General line grocery wholesalers that supply supermarkets and grocery stores have faced price pressures and reduced profit as competition increases, according to IBISWorld.
The general line grocery wholesalers service food retailers and foodservice industries. Those that supply foodservice industries such as restaurants, cafés, coffee shops and hotels have performed well over the past five years. Wholesalers that service food retailers have not fared so well, according to industry analysis from IBISWorld.
“The heavily publicised price war between the major supermarkets has hurt these wholesalers,” IBISWorld reports. “Big retailers, such as Coles and Woolworths, have lowered their prices across many everyday items to entice shoppers into their stores. This has placed downward price pressure on wholesalers, including those supplying other food retailers that compete with the might of Coles, Woolworths and ALDI. This struggle is reflected in the plummeting share price of the industry’s largest player, Metcash, which is currently at its lowest level in 10 years.”
As wholesalers that target food retailers account for almost 60 per cent of industry revenue, and Metcash makes up more than half of this market, these price pressures have constrained overall industry growth.
General line grocery wholesaling revenue is projected to grow at a subdued 1.4 per cent annualised over the five years through 2014-15. This is below the 2.9 per cent annualised growth anticipated for the supermarkets and grocery stores industry over the same period.
Wholesale profit margins have also suffered over the past five years. Downward price pressure from food retailers has forced many wholesalers to decrease profit margins to facilitate price cuts, or face losing business altogether.
IBISWorld says this price pressure from retailers has been exacerbated by the rise of private labels.
“Unprecedented growth in sales of private-label products has enabled Woolworths and Coles to achieve profit growth over most of the five-year period. The private-label segment has grown phenomenally over the past five years, and now accounts for more than one-quarter of all supermarket sales.
“This has helped the supermarkets and grocery stores industry achieve strong revenue growth of 5.2 per cent in 2014-15. This has not been good news for general line grocery wholesalers, however, because it has increased the incidence of wholesale bypass as supermarkets establish direct links with manufacturers.”
