By Andrew Starke
Smaller liquor retailers will need to innovate or face extinction, according to new research from Grant Thornton and the Australian Food and Grocery Council (AFGC).
The report found that the ability to innovate is driving segmentation across the food and beverage industry with larger players investing in product innovation, while the niche players are carving out new markets to get ahead.
This leaves behind the smaller, less dynamic companies who are becoming less profitable and more susceptible to being acquired.
“We have seen from our own experiences, some of the smaller liquor retailers are feeling as though they are being squeezed out by current economies of scale,” said Grant Thornton’s Tony Pititto.
“Particularly with the increasing amount of sub categories including super premium brands being introduced into the market, segmentation is becoming far more prevalent.
“Our clients are experiencing the need to innovate and find alternative routes to market in order to keep up with the larger industry players.”
Investment in product innovation was identified by one in three food and beverage CEO’s as a main driver to improving profitability; with companies reporting a current spend of one to five percent of sales on product development.
With less to spend on R&D, the smaller, less dynamic companies are struggling to keep up with industry pace.
Larger companies, with deeper pockets can more readily afford to promote their brands and sustain premium pricing.
Supermarkets, on the other hand, are continuing to introduce competitively priced, private label products.
As a result, smaller companies are being squeezed out: unable to compete either on brand exposure or price.
“The industry is split – until now the divide has been masked by consumer demand and stable input prices,” said Pititto.
“As the market changes, ultimately what we expect to see is a more concentrated industry landscape, dominated by large companies with strong brands, but with room for agile, niche players.”
The report revealed that the industry is rising to the challenge by embracing new routes to market and exploring new customer and supplier agreements.
They are also considering strategic alliances and acquisitions to build market presence in carefully defined niches.