Food manufacturing giants warn of higher costs of doing business in Australia

Adrian Lowe
The Nightly
4 Min Read
Manufacturers including Coca-Cola have warned Australian operations are increasingly challenging amid higher costs and inflation.
Manufacturers including Coca-Cola have warned Australian operations are increasingly challenging amid higher costs and inflation. Credit: Sam Wundke/AAPIMAGE

Some of the world’s biggest food and grocery brands have warned the cost of manufacturing in Australia has increased so much they have had to consider whether to send operations offshore and import goods.

Manufacturers including Kraft-Heinz, Coca-Cola, Kellanova, Mars, Unilever and Nestle have also pushed back on suggestions by major supermarkets price increases were largely driven by their industry, pointing to the market concentration of supermarkets and their need to stay on shelves while maintaining profits, jobs and manufacturing.

In submissions just made public by the Senate inquiry into supermarket prices, the makers of a raft of household name products say increases in the cost of ingredients have seriously affected the way they do business globally, but highlighted specific challenges about Australia.

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But some also warned of further price hikes despite lower inflation and some input costs falling due to uncontrollable factors.

Kellanova (formerly Kellogg’s) said it made more than 93 per cent of its breakfast cereal products in Australia and had been able to weather input price volatility through addressing inefficiencies, but some prices have had to go up.

It too warned of increasing challenges to operating food businesses in Australia, particularly if manufacturing locally.

“It is imperative that we have the ability to operate a viable and profitable business in Australia, so that we can fund investment in our facilities and capabilities,” Kellanova said.

“We always look to find more efficiencies and optimise our processes as a first step, before having to pass on these (higher) costs to the wholesale price, or considering alternative manufacturing solutions elsewhere — including offshore, which would have adverse impact on the Australian community.”

Nestle — which operates Milo, Nescafe, Maggi, Uncle Tobys, Allen’s Lollies, Butter Menthols and a raft of pet food brands — said it made more than 60 per cent of its revenue from sales to Woolworths and Coles, the major two supermarkets, but had not passed on its cost increases in full.

“The prices of some of the ingredients that are significant to the largest product ranges in the Nestlé business in Australia, cocoa and robusta coffee, have continued to rise into 2024 and are reaching all-time highs,” Nestle corporate affairs and sustainability director Margaret Stuart said. “For example, cocoa beans have increased 200 per cent since the start of the year, off the back of already record prices.”

Coca-Cola Europartners Australia managing director Orlando Rodriguez said though cost increases were absorbed to keep products affordable, some were passed on to recover costs and earn “reasonable” return. Price hikes were negotiated with retailers.

“It is important to recognise that in these negotiations, we are dealing with a small number of customers who determine the viability of nearly half of our business,” he said. “On the other hand, we comprise a small proportion of theirs.”

He added that Coca-Cola had about 30 per cent volume share of the “non-alcoholic ready-to-drink” category but retailer own brands had about 28 per cent.

Unilever, which owns the likes of Dove, Lynx, Surf, Hellmans, Rexona and Ben & Jerrys, pointed to huge price increases in its costs since 2019 — trucking and freight by 14.4 per cent, warehousing by 16.4 per cent, natural gas by 54.6 per cent and electricity by 23.9 per cent.

It said though 70 per cent of its products sold in Australia were locally manufactured, local profitability over the last three years had marginally decreased.

In the past five years, its products have increased in price by an average of 17 per cent, head of country Nick Bangs said, with Cup-A-Soup, Blue Ribbon Ice Creama and Surf and Omo laundry liquid and powder atop the list. But Paddle-Pops, Cornettos and a Rexona 40mL deodorant have all decreased in price year-on-year.

“Hitting a particular price point is important to consumers so it can make sense in some cases to reduce a pack size rather than prices going up,” he said. “Pack size is one of the levers we can pull but it is not the only one.”

Mars, owners of the famed chocolate bar as well as a raft of pet food, Dolmio, Ben’s rice and Skittles, bluntly stated: “It is currently an exceptionally challenging operating environment for Australian manufacturers.

“Australia is known as an expensive place to manufacture food products locally.

“For Mars Australia, our overall operating profit margin in 2023 was below 2020 levels, indicating that we are not profiteering through price rises,” it said, adding some of its retail prices, such as for Wrigley’s gum, had increased just once in the past decade.

Kraft-Heinz, best known for sauces as well as Greenseas tuna and the Original Juice Co, said it had not threatened to withhold supply of any items as part of commercial negotiations with retailers, and it competed with various suppliers including supermarket own label products. The “robust” negotiations usually took months, it said.

“To implement a price change, Kraft Heinz Australia is required to follow the set processes implemented by the retailers to manage price changes,” it said. “While a supplier may provide a recommended retail price, the retailer controls the final price to the consumer.”

Mr Rodriguez said there was a pressing need to strengthen raw materials supply — including carbon dioxide to ensure beverages could be carbonated — encourage manufacturers invest in innovative technology and lift productivity and cut back on red tape.


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