The Australian food and beverage sector recorded profitability declines of a 25 and 28 per cent respectively year-on-year, according to research by inventory management software company, Unleashed.
The Unleashed Manufacturing Health Index used a big data approach to assess the performance of 1790 SME manufacturers across 12 manufacturing subsectors in the UK, Australia and New Zealand.
The Australian manufacturing industry dropped 17 per cent.
Unleashed content manager, Greg Roughan, said the food and beverage sector was being hit hard by inflation.
“We’ve been compiling these reports for a while now and watching the industry weather Covid and significant supply change disruption. Just as those were mostly sorting themselves out, inflation came along.
“It’s very much like climbing a mountain, taking two steps forward and then sliding one step back. You might be selling more but it is not translating into increased profits,” Roughan said.
Across the 12 manufacturing sub-sectors, the inflationary environment saw the average business make a return of $2.1 per dollar invested in inventory (measured as Gross Margin Return on Inventory, or GMROI) in FY24, a significant fall from the $2.90 average return recorded in FY23.
For food manufacturers, sales revenue was down almost 20 per cent. The index found that in FY23, food manufacturing’s yearly sales revenue average was $612,854. In FY24, that dropped to $460,043.
Unleashed head of Product, Jarrod Adam, said, “With high operational costs at the best of times, the food and beverage industry is in a tough battle against inflation. Add in a decreasing sales pipeline, rising excess stock levels and a weak economy, and you have a recipe for an industry facing a severe drop in profit margin.”
For the beverage industry, there has only been one quarter in the last eight where GMROI hasn’t declined. Unleashed found that for the Australian industry, the average return on dollar invested in 2Q24, was $2.0, compared to a $3.4 return on dollar invested in 2Q23.
“You’ve got this brutal situation where we ought to be recovering, but actually, the costs of goods and services are going up and you have a very cautious consumer environment. Manufacturers are getting squashed in the middle and experiencing quite a bit of pain,” Roughan said.
Adam added that declining sales revenue – 2Q24 $408,586 down from 1Q24 $583.747 – along with a drop in the return on investment shows the difficult position on Australia’s beverage industry.
“For manufacturers working with fast perishables such as food, a strong sales pipeline is the lifeblood of a business. As the looming recession slows spending at the consumer and the business level, the food industry is struggling to meet its costs with little reprieve on the horizon.
“This is a strong industry that is deeply connected to its customers. But selling a consumer good in times where people everywhere are tightening their discretionary spending is extremely difficult. The beverage industry is bearing the full brunt of that difficulty.
“Inflation is usually a silent killer but in the current environment it has emerged from the shadows. While businesses are working hard to build strong sales pipelines, keep overstock levels down, and keep metrics positive, inflation can steal all that work to keep businesses in the red. There really is nowhere to hide in the current economic conditions,” Adam said.
Click here for the full report.
