Blog: Dean BestCampbell's confidence about Australia is a surprise

Dean Best | 6 September 2011

There has been a lot of negative comment about trading conditions in Australia - and there was more from the dairy sector overnight - but one multinational is upbeat about its prospects in the market.

Manufacturers have been feeling particular pressure in Australia, a market dominated by two retailers, Woolworths and Coles, who account for around 75% of grocery sales in the country.

As well as the common issue of rising commodity costs, suppliers in Australia have seen the country's two retail behemoths fight fiercely on price, particularly on private label.

Dairy farmers have felt the pain of a price war on milk, although the retailers were cleared of predatory pricing by competition authorities. That said, today, a group of farmers, in evidence to a Senate inquiry on milk pricing, have hit at the "catastrophic impact" the competition between Woolworths and Coles has had on the sector.

Elsewhere, Goodman Fielder, one of Australia's largest domestic food manufacturers, last week reported a drop in annual profits as it battled raw-material costs - and a fall in sales. Australia's bakery sector, a key category for Goodman Fielder, had seen "deep discounting and a resurgence of private-label products".

And no less than Heinz has recently described Australia as an "inhospitable market" for manufacturers.

As such, on Friday, industry watchers were keen to hear what Campbell Soup Co. viewed conditions in the country when it issued its annual results. According to estimates from Sanford Bernstein, the US company generates around 12% of its sales from Australia.

Surprisingly, the soup and snack maker was confident about the outlook for its local business.

"The Australian market, from an economic standpoint, is starting to become more under pressure," president and CEO Denise Morrison acknowledged. "However, we believe that with the size of the business we have over there in the categories that we play and the customer relationships that we have, we'll continue to be responsive and continue the momentum that we've built in that marketplace. We're very bullish on Australia."

A key local business for Campbell is Arnott's, which saw volumes increase in its last financial year. An increase in volumes and higher selling prices helped sales from Campbell's global baking and snacking operations increase 4%. It appears to be a solid business for Campbell, which seems to be rare in its optimism for its business in Australia.

However, as we reported today, Campbell does face challenges, not least in its core US soup market.


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