Overview

Understanding your industry

• Rising Input Costs:  Increasing costs and declining profits are leading to the consolidation of enterprises and a trend towards economies of scale to reduce per unit production costs.
• Limited Ability to Implement Selling Price Increases in Current Economic Environment: There is limited opportunity for manufacturers to increase prices for their products in local and global markets where trading conditions are highly competitive. While retailers strive for competitive price offerings, manufacturers are being forced to adopt alternative methods to absorb rising input costs.
• Necessity for Strong Supply Chain Management to Service Shrinking Demand: Key suppliers are of the utmost importance in this industry with companies relying heavily on strong relationships with supply-partners. A strong supply chain production planning process is essential. Relationships with suppliers through ownership or contractual arrangements help to ensure the continuous supply of raw materials.

• Legislative Changes are coming Thick and Fast as a result of the Reform Agenda of the Federal Government: Significant amendments have been made to many aspects of the Trade Practices Act in the last 12 months including clarity in price requirements and criminal Cartel conduct provisions. The next 12 months will see further change with the enactment of the Competition and Consumer Act covering unfair contract terms in standard form contracts and changes to penalties and other powers of the Courts and ACCC. This legislative environment is directly relevant to consumer goods companies.

• Product and Technological Innovation is Increasingly Important: Manufacturers are maintaining consumer interest through product innovation and the introduction of differentiated products to meet consumer requirements. Profitability can also be raised through a diversified range of products by enabling high capacity utilisation rather than seasonal operation. Manufacturers with the ability to quickly adopt new technology are able to lead within a given segment.
• Consumer Focus on Healthy Products raises Regulatory Issues:  Increased consumer awareness about health and nutrition, natural, artificial and organic products has led to aggressive marketing by those in the food sector in particular. In turn, this focus is increasing regulatory risk for those advertisers responding to this consumer concern.
• Private Label Growth: The growth of home brand products presents considerable competition for shelf space, with low to mid tier manufacturers in particular facing the challenge.

These challenges are expected to cause manufacturers to fundamentally alter existing business models leading to greater collaboration between manufacturers and retailers in order to keep costs low and develop new product portfolios that suit households.

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