A BOOMING business selling hot pies and other ready-to-go meals to petrol station and convenience stores was not enough to counter a shift by supermarket shoppers to lower-priced packaged desserts, reducing margins for Patties Foods during the half and cutting interim profit by 16.5 per cent.
The downturn in the supermarket channel, fuelled by intense competition between leading brands - led by discounting from Sara Lee - and the growing popularity of private-label foods, has led Patties Foods to forecast a slightly weaker profit for the full year.
The poorer first-half result was also driven by disruptions to its manufacturing due to the installation of a new robotic packaging system and a charge of nearly $1 million relating to non-recurring bad debt.
Patties Foods, which owns a portfolio of brands, including the iconic Four'n Twenty, Herbert Adams and Nanna's, has also slashed its interim dividend by nearly 16 per cent. It will look for new growth opportunities this year to bolster its margins, including a greater focus on exports and a new range of mid-priced frozen desserts to win back supermarket customers.
"The area where we are having the most impact on margin is our frozen fruit business," Patties Foods managing director Greg Bourke said. "It is growing in the value end - increased value products rather than premium branded products."
"There is a change of mix going towards private label and also to the value range."
Mr Bourke said the company was still selling the same amount of product into supermarkets but there was a shift from its premium Creative Gourmet brand to cheaper private-label foods, which it also sold into Coles but that earned slimmer margins.
"People are buying on price," Mr Bourke said.
Patties Foods posted a 16.5 per cent slide in its interim half-year profit, which fell to $9.1 million as revenue rose 5.1 per cent to $125.5 million. The interim dividend was cut to 3.2¢ a share, down from 3.8¢, and is payable on April 12.
The convenience and petrol station channel was growing by 5 per cent a year as a category, but Patties Foods was beating that with about 30 per cent growth through its range of pies and other heated meals.
"That's due to contract wins and growth of our Four'n Twenty brand."
The company last year won a supply contract with BP.
Mr Bourke said Patties Foods would continue to invest in its strategic growth initiatives, particularly the development of new channels and regions, and keep a tight rein on costs.
Based on current trading conditions, Patties Foods expects net profit in the second half to be at or above the profit for the previous corresponding period. Shares in Patties Foods fell 13.5¢ to $1.565.