaders from top Australian fast moving consumer goods (FMCG) companies on business confidence and concerns, retailer relationships, Private Label trends and promotional trade spend.

Results from the survey revealed that only 17% of manufacturers have seen an improvement in retail business conditions over the past 12 months, while close to half (47%) expect business to deteriorate further over the next two years – a 10% increase from November 2005.

It was the multi-national companies that were the most pessimistic with half (50%) expecting business conditions to decline over the next two years, compared to 43% of Australian companies.

Asked to rate issues of most concern in terms of the impact on their businesses, pressure on trading terms was the most likely concern to keep manufacturers awake at night, followed by Private Label growth, the ability to pass on price increases, retailer supply chain strategies and petrol prices.

Despite these concerns, manufacturers appear optimistic about their retail sales growth for 2006, with 62% expecting business growth of more than 4% – the majority (38%) expected growth of 4% to 7%, and almost a quarter (24%) expected growth above 8%.

This compares to industry growth of just 3% to 4% for packaged grocery.

Almost half (47%) of multi-national companies estimate their sales growth for 2006 will be between 4% and 7%, and only 18% expect growth above 8%.

Conversely, local Australian companies appeared polarised when forecasting their sales growth for 2006, with the majority (39%) expecting growth to be between zero and 3%, while almost one in three (32%) expected growth above 8%.

Not surprisingly, there is a direct correlation between increased trade spend and expected sales growth with 42% of manufacturers who increased their investment in trade spend by over 8% in the past year also expecting retail sales growth for 2006 to be above 8%.

The survey results indicate manufacturers are concerned with increased promotional spend, with more than four in five (83%) saying they are increasingly relying on promotional spend to achieve sales budgets, and 82% agree that it is now more difficult to get new products ranged on supermarket shelves than it was a few years ago.

"There are clearly a number of issues which are having a flow-on effect on manufacturers’ business confidence, particularly in the area of trading term pressures, Private Label growth and the challenge of being able to pass on price increases," says Ben Dixon executive director, ACNielsen Australia.

"However, it is promising to see that the vast majority still expect growth above 4% – the total packaged grocery sector has been growing at between 3% and 4% over the past year."

Overall, manufacturers’ satisfaction with supermarket retailers remain positive in the six months to May 2006, with more than three in five (62%) rating their current trading relationships with retailers as good or excellent.

When asked to rate retailers’ performance based on a number of specific attributes German retailer Aldi emerged as the top overall performer.

Consistent with ACNielsen findings that Aldi continues to be the key driver behind Private Label share gains in Australia, it was also rated the strongest in six of the eight performance attributes including understanding the needs of the consumer; quality of the range review process;

fairness of trading terms and negotiations; store compliance; supply chain efficiency; and strategies for success.

Findings from the Retail Barometer also show that the number of manufacturers producing Private Label products have declined to 56%(down 9% from November 2005).

And of those not currently supplying Private Label, 69% say it is unlikely that this will be undertaken in the next three years, with the majority citing global policy as the key reason.