Australian food group Goodman Fielder has insisted NPD and increased marketing spend will boost sales from its baking business, its largest division, after it came under pressure in recent months.
After two years of annual losses, Goodman Fielder yesterday (15 August) reported it had made a profit in its most recent financial year, which helped it restore its dividend.
However, underlying profits from continuing operations fell 8% as lower volumes from the company’s bakery and grocery businesses dropped. Goodman Fielder insisted profitability improved in the second half of the year to 30 June, compared to the first six months. Nevertheless, speaking to analysts to discuss its results, CEO Chris Delaney faced questions about the company’s pricing strategy for its baking division.
Goodman Fielder has been looking to boost profits from its baking business by cutting costs but also by increasing prices. Delaney said the company had been “under-recovering” increases in input costs. However, he admitted Goodman Fielder had been forced to react in the last quarter of the financial year after its baking rivals decided not to increase prices to the level it did and its volumes came under pressure.
“Our competitors obviously don’t want to take much pricing as we do, that’s the reality of a competitive market. Some of that pricing, we are going to have to give back,” Delaney said.
Revenue from Goodman Fielder’s baking division fell 3%, with normalised EBIT down 9%.
He claimed years of under-investment in marketing, product quality and NPD meant when Goodman Fielder upped prices on its bakery products, consumers turned away.
“If we hadn’t been doing the right things on NPD over the years, hadn’t been doing the right things on quality over a five- ten-year period and if we haven’t been investing consistently in the marketing of the brands, we should not be surprised that we do see some volume hurts when we start pressing on pricing,” he explained.
However, despite the intense promotional activity in Australia’s grocery industry more broadly and its two largest retailers, Woolworths and Coles, competing heavily on price, Delaney said Goodman Fielder’s plans to invest in marketing and roll out new products would boost its volumes.
“Consumers always want lower prices. Having said that, price is one element of a value equation and there are thousands of examples of consumer behaviour of paying for quality. Over time, unless you are positioning yourself as a value brand and what you are trying to do is offer that value, it would be very foolish to rely on pricing,” he said.
Goodman Fielder, Delaney insisted, had “started to fix” its product quality, NPD and marketing. “We have a much stronger ppline of NPD in years – and by the way that will continue to strengthen – and we are starting to invest more consistenly in messaging and communicating to our consumer. That will grow volumes. We are confident about it. We exp the fresh loaf market to move up with us.”