Australia’s health snack makers gobble up growth

October 27, 2016

Australia’s health snack food makers are gobbling up increased revenue on the back of growing health consciousness and rising disposable incomes. However, some business opportunities are easier to snack on than others, but for those more challenging prospects, funders that think outside of the box may provide a much needed solution.

The latest industry data paints a positive picture for the nation’s health snack food makers, including dried fruits and nuts, muesli bars, protein bars and other health snacks. According to the August 2016 IBIS World Health Snack Food Production report, industry revenue is expected to reach $1.2 billion in fiscal 2017, with total profits of around $139 million.

The industry researcher expects revenue to grow at an annualised rate of 2.4 per cent over the five years through to fiscal 2022. This should be helped by increased health consciousness and growing participation in gyms and fitness centres, as Australians attempt to get in shape amid increasing media reports about the dangers of obesity.

According to the report, time-constrained lifestyles and concerns about obesity have been driving consumer demand for convenient, healthy snacks over the past five years. With this category of food products priced at a premium, its success has depended on consumer choices regarding how they spend their disposable income.

Supporting the view that growth will continue for this sector, the latest report by the Australian Institute of Health and Welfare reveals that some two-thirds of Australians are overweight or obese and nearly half have a chronic disease. This suggests that demand for healthier foods has the potential to increase further.

Industry challenges

While it appears demand will continue to grow over the next five years, the industry could face other challenges. The industry’s high profit margins make the sector attractive for new entrants, which may lead to increased price competition and constrained profitability.

Profit margins will be impacted by rising input costs, with wheat prices for example, forecast to rise. Generic industry products are expected to be affected the most, particularly as supermarkets build their private-label ranges and potentially exclude independents from their shelves.

Other pressures include expected new regulations on appropriate labelling and nutritional content.

On the flip side, continued technological advancements could ease pressure on profit margins and enable growth. Key success factors for this industry include economies of scale and scope, along with product innovation, which means the industry must find a way to fund equipment that increases the level of automation.

Alleasing recently worked with a global, listed agribusiness, which operates ‘from seed to shelf’, supplying wholesale food and goods to more than 16,000 customers worldwide. The firm wanted to streamline operations and costs, as well as alleviate a degree of pressure on the pricing of goods by bringing the traditionally outsourced harvesting of its orchards in-house. Alleasing partnered with the business to develop a solution to help the company overcome constraints to capital expenditure (capex) so it could acquire the infrastructure needed and become vertically integrated by bringing the harvesting of crop yields internal.

This was achieved by funding the infrastructure required with a solution that smoothed out forward cash flows and lifted long-term return on equity expectations. In addition, the Alleasing solution enabled the company to gain productivity benefits and reduce contractual market risk associated with outsourcing.

With competition from domestic and overseas players on the rise, Australia’s health food snack makers need to maintain optimal business fitness if they are to remain profitable and grow. By freeing up cash for new investments which can increase market share, the industry can grow a larger pie for all.

Find out how Alleasing can help your business to overcome capital constraints.

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