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PKF Australia

Accountants and Business Advisers

Quarterly Insights: Australian Food Manufacturing & Distribution June 2020

Quarterly Insights: Australian Food Manufacturing & Distribution June 2020

PKF Melbourne Corporate Finance is pleased to present the Food Manufacturing & Distribution Insights for the June 2020 quarter, including a summary of key merger and acquisition transactions observed in the industry.

Our quarterly release helps demonstrate our knowledge of the sector and our ability to drive business value and achieve a successful outcome for anyone contemplating a transaction.

The Consumer Staples Index

The Consumer Staples Index is comprised of companies involved in the manufacturing and distribution of food and beverages. The Index provides a broad measure of the performance of the Australian food manufacturing and distribution industry.

The Consumer Staples Index experienced growth of 9.75% over the 12 month period from July 2019 to June 2020 and a growth of 7.17% for the June 2020 quarter. The Consumer Staples Index was outperformed by the ASX for the June 2020 quarter.

COVID-19: Impacts on Australian Food Manufacturing & Distribution Sector:

Government initiatives to support businesses

The government has introduced a number of measures to provide support such as the JobKeeper Payment, instant asset write-offs and tax-free cash flow boosts.

Emerging labour shortage for farmers(1)

With the nation’s borders closed to all foreigners, there are growing concerns amongst farmers that there will not be enough experienced labour for harvesting in the next few months.

Effects of income shock on food demand(2)

Demand for food staples is expected to remain relatively strong as it is less responsive to income shocks related to COVID-19 compared to the demand for more expensive food products such as wine and quality meats.

Change in customer preference(3)

As more people either work or stay at home, there is early evidence of a change in customer preference for supermarkets – people are purchasing less convenience and impulse products and moving towards more cooking and baking from scratch.

Sources:

(1) https://www.abc.net.au/news/rural/2020-06-23/farmers-warn-no-seasonal-workers-will-leave-fruit-to-rot/12374016

(2) ABARES Agricultural overview outlook – June 2020

(3) Coles Group Results Release – 29 April 2020

How companies are responding to the pandemic

  • Coles has invested in additional cleaning, security and queuing systems in order to comply with social distancing guidelines such as hand sanitisers, introduction of check-out screens and flu vaccination rebates for Coles team members.
  • Woolworths recently announced plans to develop an automated regional distribution centre and semi-automated national distribution centre in Sydney. Woolworths is expected to invest between $700-780 million into the centres.
  • Treasury Wine Estates are currently focusing on managing existing business through the current trading environment.
  • Metcash has launched ‘IGA Shop Online’ in order to address the increase in online shopping and the increased competitiveness of independent retailers through new online offers.
  • Coca-Cola Amatil have relocated team members back into their On-the-Go channel, having temporarily redeployed them into the Grocery channel in mid-March.
  • Clean Seas Seafood have noted that export markets are recovering, and their focus is now to maximise cash generation opportunities as well as to develop new products and supply chains.

Sources: ASX Announcements

Key deal activities in June 2020 quarter

PKF Melbourne Corporate Finance has observed the following key food manufacturing and distribution transactions announced during the June 2020 quarter.

Sources: S&P Capital IQ, MergerMarket, PKF analysis

(1),(2) 50% stake

Download the Food Manufacturing & Distribution Insights for the June 2020 Quarter as a PDF.


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