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30 March 2006
Auckland
Over half of FMCG manufacturers gloomy about business prospects
Forecast of retail sales still positive; more than 60% predict 2-5% retail growth
Retailer pressure emerges as biggest concern
Feeling the pinch of increasing retailer pressure and the threat from private labels, leading manufacturers of fast moving consumer goods (FMCG) in New Zealand have expressed general pessimism over business prospects for the year ahead. However, despite this gloom, the forecasts of retail growth remain positive. Such were the findings from a recent Retail Barometer survey conducted by ACNielsen, the leading market researcher.
The ACNielsen Retail Barometer, the first of its kind in New Zealand, surveyed key business leaders of major FMCG manufacturers to gauge their business confidence and views about the New Zealand retail environment and topical industry issues. Over 45 percent of the respondents were from the companies’ General Management, and more than half were sales and marketing directors.
More than half of the manufacturers (53 percent) thought business conditions had deteriorated compared to a year ago; one third felt they were the same.
Sales and marketing directors at the coal face were more pessimistic, with nearly two thirds believing the situation to have deteriorated in comparison to last year.
Up to 40 percent of General Management rated a negative performance versus last year.
Half of General Management reported no change, while 13 percent reported significant deterioration, and an equal number reported only some improvement.
Over 60 percent of all respondents believe the downturn will continue for the next 1-2 years.
“To some extent, the pessimism regarding business prospects could be attributed to general economic indicators such as spiralling fuel price”, said Steve Mitchell, Managing Director of ACNielsen New Zealand.
“However, the negative sentiment for FMCG suppliers was based more on their most immediate concerns about retailer pressure and the threat of retailers’ private labels “, said Mitchell.
Concerns over a changing retailer scene are likely to have the greatest impact in 2006, according to the ACNielsen survey.
Retailer issues were at the top of manufacturers’ greatest concerns, with pressure on trading terms and supply chain strategies most likely to impact business. Of next greatest concern was the ability to pass on price increases.
Although likely to have an impact, economic issues and government legislation are of less importance, with the threat of a bird flu epidemic of relatively minor concern to New Zealand manufacturers.
The number one issue for General Management was pressure on trading terms, with economic indicators such as petrol prices and inflation also causing concern, and all likely to affect the cost of doing business and the bottom line. Sales management were also concerned about industry relations, along with marketing add private label growth and the ability to pass on price increases to the mix.
With up to 90 percent of manufacturers expecting Kiwis will buy premium private label products, the threat of private label, or retailers’ house brands, has been weighing heavily on the mind of suppliers.
The ACNielsen Retail Barometer also found private label manufacturers to be more optimistic about the business situation than non private label manufacturers, with 32 percent forecasting growth above six percent (vs. 20 percent for NPL) and no negative performance forecast (vs 8 percent NPL).
Mitchell added that the entry of Woolworths Australia and the rationalisation strategy the new player is expected to bring to the market would be yet another source of concerns.
The ACNielsen survey found a mixed view regarding Woolworths’ takeover of New Zealand retailer, Progressive. The majority expect that the Woolworths takeover will have a negative impact on their business (61 percent). One fifth of respondents remain ambiguous about what this would mean to their business.
The takeover was expected to have positive impact on retailers’ leadership strategies, but concerns over fairness of trading term negotiations loom large. Suppliers also expressed concern about the range review process.
Despite the gloom about general business prospects, more than 60 percent of respondents (62 percent) in the ACNielsen survey forecasted domestic retail growth between 2-5 percent for 2006.
One quarter of respondents expected growth above five percent in 2006, with over one fifth (12 percent) forecasting less than one percent growth.
More than half were expecting sales growth above four percent, with a small group at each end of the scale (3 percent) forecasting high growth (+16 percent) and negative performance.
General Management is most optimistic about growth opportunities, with almost two thirds expecting above four percent and nearly half forecasting 4-7 percent.
Mitchell warned, however, that “These perceptions may be at odds over the longer term”.
About The ACNielsen Retail Barometer Survey
The ACNielsen Retail Barometer, the first of its kind in New Zealand, surveyed key business leaders in major fast moving consumer goods (FMCG) manufacturers. Over 45 per cent of respondents were from the companies’ General Management, more than half were sales and marketing directors.
The ACNielsen Retail Barometer study was first conducted in Australia in April 2005. The bi-annual survey is designed to gauge business confidence based on senior management views and opinions within FMCG manufacturers on retail environment and topical industry issues. ACNielsen introduced the inaugural survey to New Zealand in February this year.
The February survey in New Zealand uncovered general business confidence, retailer relationships, determining factors of retailer performance, and assess impact on industry developments including alcohol, private label and Woolworths’s entry to New Zealand.
About ACNielsen
ACNielsen, a VNU business, is the world’s leading marketing information provider. Offering services in more than 100 markets, the unit provides measurement and analysis of marketplace dynamics and consumer attitudes and behaviour. Clients rely on ACNielsen’s market research, proprietary products, analytical tools and professional service to understand competitive performance, to uncover new opportunities and to raise the profitability of their marketing and sales campaigns. To learn more, visit www.acnielsen.co.nz
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