Goodman Fielder chief executive Chris Delaney has been forced to eat humble bread. In a rather humiliating about face after waging a very public campaign earlier this year against Coles and Woolworths for squeezing suppliers such as his company, Delaney today announced a deal whereby Australia’s biggest bread producer will supply the supermarkets with loaves they can label their own.
Delaney had publicly eviscerated the supermarket oligopoly for pushing suppliers into supplying them with loss making products, denouncing in particular, price pressure from private label brands.
No financial details were released by Goodman Fielder in an ASX announcement today but Delaney has been plainly pushed into a corner by the power of Coles and Woolworths, who dominate the food retail business in Australia. The days of $1 bread may not be over, particularly in current economic times. Consumers want a bargain. The supermarket chains are anxious to appeal to shoppers, whatever the cost it may have for food suppliers such as Goodman Fielder.
The pressures on Goodman Fielder are considerable, as shown by the company’s earnings in the six months to December 31. Revenue at Goodman Fielder’s baking unit dropped 2% to $480.6 million. Overall revenue at the company, which also makes Meadow Lea margarine, fell 9% to $1.17 billion. Goodman Fielder’s net profit slid 4% to $41.2 million. Now the company says it is making “steady progress” to “restore sustainable earnings growth”.
Such earnings growth, as touted by Delaney, is very modest at best. The company’s earnings before interest and tax in the six months to June 30 is set to increase to as much as $105 million from $95.3 million in the six months to December 31. What has held back earnings has been a spate of chicken deaths in, of all places, Fiji.
“A higher than expected livestock mortality rate reduced the company’s ability to supply poultry to the market,” Goodman Fielder said. The result was lower volumes and higher costs. This does not auger well for the company’s 2013 earning announcement scheduled for August 14.
In the last 12 months Good Fielder shares have gained 26% compared with the 16% gain in the S&P/ASX200 Index.