BMI Australia Food and Drink Report Q4 2016 PDF

Q4 2016
www.bmiresearch.com
AUSTRALIA
FOOD & DRINK REPORT
INCLUDES 5-YEAR FORECASTS TO 2020
Published by:BMI Research
Australia Food & Drink Report Q4 2016

INCLUDES 5-YEAR FORECASTS TO 2020
Part of BMIs Industry Report & Forecasts Series

Published by: BMI Research
Copy deadline: July 2016
ISSN: 1749-2580
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CONTENTS
BMI Industry View ............................................................................................................... 7
Key Trends & Industry Developments .......................................................................................................... 8
SWOT .................................................................................................................................... 9
Industry Forecast .............................................................................................................. 11
Consumer Outlook ...................................................................................................................................
Latest Updates .......................................................................................................................................
Structural Trends ...................................................................................................................................
Food .....................................................................................................................................................
Latest Updates .......................................................................................................................................
Structural Trends ...................................................................................................................................
11
11
11
13
13
14
Table: Food Sales (Australia 2013-2020) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Drink .................................................................................................................................................... 17
Latest Updates ....................................................................................................................................... 17
Structural Trends ................................................................................................................................... 18
Table: Total Alcoholic Drinks Spending And Consumption (Australia 2013-2020) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Table: Non-Alcoholic Drinks Sales (Australia 2013-2020) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Mass Grocery Retail ................................................................................................................................ 22

Latest Updates ....................................................................................................................................... 22
Structural Trends ................................................................................................................................... 22
Industry Risk Reward Index ............................................................................................. 24

Asia Pacific - Risk/Reward Index ................................................................................................................ 24
Table: Asia Pacific - Food & Drink Risk/Reward Index, Q416 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Industry Risk Reward Index ....................................................................................................................... 29
Market Overview ............................................................................................................... 31

Food .....................................................................................................................................................
Recent Developments ..............................................................................................................................
Market Drivers & Trends .........................................................................................................................
Drink ....................................................................................................................................................
31
31
31
34

Mass Grocery Retail ................................................................................................................................
34
34
37
37
37
Competitive Landscape .................................................................................................... 39

Table: Key Players In Australia's Food & Drink Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Table: Key Players In Australia's Mass Grocery Retail Sector . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
Business Monitor International Ltd
Page 4
Company Profile ................................................................................................................ 40

Dairy Farmers ........................................................................................................................................ 40
Heinz Australia ....................................................................................................................................... 42
Lion ...................................................................................................................................................... 45
Coopers Brewery .....................................................................................................................................
Aldi .......................................................................................................................................................
Wesfarmers ............................................................................................................................................
FoodWorks .............................................................................................................................................
Woolworths ............................................................................................................................................
47
50
53
56
58
Demographic Forecast ..................................................................................................... 62

Table: Population Headline Indicators (Australia 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Table: Key Population Ratios (Australia 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63
Table: Urban/Rural Population & Life Expectancy (Australia 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Table: Population By Age Group (Australia 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64
Table: Population By Age Group % (Australia 1990-2025) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65
Glossary ............................................................................................................................. 67
Food & Drink ........................................................................................................................................ 67
Mass Grocery Retail ............................................................................................................................... 67
Methodology ...................................................................................................................... 69
Industry Forecast Methodology ................................................................................................................
Sector-Specific Methodology ....................................................................................................................
Sources ................................................................................................................................................
Risk/Reward Index Methodology ...............................................................................................................
69
70
70
71
Table: Food & Drink Risk/Reward Index Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

Table: Weighting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73
Page 5
BMI Industry View

BMI View: Australia's food and drink market will experience robust growth throughout our five-year
forecast period, as companies benefit from established supply chains, large urban populations and shifting
consumer trends towards healthier premium products. The mass grocery retail (MGR) sector will be a
pivotal area of development, as discounters outperform and legacy retailers offset risks in traditional
supermarket formats by expanding online and convenience offerings.
Food and Drink Spending

(2013-2020)
150,000
100,000
50,000
0
2013
2014
2015
Food, sales, AUDmn
2016f
2017f
2018f
2019f
2020f
Non-alcoholic drinks, sales, AUDmn
f = BMI forecast. Source: National statistics, BMI
Page 7
Key Trends & Industry Developments
Consumer spending will recover only slowly in 2016, as the Australian economy faces the headwinds of
low commodities prices.
In the MGR sector, the high level of investment from German discounter Aldi and the potential market
entry of Lidl will increase competition and put downward pressure on prices.
Online and convenience sub-sectors will grow strongly as leading food retailers expand other business
areas in an effort to retain market share
As consumers adopt healthier lifestyles, they will favour food categories with high nutritional content and
turn away from foodstuff with high sugar or fat content.
We expect alcohol consumption (in volume terms) to decline throughout the next five years, as
Australian consumers increasingly favour quality over quantity.
Page 8
SWOT
Food & Drink SWOT Analysis
Strengths
Australian consumers have high disposable incomes, allowing them to spend

relatively freely on non-essential food items.
Competition is strong in the food and drinks sectors, despite ongoing consolidation.
Australia has a thriving domestic agribusiness sector and is one of the world's largest
exporters of key agricultural commodities, including meat.
The country's retail sector remains extremely profitable and attracts considerable
levels of investment despite its maturity.
Weaknesses
The cost of doing business in Australia is higher than in emerging Asian markets,
where infrastructure now supports manufacturing industries.
Volume consumption of alcoholic drinks has been declining in recent years amid
rising health awareness and higher taxes.
The country's wine industry has been hit by massive oversupply, limited and
expensive inputs, a competitive global export market, a strong Australian dollar and
weakening demand in key export markets.
The MGR market is almost saturated. Most of the population lives in cities on the east
coast, which are already dominated by existing retail chains.
Geography and demographics prevent the establishment of large, hypermarket-style

outlets.
Opportunities
The government is keen to encourage foreign investment and offers a transparent

business environment.
New country-of-origin labelling legislation creates a unique opportunity for firms with
a manufacturing presence in Australia.
The shift towards health-consciousness among Australian consumers represents an

excellent opportunity for manufacturers to diversify.
Page 9
Food & Drink SWOT Analysis - Continued
The discount sector has introduced sector dynamism, with Aldi proving companies do
not need to be a market leader to dictate industry policy.
Online grocery sales are relatively low compared to other developed markets thereby
presenting future growth opportunities
Retailers that have been fast to react to competition from discounters and have an
advantage over supply chain have done better than others.
Threats
Higher excise taxes on alcoholic drinks in the 2016 federal budget would be another
hit for the sector.
Australia's beverage sector is increasingly attracting interest from other Asian players
- in particular, Japanese companies looking to diversify.
Softer domestic demand conditions on the back of declining home values could
dampen demand for higher-value drinks such as wines and spirits.
The rapid rise of discounting and low pricing outside of the discount sector threatens
retailer profit margins.
Page 10
Industry Forecast
Consumer Outlook
BMI View: Household spending will grow at a moderate pace in 2016, reflecting a slowdown in economic
activity, before picking up from 2017 onwards. Staple consumer goods will grow at a faster pace than
discretionary spending. As consumers adopt healthier lifestyles, we hold a positive outlook for food and
non-alcoholic drinks spending.
Latest Updates
We forecast real private consumption growth of 1.8% in 2016, a slight rise from 1.7% in 2015.
No change in forecasts since Q216.
Consumer price inflation is on an upward trend, but inflationary pressures will remain moderate
throughout our forecast period to 2020.
Consumer staples will outperform discretionary items over the course of 2016.
Structural Trends
Australian households will continue to face headwinds throughout the course of 2016, as lower
commodities prices and the associated lower levels of investment translate into a slowdown in economic
activity. While the situation will gradually improve in 2016 ,consumer spending will remain under pressure,
before picking up from 2017 onwards. This follows a tough 2015, when wage growth experienced a sharp
slowdown. While inflation will gradually pick up, inflationary pressures will remain modest throughout our
forecast period to 2020. In the long term, consumer-oriented industries will benefit from declining
unemployment and rising wages.
As consumer spending remains under pressure, we expect consumer staples to outperform discretionary
spending throughout the coming years. Due to Australia's high level of GDP per capita, we believe that
staple categories will be relatively unaffected by the slowdown in consumer spending. In addition, as
Australian households adopt healthier lifestyles and put a greater emphasis on the quality of food, spending
on food and non-alcoholic drinks will post robust growth, given the level of industry development and the
saturation of the retail sector.
From a long-term perspective, demographic dynamics will become less favourable for consumer-oriented
industries. As in most developed markets, population growth is slowing down while the consumer base is
ageing. In addition, Australia's consumer base remains small, especially compared with other markets in the
Page 11
Asia Pacific region, which will create additional pressures for consumer-oriented firms. Nonetheless,
Australia's demographic situation looks better than in a number of developed markets peers, thanks to
steady immigration. The active population will expand throughout the coming years, which is positive for
household spending. On another positive note, the country continues to urbanise, which will further
facilitate the distribution of consumer goods.
Page 12
Food
BMI View: The Australian food sector will experience robust growth throughout our forecast period to
2020, especially from 2017 onwards, as consumer spending fully recovers. Households adopting healthier
lifestyles will drive higher spending on food, which explains the strong performance of food categories with
perceived health benefits, such as dairy products.
Latest Updates
Food sales (local currency) growth in 2016: +4.0%; compound annual growth rate (CAGR), 2015 to
2020: +4.7%.
No change in forecasts since Q216.
Despite the maturity of the sector, food sales growth will outperform total household spending growth as
Australian consumers adopt healthier lifestyles and spend more on higher quality foodstuff.
Dairy sales will post solid growth over the next five years, benefiting from the growing health awareness.
Food Sales
(2013-2020)
150,000
5.5
5
100,000
4.5
4
50,000
3.5
3
2013
2014
2015
Food, sales, AUDmn (LHS)
2016f
2017f
2018f
2019f
2020f
Food, sales, AUDmn, % growth y-o-y (RHS)
f = BMI forecast. Source: BMI, national statistics
Page 13
Structural Trends
We forecast food sales to gradually accelerate in 2016 and beyond, as weaknesses in domestic demand
gradually attenuates. Despite high levels of food consumption per capita in the country - we estimate food
sales at USD2,793 per capita in 2015 - the food industry will expand at healthy growth rates, outperforming
growth in total household spending. One of the main long-term trends affecting the Australian food sector is
increasing health consciousness, with consumers spending more on higher-quality food products.
In particular, consumers are developing a greater appetite for healthy and functional food products. As a
result, we expect more producers to join the trend and increase production of functional food products to
capitalise on this demand. As part of a partnership with the Australian government, a number of local
retailers and manufacturers such as General Mills, Associated British Foods, Goodman Fielder, Mars,
Nestl, George Weston Foods and Unilever have agreed to cut the amount of salt and saturated fat in their
food products.
Meat and poultry account for a significant share of the Australian diet, making up for about 20% of total
food sales in the country. Throughout our forecast period to 2020, we expect the segment to post growth
broadly in line with total food spending. The most popular categories include bacon and ham (7.5% of total
food sales), followed by poultry (4.5%) and beef (4.3%). In comparison, consumption of fish is relatively
under-developed in the country, accounting for less than 5% of total food sales.
Throughout the next five years, we expect dairy sales to outperform most food categories, despite the
relative maturity of the segment. According to our estimates, dairy sales already account for almost 15% of
total food sales. In our view, the dairy industry will benefit from rising health consciousness among
Australian consumers, who are increasingly favouring foodstuff with high protein content. In particular, this
trend explains the strong forecast performance of the yoghurt category throughout the next five years.
On the other hand, we believe that the baked goods category will be negatively affected by the trend
towards healthier lifestyles, especially as sugar and saturated fats become increasingly scrutinised.
Therefore, we expect the category to underperform headline food sales throughout the next five years, with
this poor performance driven by the cake and pudding sub-category.
We forecast sugar products sales to grow broadly in line with the rest of the food industry throughout the
next five years. In our view, the category will be affected by two opposite trends: consumers will adopt
healthier lifestyles amid heightened scrutiny of sugar's negative health effects, resulting in low expectations
Page 14
for volume consumption growth; on the other hand, this will push consumers to trade up for healthier and
more premium confectionery products.
With Australian consumers already enjoying very high existing income levels, they have demonstrated a
willingness to pay a premium for fairtrade products, as they play a part in promoting the sustainability of
food processing industries in developing countries. In order to reply to high demand for fairtrade products,
leading confectionery manufacturers Nestl, Mondelez, Lindt and Mars announced in March 2016 that
they would only use sustainable cocoa. Second, government efforts towards combating Australia's high
obesity levels and the rising health-awareness trend among Australian consumers have prompted domestic
confectioners to increase their production of healthier confectionery products.
Table: Food Sales (Australia 2013-2020)
2013
Food, sales, AUDmn
2014
2015
2016f
2017f
2018f
2019f
2020f
83,236.6 87,468.6 90,478.5 94,081.6 98,381.9
103,238.6
108,315.7
113,623.1
Food, sales, AUDmn, %

growth y-o-y
4.5
5.1
3.4
4.0
4.6
4.9
4.9
4.9
Bread, rice and cereals,

sales, AUDmn
7,889.9
8,292.3
8,580.7
8,924.9
9,335.8
9,799.7
10,284.7
10,791.7
4.8
5.1
3.5
4.0
4.6
5.0
4.9
4.9
883.0
932.8
974.3
1,016.9
1,067.8
1,125.2
1,185.3
1,248.0
4.9
5.6
4.4
4.4
5.0
5.4
5.3
5.3
Baked goods, sales, AUDmn
6,178.1
6,515.5
6,273.0
6,392.7
6,536.6
6,700.3
6,872.5
7,053.6
Baked goods, sales, AUDmn,

% growth y-o-y
4.6
5.5
-3.7
1.9
2.3
2.5
2.6
2.6
16,681.8 17,531.4 18,107.1 18,826.9 19,686.0
20,656.2
21,670.5
22,730.8
Bread, rice and cereals,

sales, AUDmn, % growth yo-y
Pasta products, sales,
AUDmn
Pasta products, sales,
AUDmn, % growth y-o-y
Meat and Poultry, sales,

AUDmn
Meat and Poultry, sales,
4.6
5.1
3.3
4.0
4.6
4.9
4.9
4.9
Fish and fish products, sales,

AUDmn
3,494.7
3,670.4
3,817.5
3,974.3
4,161.5
4,372.8
4,593.7
4,824.6
Fish and fish products, sales,

4.3
5.0
4.0
4.1
4.7
5.1
5.1
5.0
12,033.3 12,638.5 13,261.9 13,839.4 14,528.3
15,305.8
16,118.3
16,967.1
Dairy, sales, AUDmn

Dairy, sales, AUDmn, %
growth y-o-y
4.4
5.0
4.9
4.4
5.0
5.4
5.3
5.3
Oils and Fats, sales, AUDmn
487.5
512.8
513.2
528.3
546.4
566.9
588.4
610.9
Oils and Fats, sales, AUDmn,

% growth y-o-y
4.1
5.2
0.1
3.0
3.4
3.8
3.8
3.8
Page 15
Food Sales (Australia 2013-2020) - Continued
Fresh and preserved fruit,

sales, AUDmn
2013
2014
9,052.7
9,509.6
2017f
2018f
2019f
2020f
9,893.9 10,304.7 10,794.9
11,348.4
11,926.9
12,531.4
4.5
5.0
4.8
5.1
5.1
5.1
9,930.7 10,449.7 10,980.1 11,466.5 12,046.5
12,701.1
13,385.1
14,099.6
5.1
5.4
5.4
5.3
9,627.2 10,097.0 10,419.9 10,822.6 11,303.4
11,846.5
12,414.3
13,008.0
Fresh and preserved fruit,

Fresh vegetables, sales,
AUDmn
Fresh vegetables, sales,
Sugar and sugar products,
sales, AUDmn
4.3
5.2
2015
4.0
5.1
2016f
4.2
4.4
Sugar and sugar products,

4.5
4.9
3.2
3.9
4.4
4.8
4.8
4.8
Other food products, sales,

AUDmn
6,977.7
7,318.8
7,656.9
7,984.2
8,374.7
8,815.4
9,276.0
9,757.2
Other food products, sales,

4.6
4.9
4.6
4.3
4.9
5.3
5.2
5.2
f = BMI forecast. Source: National statistics, BMI
Page 16
Drink
BMI View: Australia's drinks industry will experience modest growth throughout our forecast period to
2020. Adverse taxation and rising health awareness will translate into declining volume sales for alcoholic
drinks, especially in the beer segment, with growth opportunities focusing on premiumisation.
Latest Updates
Alcoholic drinks consumption (litres) growth in 2016: -0.8%; compound annual growth rate (CAGR),
2015 to 2020: -0.4%.
Beer consumption will continue to decline in volume terms as consumers reduce their alcohol
consumption amid health concerns.
Non-alcoholic drinks sales (local currency) growth in 2016: +3.7%; CAGR, 2015 to 2020: +4.3%.
In the non-alcoholic drinks segment, the coffee and mineral water categories will experience the fastest
growth, due to growing health awareness.
Page 17
Structural Trends
Alcoholic Drinks
Total Alcohol Consumption

Total alcohol consumption, litres mn (2013-2020)
3,000
-0.5
2,000
-1
1,000
-1.5
-2
2013
2014
2015
2016f
2017f
2018f
2019f
2020f
Total alcohol consumption, litres mn (LHS)

Total alcohol consumption, litres mn, % change yoy (RHS)
f = BMI forecast. Source: BMI, WHO
Given the relatively mature and developed nature of the Australian alcoholic drinks sector and the growing
health-consciousness trend among consumers, we forecast alcohol consumption to decline in volume terms
through our forecast period to 2020. Growth opportunities for alcohol manufacturers will be concentrated in
premiumisation. Declining alcohol consumption is mostly attributed to rising health-consciousness and tax
hikes in the sector. Encouraged by public campaigns advocating responsible drinking, Australian consumers
are increasingly favouring quality over quantity. In addition, the Australian government has raised excise
taxes on alcoholic drinks in recent years, which has had a negative impact on consumption. The sector is at
risk of another 10% tax hike in the next federal budget.
Breaking down by category, beer is the most widely consumed alcoholic drink - estimated at 74 litres in
2015 - but we forecast consumption to decline throughout the coming years. Mainstream commercial beer
will be the most affected, as consumers drink smaller quantities of higher-quality drinks. In particular, the
Page 18
craft beer segment has experienced double-digit growth in recent years, albeit from a low base, which is a
trend observed in most developed markets.
Premiumisation and health awareness will favour the development of the wine segment, which will continue
to catch up with beer in volumes of pure alcohol. White wine is the most widely consumed wine category,
accounting for more than half of total wine sales. Sparkling wines have become more popular in recent
years, but from a low base.
Table: Total Alcoholic Drinks Spending And Consumption (Australia 2013-2020)
2013
2014
2015e
2016f
2017f
2018f
2019f
2020f
22.68
23.70
24.66
25.37
26.10
27.11
28.26
29.49
4.00
4.48
4.08
2.89
2.87
3.88
4.21
4.36
Alcoholic drinks spending, AUD

per household
2,426.71 2,447.50 2,459.15 2,453.02 2,457.51 2,497.88 2,559.11
2,626.44

per capita
974.58 1,003.08 1,028.93 1,043.84 1,059.27 1,086.03 1,117.51
1,151.95
Total alcohol consumption, litres

mn
2,145.0
2,128.8
2,107.0
2,082.6
2,064.7
2,051.7
2,045.8
2,043.2

mn, % change y-o-y
-1.9
-0.8
-1.0
-1.2
-0.9
-0.6
-0.3
-0.1

per capita
113.5
110.9
108.1
105.5
103.3
101.6
100.1
98.8
1,500.2
1,462.7
1,433.5
1,399.0
1,368.3
1,338.2
1,311.4
1,285.2
Beer, litres mn, % change y-o-y
-2.5
-2.5
-2.0
-2.4
-2.2
-2.2
-2.0
-2.0
Beer, litres per capita
79.4
76.2
73.6
70.9
68.5
66.2
64.2
62.2
582.7
603.1
609.5
618.3
630.0
645.8
665.2
687.4
Wine, litres mn, % change y-o-y
-0.4
3.5
1.1
1.4
1.9
2.5
3.0
3.3
Wine, litres per capita
30.8
31.4
31.3
31.3
31.5
32.0
32.6
33.3
Spirits, litres mn
62.0
62.9
64.0
65.2
66.4
67.7
69.2
70.6
Spirits, litres mn, % change y-o-y
-2.0
1.5
1.7
1.9
1.8
2.0
2.1
2.1
3.3
3.3
3.3
3.3
3.3
3.4
3.4
3.4
Alcoholic drinks spending,

AUDbn
%
Beer, litres mn
Wine, litres mn
Spirits, litres per capita
f = BMI forecast. Source: National sources, BMI
Page 19
Non-Alcoholic Drinks Sales

(2013-2020)
10,000
7,500
4.5
5,000
2,500
3.5
3
2013
2014
2015
2016f
2017f
2018f
2019f
2020f

Non-alcoholic drinks, sales, AUDmn, % growth y-o-y
The Australian non-alcoholic drinks sector will experience moderate growth throughout our forecast period
to 2020, with sales driven by premiumisation and demand for healthier drinks. In the hot drinks segment,
we expect the coffee segment to post the strongest growth despite its relative maturity. The habitually strong
coffee culture in Australia, with coffee drinking already a well-entrenched part of the Australian consumer
lifestyle, will ensure that the Australian coffee sector retains its modest growth momentum throughout our
forecast period. We are witnessing sustained growth in out-of-home consumption and in-home
consumption, with an increasing number of consumers adopting caf culture. Through to 2020, demand for
coffee machines will continue to surge as consumers seek to reproduce caf-style coffees at home, while
sales in cafs and coffee shops will also remain fairly robust. In the tea segment, growth will also be
essentially driven by premiumisation, with consumers showing an increasing penchant for specialty teas
such as green, herbal and white teas due to their perceived health and nutritional benefits.
Rising health awareness among Australian consumers will also explain the major shifts affecting the soft
drinks industry. Coming from a much lower base (less than 10% of total non-alcoholic drinks sales),
Page 20
mineral water sales will expand at a rapid pace. In our view, weaknesses in domestic demand will have a
limited impact on the demand for non-carbonated soft drinks.
Table: Non-Alcoholic Drinks Sales (Australia 2013-2020)
2013
4.1
5.8
3.5
2018f
2019f
2020f
4.7
3.2
3.7
4.2
4.6
4.6
4.6
6.4
4.3
4.9
5.6
5.9
5.8
5.7
3.9
2.7
3.2
3.7
4.0
4.0
4.1
2,206.8 2,303.8 2,372.9 2,455.6 2,554.5 2,666.2 2,783.0 2,905.3
Fruit and vegetable juices, sales, AUDmn, %

growth y-o-y
Mineral or spring waters, sales, AUDmn
Mineral or spring waters, sales, AUDmn, %
growth y-o-y
Carbonated drinks, sales, AUDmn
2017f
4,976.5 5,172.9 5,313.1 5,481.2 5,682.2 5,909.8 6,148.3 6,398.0
Soft drinks, sales, AUDmn, % growth y-o-y

Fruit and vegetable juices, sales, AUDmn
2016f
2,018.2 2,148.3 2,240.4 2,350.3 2,481.0 2,628.1 2,781.4 2,941.2
Coffee, teas and other hot drinks, sales,

Soft drinks, sales, AUDmn
2015
6,994.7 7,321.2 7,553.4 7,831.5 8,163.3 8,538.0 8,929.7 9,339.2
Non-alcoholic drinks, sales, AUDmn, %

growth y-o-y
Coffee, teas and other hot drinks, sales,
AUDmn
2014
3.9
4.4
3.0
3.5
4.0
4.4
4.4
4.4
558.5
594.0
619.1
649.1
684.8
725.0
766.8
810.5
5.8
6.4
4.2
4.8
5.5
5.9
5.8
5.7
2,211.2 2,275.1 2,321.0 2,376.4 2,442.9 2,518.7 2,598.4 2,682.2
Carbonated drinks, sales, AUDmn, % growth

y-o-y
2.5
2.9
2.0
2.4
2.8
3.1
3.2
3.2
Page 21
Mass Grocery Retail

BMI View: We forecast robust growth for Australia's MGR sector up to 2020, as increased competition
from discounters and improvements in online offerings fuels dynamism in the sector. Industry leaders will
focus expansion efforts on urban convenience stores as sales in traditional supermarkets come under
pressure from Aldi and other low-cost market entrants.
Latest Updates
Industry leaders Woolworths and Coles will continue to lose market share to hard-line discounters, with
Aldi midway through an aggressive store expansion programme worth AUD700mn.
We anticipate strong growth in convenience stores over our five-year forecast period, as busy lifestyles
among urban populations drive demand for obtaining quality produce quickly.
Amazon is expected to launch its grocery subsidiary AmazonFresh in Australia in 2017, boosting online
MGR sales which currently lag behind other developed markets.
Structural Trends
Mass Grocery Retail (MGR) sales will experience robust growth through our forecast period to 2020, as
increased competition from discounters fuel dynamism in the sector. Legacy retailers will face challenges
amid ongoing price wars, with priorities likely to shift towards online sales and convenience stores as a
means of gaining a comparative advantage over discounters. Although the industry is generally well
established, we highlight Western and Southern Australia as relatively underdeveloped areas with the most
scope for deeper MGR penetration.
In line with trends across developed markets, the discount sub-sector is set to outperform over our five-year
forecast period. Leading no-frills supermarket Aldi will be the major driving force, with plans to have over
600 outlets in its portfolio by 2020, up from 415 currently. While this scale of investment may seem
ambitious, the discount chain plans to open 65 new supermarkets in 2016 alone. We expect Aldi's market
share to grow rapidly as a result of this organic growth, particularly as price-conscious consumers continue
to 'trade down' in brands and stores. The presence of Costco and rumoured arrival of Lidl will only increase
competition further, leading to downward pressure on prices as established players such as Woolworths and
Coles become defensive in order to retain their duopoly status.
As the MGR sector becomes increasingly saturated, we see greater opportunities for growth in convenience
formats. This will be most evident in densely populated areas along the East coast, where busy urban
lifestyles and a rise in single households leads to a growing preference for shopping 'little and often'.
Woolworths launched its first express-style Metro store in 2013, and will continue to expand its network of
Page 22
convenience stores in the hope they provide an alternative growth driver to offset the weak performance of
its traditional supermarkets. While 7-Eleven and Metcash's Lucky 7 are established players in the
convenience category, we believe city-centre stores offering popular premium products will perform
strongly particularly as our data shows urban consumers will account for 90% of Australia's population by
2020.
Online grocery shopping has been slow to catch on in Australia compared to the UK or China, however we
expect this to change over our forecast period with sales set to grow considerably. The increasing
prevalence of click-and-collect services combined with more affordable delivery options will encourage
consumers to shop online and boost MGR revenues. Coles opened its first online-only store in Melbourne in
2016 with plans to open more 'dark stores' in other major cities. There are also unconfirmed press reports
that Amazon are to enter the market in 2017 via its AmazonFresh brand which is likely to further accelerate
online grocery sales.
Page 23
Industry Risk Reward Index

Asia Pacific - Risk/Reward Index
BMI's Food & Drink Risk/Reward Index assesses a market's attractiveness to industry investors in
comparison to its peers. The reward part of the index takes into account market size, current consumption
levels, future industry growth prospects (based on our five-year industry forecasts), market fragmentation
(with greater fragmentation indicating higher opportunities) and the size of the youth population.
Meanwhile, the risk part of the index takes into account the legislative environment and the level of
development of the organised retail sector (with higher development leading to lower risks), as well as
relevant aspects of the economic and political environment.
The top six markets in our Food & Drink Risk/Reward Index for the Asia Pacific region are all developed
markets (DMs): Australia, Japan, Hong Kong, Singapore, New Zealand and South Korea. Japan has
overtaken Hong Kong for second position in the Q416 iteration of our index. Japan's improvement can be
attributed to a significant increase in its Country Reward score, which went from 70.9 to 77.0, bolstered by
its large population and high GDP per capita.
Since the last iteration of our index, Australia has remained in first position, enjoying the highest score on
the Country Risk component thanks to its high GDP per capita and its younger and larger population than
most other DMs. Similarly to most DMs in the region, Australia offers a strong business environment for
multinational companies, alongside high mass grocery retail (MGR) penetration, which facilitates the
distribution of packaged goods.
While DMs continue to top our index, we do not see these economies improving their overall Risk/Reward
scores over the next few quarters. They already score very highly from a risk perspective, but will
experience only moderate growth in food sales throughout our forecast period to 2020, while their
populations will continue to age.
On the other hand, although emerging markets (EMs) make up the bottom half of our index, we believe that
most of these countries have the potential to improve their scores over the coming quarters, as food
consumption and GDP levels steadily rise with economic development. Countries such as Vietnam,
Indonesia, India and Pakistan are not yet in a position to break the mature markets axis, as they are
handicapped by low MGR penetration - which complicates distribution for food and drink companies - as
well as weaker business environments and low food sales per capita. Nonetheless, we still expect these
markets to offer the greatest long-term growth potential, as market fragmentation leaves room for new
Page 24
entrants. With rising investment in the MGR sector and growing food sales, we believe that these countries
will gradually improve their overall Risk/Reward scores.
Japan Improves On The Back Of Large Population & High Spending Power
Asia Pacific - Food & Drink Risk/Reward Index, Q416
Source: BMI
Table: Asia Pacific - Food & Drink Risk/Reward Index, Q416
Reward
Industry
Reward
Country
Reward
Risk
Industry
Risk
Country
Risk
Food & Drink

Score
Ranking
Australia
62.7
50
75
74.0
84.0
64
67.2
Japan
61.4
46
77
71.4
85.0
58
65.4
Hong-Kong
60
54
66
70
73
67
64
Singapore
48
28
68
78
81
75
60
New Zealand
48.1
34
62
74.5
85.0
64
58.7
South Korea
44
30
58
73
80
67
56
China
52.2
52
52
57.0
57.5
56
54.1
Taiwan
39.5
26
53
72.0
80.0
64
52.5
Malaysia
42.4
42
43
63.9
60.0
68
51.0
Thailand
40.4
44
37
59.1
60.0
58
47.9
10
Page 25
Asia Pacific - Food & Drink Risk/Reward Index, Q416 - Continued
Reward
Industry
Reward
Country
Reward
Risk
Industry
Risk
Country
Risk
Food & Drink

Score
Ranking
48
50
46
43
34
52
46
11
Vietnam
42.2
46
38
47.0
35.0
59
44.1
12
Philippines
40.8
36
46
44.5
37.5
51
42.3
13
India
46.2
42
50
34.8
21.5
48
41.6
14
Pakistan
50.2
50
50
26.8
9.0
45
40.9
15
Indonesia
Each score is out of 100, with 100 the highest. The Food & Drink Risk/Reward Index is the principal index. It comprises
two sub-indices, 'reward' and 'risk', which have a 60% and 40% weighting respectively. In turn, the 'reward' index
comprises 'industry reward' and 'country reward', which have equal weighting and are based upon growth and size of a
country's food, alcoholic drinks and soft drinks market (industry) and the broader economic and socio-demographic
environment (country). The 'risk' index comprises 'industry risk' and 'country risk', which also have equal weightings and
are based on a subjective evaluation of the market's regulatory and competitive issues (industry) and its broader country
risk exposure (country), which is based on BMI's proprietary Country Risk Index. Source: BMI
The six factors that make up the reward score in our index are: food consumption per capita, market
fragmentation, per capita food consumption (five-year compound annual growth), population size, GDP per
capita and youth population.
The first indicator, food consumption per capita, reflects the existing spending power of consumers in
Japan and Hong Kong (the countries both score 10 out of 10 on this metric). Although these countries show
high levels of spending, the performance of other countries is markedly different, pointing to a clear
division between regional peers. India, Vietnam and Pakistan have the lowest score of 1, highlighting the
potential for acceleration despite their current low reward scores.
Our second indicator, market fragmentation, assesses how relatively developed (less fragmented) or
underdeveloped (more fragmented) a market is. Whereas the first indicator confers strong scores for high
existing spending, the second indicator rewards countries where the long-term scope for growth is the
greatest. These are typically markets where there is significant room for growth, innovation and
development. Unsurprisingly, Japan, with its highly developed, saturated MGR sector, is comfortably
outscored by India, China and almost all the EMs rated.
The third indicator within the reward breakdown of our index system is per capita food consumption
growth (five-year compound annual growth). Paired with market fragmentation, this is the joint highest
weighted indicator within our reward score framework. Since our index is designed to be forward-looking,
this indicator is one of the main ways we gauge growth and, in combination with some of the other high-
Page 26
weight indicators we look at, informs our preferences for certain markets. Despite lower scores than in
previous quarters, countries such as China, India and Vietnam outscore Japan and Australia, demonstrating
the future promise of these Asian markets.
Population size is the fourth indicator, and China and India unsurprisingly score well, as does Japan, with
its population of nearly 130mn. Paired with our fifth indicator, GDP per capita, large populations and
strong spending power have reinforced Japan's continued dominance in our index this quarter. Though
Singapore possesses one of the highest per capita income expenditures and a very good risk score, the
limited size of the market means that the country loses ground on this metric.
The final reward indicator, youth population, was introduced as a way to factor in a more comprehensive
demographic angle to our index. Here, Pakistan, Vietnam and the Philippines stand out, with high scores
rewarding the growth potential associated with young populations, and a poor score for Japan pointing to
the restraints that can be presented by an ageing population. Thailand is also handicapped by its ageing
population.
The seven factors that make up the risk score are: MGR penetration, regulatory environment, short-term
economic growth, income distribution, legal environment, economic openness and availability of labour.
Our first risk indicator is MGR penetration, which assesses how relatively developed the overall consumer
sector is. Very low MGR scores reflect the ongoing predominance of informal retail, comprised of kiosks
and markets with weak centralised distribution mechanisms. Many of the more mature and developed
markets score well here, including Australia, Singapore and Japan. India, having only recently initiated
efforts to open up its food retailing sector to multinationals, scores very poorly. Conversely, China is much
further along in the development of organised retailing channels when compared with other low scorers
such as Vietnam, Pakistan and the Philippines.
The second factor, regulatory environment, evaluates the complexity of regulations such as labelling and
nutrition requirements. It can also be used to gauge the state of the overall business environment. The more
developed and mature markets usually score better here, and that is once again the case in Q416, with
Pakistan, India and Vietnam scoring poorly, highlighting persisting food regulatory hurdles, particularly for
non-domestic producers. Notably, however, China and the Philippines score fairly impressively in this
metric, hinting that future growth will be encouraged by both of these countries' strong regulatory
environments.
Page 27
The third factor, short-term economic growth, assesses the economy's current economic health. Vietnam
and India score particularly high on this metric - with respective scores of 9 and 7 - highlighting the longterm growth potential of these markets.
The fourth factor, income distribution, is measured by the proportion of private consumption accounted for
by the middle 60% of earners. Unsurprisingly, countries such as Japan, Singapore and South Korea lead the
pack, though developing markets also score relatively well in this regard.
Legal environment, our fifth indicator, is a measure of the hurdles that any producer is likely to face in
areas such as starting and closing businesses, paying taxes, dealing with licences and registering property.
Here India continues to score poorly, with its draconian bureaucracy highlighted in the press regarding
multinational grocery retailers. This is paired with our sixth factor, economic openness, which measures
how business-orientated an economy is and measures the level of foreign direct investment protectionism,
tax rates and the level of government intervention. Another low score for India points to the continued
difficulties facing investors looking to enter this market in particular.
Our final risk factor, availability of labour, measures the size of the labour force and its qualifications. A
large labour force equipped with basic skills is advantageous to businesses choosing to operate in a
country.
Page 28
Industry Risk Reward Index

In our most recent Food & Drink Risk/Reward Index for Asia Pacific, Australia maintained its first position
ahead of Hong Kong and Japan. Australia's Reward score is buoyed by high overall spending on food and
drink, including in the soft drinks, alcoholic drinks and confectionery sub-sectors. However, this high
spending level translates into lower scope for growth in the Australian food and drink sector.
Australia's Reward score is further tempered by a moderate population size, which limits potential returns.
The market is judged to be relatively mature, relative to its developing market peers. This means that
multinationals could struggle to compete against established market players such as Woolworths and CocaCola Amatil and fail to establish a strong foothold.
For a market such as Australia, its consolidated nature means that industry players could struggle to grow
organically, and there are arguably limited opportunities for growth in the longer term. High per capita food
consumption levels, a consolidated market and an ageing population characterise the Australian market and
rule out the prospect of explosive growth in the food and drink sector. There is strong scope for
premiumisation in the country throughout the longer term, as consumers trade up to higher-value products.
Australia's Risks score is supported by a better developed infrastructure, a higher skilled workforce and
more open financial and business systems. However, barriers to entry exist in the form of the food and drink
sector's mature and consolidated nature, which leaves little room for inorganic or organic expansion. A
further barrier to entry is the Australian Competition and Consumer Commission's interventionist stance in
regulating mergers and acquisitions in the country, making it difficult for consumer goods manufacturers to
grow inorganically.
Page 29
Australia vs. Asia Pacific

Food & Drink Risk/Reward Index, Q416
Source: BMI
Page 30
Market Overview
Food
Recent Developments
Consumers are driven by demand for convenience, growing health awareness and the continued desire to
trade up to premium and value-added food products.
It was announced in mid-2015 that the Australian government is set to implement a new country of origin
food labelling system from 2016.
While per capita chocolate consumption has remained relatively stable over the last decade, consumers
are increasingly seeking higher-quality and novel products.
Market Drivers & Trends

Food Production
Australia's largest food processing sub-sectors coincide with its largest agricultural categories. Meat
production accounts for an estimated one-fifth of industry revenue, with dairy in second place. Leading
companies within these fields include National Foods and Bonlac Foods, which are now part-owned by
international manufacturers - Japanese Kirin Holdings and New Zealand's Fonterra respectively.
Another prominent local player in the food processing industry is food group Goodman Fielder, which has
operations in New Zealand and also owns Paradise Foods, Australia's second largest biscuit manufacturer.
The acquisition of Goodman Fielder by Wilmar International and First Pacific was completed in March
2015 and valued at AUD1.3bn (USD1.2bn). The takeover will help Goodman Fielder to expand its presence
in the Asia Pacific region.
Other companies operating in the Australian food processing industry include food ingredients major
Burns, Philip & Co and subsidiaries of multinationals Nestl, Cadbury, Heinz and Unilever. George
Weston Foods, a subsidiary of Associated British Foods, is one of Australia's largest food manufacturers,
producing popular brands such as Ryvita, Burgen, Crackerbread, Chapmans and Huttons.
The main trends currently influencing the Australian food processing sector are similar to those being seen
elsewhere in the developed world. Consumers are driven by demand for convenience, growing health
awareness and the continued desire to trade up to premium and added-value food products. Manufacturers
are driven by their desire to capitalise on this period of consumer interest in order to sell foods with higher
profit margins, which better offset the external cost pressures that currently blight all manufacturing
Page 31
industries. As an example, McCain Foods has reformulated its approach for its Australia and New Zealand
operations. As part of the 'It's All Good' campaign, the company has increased its focus on health and
wellness by reducing additives or preservatives in its products.
However, in such a competitive and mature food industry, price also remains an important concern, and
manufacturers must ensure that even premium, healthy and convenient items remain affordable.
It was announced in mid-2015 that the Australian government is set to implement a new country of origin
food labelling system from 2016. Under the new rule, domestically processed foods will carry a label
displaying a green and gold kangaroo and triangle icon, with a bar chart revealing the number of Australian
ingredients used in the product. Imported products will be re-packaged with a country of origin label.
Functional Foods
Consumption of, and demand for, functional foods has been growing in recent years, although the figures
still pale in comparison with other equally developed markets such as Japan. The relatively slow
development of the functional foods market is due to the lack of cutting-edge product innovation in the
country, with multinational producers tending to launch functional brands on to the Australian market once
they have become reliably mass-market elsewhere in the developed world. Similarly, although the likes of
Goodman Fielder and National Foods have attempted to exploit Australian health consciousness by
developing functional brands, their efforts have been undermined by fluctuating consumer confidence in the
country.
Confectionery
One of the leading players in the confectionery market in Australia is Cadbury, now part of US-based food
group Mondelz International. Australia and New Zealand are the largest markets for Cadbury in the Asia
Pacific region. The company has local manufacturing facilities in Australia, although it is intends to cut jobs
as part of its global restructuring plans. In early 2015, Cadbury announced that it is to shrink the size of its
chocolate bars in Australia by 10%, without lowering the price. The move is due to rising packaging costs
and an increase in raw materials costs.
Nestl Australia is also a formidable presence in the sector, especially in the sugar segment, with a
substantial advertising budget. Nestl's key brands include Allen's Minties, Snakes Alive, Jaffas and
Page 32
Lifesavers. In early 2011, the company announced that it would bring production of the Aero brand back to
Australia.
Swiss Lindt & Sprngli reports to be one of the leading chocolate suppliers in Australia. The company
also operates three 'Lindt Chocolate Cafs' in Sydney, the success of which has led to plans to open further
stores. Lindt is focused on the premium chocolate segment, which is supported by strong marketing. In late
2014, the company announced plans to build a manufacturing and warehousing facility in Sydney which
will also serve as its Australian headquarters.
Recently, Australian cities have experienced a boom in the number of high-end chocolatiers and specialised
chocolate shops, such as Laurent Meric's Cacao Fine Chocolate and David Medlow Chocolates. The new
stores are providing competition to more established outlets, such as Hillier's, Haigh's and Newman's.
While per capita chocolate consumption has remained relatively stable throughout the last decade,
consumers are increasingly seeking higher-quality and novel products. Additionally, consumers' preferences
are leaning towards darker chocolate, as it is considered healthier.
Fairtrade-certified confectionery products have also gained popularity among Australian consumers in
recent years. Domestic confectionery players such as Nestl Australia and Arnott's are increasingly shifting
their attention to these higher-valued products. Nestl announced that all Kit Kats sold in Australia from
2011 would be made from UTZ-certified cocoa, while Arnott's is to import cocoa only from fair trade farms
in West Africa. The take-up of fairtrade cocoa by a number of large manufacturers has helped chocolate
sales overtake coffee in the fairtrade sector.
Some of the most prominent companies operating in the field are Goodman Fielder - through its ownership
of Paradise Foods - and Arnott's. The latter controls more than 50% of the market, thanks primarily to the
strength of its Tim Tam brand.
Canned Food
Canned foods have enjoyed steady, if unspectacular demand in terms of volumes. As in many other food
and drink sectors, the canned foods industry has exhibited a degree of premiumisation. Overall, canned
goods are being overtaken by other packaged foods such as chilled frozen goods. Nevertheless, canned
fruits and vegetables as well as fish remain popular.
Page 33
The market for canned food is dominated by a handful of companies, including SPC Ardmona, Heinz
Australia and Simplot Australia, with John West being one of its most recognisable brands. US-based
Kraft Foods recently moved its production facilities away from the Australian market.
Drink
Recent Developments
The alcoholic drinks sector is at risk of an excise tax hike of 10% in the 2016 Federal Budget, which
would be particularly damaging for the craft beer, cider and wine segments.
The Australian Competition and Consumer Commission has delayed its ruling on the mega-merger
between SABMiller and AB InBev.
Bacardi-Martini Australia launched as a wholly-owned subsidiary of Bacardi in the first months of

2016.

Alcoholic Drinks
Like its food industry, Australia's beverage industry is influenced by the global trend towards healthconsciousness and by the country's economic stability, which helps to keep beverage spending high.
Awareness campaigns on responsible drinking and the trend towards higher taxes in the sector have had a
negative impact on volume sales. A further tax increase of 10% is being discussed for the 2016 Federal
Budget, which would be another hit for the industry.
Beer
Australia's beer market is actually flouting broader consumer trends. Sluggish economic growth has
typically had an adverse effect on demand, prompting consumers to opt for economy brands and to
prioritise value when making purchasing decisions, leading to the emergence of a booming discount retail
sector. However, the Australian beer industry is witnessing stagnant sales of economy brands, with growth
being driven almost exclusively by the premium end.
Within the country's consolidated beer sector, SABMiller (which acquired Foster's in 2011) and Lion
(owned by Japanese brewer Kirin) traditionally battle it out for supremacy, with both achieving market
shares exceeding 40%. The Australian Competition and Consumer Commission still needs to rule on the
acquisition of SABMiller by AB InBev. This is pertinent, given that Lion owns the distribution rights for
Corona, which is owned by AB InBev, and accounts for around 5% of total beer sales in Australia.
Page 34
Coopers Brewery is the most successful domestic boutique brewer, though its size pales in comparison to
Foster's and Lion. In early 2015, the Australian Competition and Consumer Commission (ACCC)
announced that it would investigate claims that the country's largest brewers are squeezing craft breweries
out of the market
Wine
Australia has long been renowned globally for the value of its wine. Along with many of its New World
peers, Australian wine is considered to be very affordable for its quality level. As the country's production
levels soared, domestic and international consumers have increasingly been drinking affordable Australian
wine, with the reputation of the country's mass-market wine industry growing accordingly. Wine
oversupply is arguably one of the industry's biggest challenges. Rising exports, thanks to the perception of
Australian wine as value for money, have helped to limit the problem. Yet with exports currently on the
wane, the issue is back in the limelight. This is due to global demand weakness, growing New World
competition and the strong Australian dollar.
The glut poses two key problems: oversupply triggers lower prices, affecting producer profitability and
pushing many vintners to the point of bankruptcy; it also affects the image and reputation of the Australian
wine industry. Foster's dominates the country's wine industry, thanks to its Southcorp and Beringer brands.
However, its foray into the wine sector has proved to be challenging. Hardy, Wyndham, Casella and
Wynns Coonawarra are other large-scale wine producers.
In May 2011, Foster's received shareholder approval to demerge its wine unit Treasury Wine Estates
(TWE) from Carlton & United Brewers. In mid-2014, TWE received two takeover bids: one from US-based
Kohlberg Kravis Roberts & Co (KKR) and Rhone Group and the second from private equity group
TGP. In late 2014, TWE announced that it was targeting its investment on 15 global umbrella brands, 20
international brands and 20 local brands out of its 80-brand portfolio. The company believes that these are
brands that can grow globally and will accelerate top line growth.
At the end of 2014, the Australian Grape and Wine Authority (AGWA) released a paper that discussed
increasing the prospects for Australian grape farmers and winemakers. It concluded on a five-year industrywide strategy to refocus on the country's premium wine offerings. According to AGWA, Australian wines
are adversely affected by an image problem, both domestically and internationally, in terms of quality.
AGWA stated that the country's wine offerings greatly varied and a change of perception is required.
Page 35
In mid-2015, AGWA committed to invest AUD35mn (USD26.8mn) annually throughout the coming five
years under its Strategic Plan 2015-2020, released on July 1. The move aims to boost demand and the
premium paid for Australian wine as well as increase the competitiveness of the industry.
Hot Drinks
Australia's hot drinks industry is well developed. Key trends include a rising focus on health and wellness.
In recent years, the demand for sustainable and eco-friendly products has risen. Nestl Australia, Unilever
Australia and other major multinationals remain market leaders, offering a wide variety of products. Most
hot drinks sold outside the on-trade arena are purchased in supermarkets and hypermarkets, although
specialty retailers are increasing in popularity. The growth of on-trade volumes of hot drinks outstrips that
of off-trade sales, boosted by the increase in the number of specialist coffee shops and cafs. The strong
coffee culture has resulted in a recent closure of most stores by American firm Starbucks, which could not
compete with traditional cafs and their offerings.
Tea is a less important driver of overall growth, despite rising demand for specialty teas such as chai, green
and white tea. On the other hand, black tea and instant coffee are losing popularity, as customers demand
premium and innovative products.
Soft Drinks
Australia's soft drinks industry is no less competitive than its alcoholic drinks industry but is considerably
more consolidated. Coca-Cola Amatil (CCA) controls the market and its diversification away from the
declining carbonates sector into high-value but less mature sectors such as fruit juices and energy drinks has
reduced the level of opportunity left for its rivals.
Regardless of their decline, carbonates still dominate the Australian soft drinks sector. The strength of
CCA's brand portfolio in this sub-sector - especially following the hugely successful launch of Coca-Cola
Zero - restricts opportunities for competitors. Other key soft drink categories in the market include fruit
juices, bottled waters and energy drinks, which is one of few categories in which CCA does not dominate.
The energy drinks sector is led by Red Bull.
Page 36
Mass Grocery Retail

Recent Developments
Australia's MGR sector is effectively a duopoly between market leaders Woolworths and Coles, but the
market entry of German discounter Aldi in recent years has brought renewed dynamism to the sector.
Australia's unique population demographics, in terms of population density, mean the country's mass
grocery retail (MGR) industry is heavily concentrated on the country's east coast.
While supermarkets are the most mature sub-category and have the greatest profitability, online and
convenience formats provide more exciting growth opportunities.

In theory, Australia should be able to support a significant number of new retail openings. However, the
country has unique population demographics in terms of population density. Australia's MGR industry is
heavily concentrated on the country's east coast, which boasts the majority of the country's large towns and
cities. It is also where the majority of the population live, and where disposable incomes are at their highest.
Although modern retail has been present in Australia for years, it is only in the last 10-15 years that the
concept has exploded. This has largely resulted from battle for market share between market leaders
Woolworths and Coles.
Despite the duopoly, Australia's MGR sector is more competitive than others led by just two retailers, due
to the market leaders' battle to achieve supremacy. Until fairly recently, when Woolworths started to pull
ahead of Coles, neither firm had managed to secure a huge advantage over the other, ensuring that business
activity levels and competitive pricing remained crucial. However, since the demerger of Foodland
Association, the assets of which were split between wholesaler Metcash and Woolworths, the sector has
become even more consolidated.
Other important elements of the MGR sector include the key purchasing determinants behind consumer
decisions: price, product range and store atmosphere. While the country's geography and the locations of its
major cities restrict the opening of large-scale outlets such as hypermarkets, store layout design - in order to
give the impression of space - is important. This is especially true in states where restrictions on store
openings have been introduced. Since each Australian state has its own legislation governing store openings
and expansion, nationwide expansion plans of large-scale outlets can be bureaucratic and time consuming.
Price, however, has certainly been the most frequently used competitive tool, and price competition is
increasingly centred on a retailer's private label range.
Page 37
All three sub-sectors of the Australian MGR sector - supermarkets, convenience stores and discount stores have experienced strong growth throughout the review period. Supermarkets have actually experienced the
lowest growth, while newer convenience and discount formats have seen explosive growth. However, the
mature supermarket format continues to represent the most profitable store model by some distance.
Leading Players
Wesfarmer-owned Coles and Woolworths control approximately 70% of the market between them. The
two firms have continued to expand in spite of market maturity, mainly by acquiring smaller independent
operators. The sector has become too competitive for such operators to remain profitable. Woolworths and
Coles have also improved the amount of store space given over to higher-margin, higher-value groceries,
services and non-food items. Other MGRs present in the sector include Metcash-owned independent
network IGA, German discounter Aldi, convenience specialist 7-Eleven and US-based retailer Costco.
South African retailer Pick n Pay exited the Australian MGR sector after its failure to successfully
compete. Pick n Pay's failure was attributed to three reasons: a lack of scale, which restricted buying power;
a lack of fresh produce; and a failure to land prime retail real-estate locations.
Aldi has made a considerable impact on Australian grocery retailing since entering the market in 2001,
managing to lure quality-conscious Australian consumers to its budget proposition by pitching its private
label brands as good value, rather than as cheap. The Aldi concept has been proven to be so successful that
market leaders have been forced to follow its lead in terms of private label product development and
marketing. Aldi plans to invest AUD700mn as part of its aggressive expansion strategy, which includes 115
new stores in Western and Southern Australia throughout the next two years. In 2014, rival discount chain
Costco received USD100mn from its US-based parent company towards expansion into Adelaide and
Brisbane.
There have been unconfirmed reports that Amazon plans to enter Australia's online grocery market through
its subsidiary AmazonFresh. Having recent been launched in major cities within the US and UK, the
company is likely to bring the service to Sydney and Melbourne in 2017. Online sales in Australia remain
relatively low as a proportion of total grocery sales, but we expect this to change as legacy retailers expand
their online services in anticipation of the arrival of the American e-commerce giant.
Page 38
Competitive Landscape
Table: Key Players In Australia's Food & Drink Sector
Revenue
(AUDmn,
Fiscal
unless stated) Year End Employees
Company
Ownership
Sub-Sector
Coca-Cola Amatil
Main shareholder: The

Coca-Cola Company (29%) Beverages - soft
Carlton & United

Breweries
Parent company: SABMiller
Goodman Fielder
5,152
12/2015
15,666
Beverages - alcoholic
2,248.0
06/2011
2,239
Parent companies: Wilmar

International & Pacific First
Food - convenience,
various
2,199.9
06/2014
5,000
Lion Nathan
Parent company: Kirin

Holdings
Beverages - alcoholic
JPY470.2bn
12/2014
3,036
Fonterra Australia and

New Zealand
Cooperative
NZD18,845mn
07/2015
15,800
Arnott's Biscuits
Parent company: Campbell Food - convenience,

Soup
various
na
na
4,000
Food - convenience,
various and Beverages
- soft and hot
na
na
na
Food - Dairy
na
na
na
Parent company: Unilever

Unilever Australia
Dairy Farmers Group
Parent company: National

Foods
Food - dairy
na = not available. Source: BMI, company investor relations, trade press
Table: Key Players In Australia's Mass Grocery Retail Sector
Revenue
(AUDmn)
Fiscal
Year End Employees
Number of
Stores
Company
Ownership
Woolworths
Parent company: Woolworths Limited
60,679
06/2015
111,000
961
Coles
Parent company: Wesfarmers
62,447
06/2015
165,000
776
Aldi Australia
Parent Company: Aldi Stores Limited
8,000e
9,000
415
13,600
1,400
(supermarkets &
6,000
convenience)
Largest shareholder: Allan Gray Australia

Metcash
04/2015
e = estimate. Source: BMI, trade press, corporate investor relations
Page 39
Company Profile
Dairy Farmers
SWOT Analysis
Strengths
Well established presence in the domestic dairy sector leaves it poised to capitalise
on surging dairy demand.
Reasonably strong exposure to emerging markets such as the Middle East, Asia and
Eastern Europe provides stronger long-term growth opportunities.
Strong links with supermarkets and other retail outlets ensure an extensive consumer
reach.
Strong marketing support for its brands such as Dare, OAK and Moove will allow
Dairy Farmers to continue successful product placement to expand its consumer
base.
Weaknesses
Dairy Farmers will have to sustain high levels of capital expenditures in order to
secure its strong domestic foothold amid a highly competitive dairy market.
Massive exposure to Australia could weigh on its top-line growth given our
expectations for a domestic demand slowdown in the foreseeable future.
Opportunities
Premiumisation across the food industry provides greater sales opportunities for Dairy
Farmers' higher-value health and functional dairy products.
Rising consumer demand for a home-grown company's products bodes well for Dairy
Farmers' local brands.
Threats
Major fluctuations in milk prices could jeopardise Dairy Farmers' bottom line.
Waning consumer confidence and spending over the near term could dampen
domestic demand for National Foods' dairy products.
Page 40
Company Overview
Dairy Farmers is one of the leading Australian-branded dairy businesses, as well as one
of its oldest. The group, owned by 2,000 Australian dairy farmers, was purchased by
dairy producer National Foods (owned by Japanese Kirin) in August 2008. Dairy
Farmers markets its products to local and international markets including Eastern
Europe, the Middle East and Asia. Key brands include Cracker Barrel, Coon cheese, Ski
yoghurt and Dairy Farmers.
Strategy
Dairy Farmers became part of Japanese conglomerate Kirin through the National Foods
purchase. Remaining profitable and increasing capital expenditure is increasingly
important for Dairy Farmers, given that it has the backing of an expansion-oriented
parent. While the company has some experience in the premium dairy sector, it is
entering a crowded and intensely competitive business environment in which rival firms
may be eager to pick it off. Dairy Farmers boasts Australia's leading vintage cheese
brand and has pioneered no-cholesterol milk.
That said, considerable growth potential in the Australian dairy industry means that
there is some optimism about Dairy Farmers' revenue growth prospects. Milk
consumption is forecast to rise, although processed dairy demand suffered in recent
years owing to rising global prices. With global prices moderating and domestic
production recovering as a result of better weather, consumption levels for processed
goods are likely to return accordingly.
We believe Dairy Farmers will follow the decision made by several Australian dairy
producers to decrease the price offered to farmers, possibly taking operating margins
slightly higher in the near term.
Page 41
Heinz Australia
SWOT Analysis
Strengths
Heinz has a long-established presence in the country with a diverse product portfolio,
which serves to protect it from downturns in any specific product categories.
Thanks to its local manufacturing facilities, Heinz is well positioned to benefit from the
government's 'Eat Australia' campaigns.
Weaknesses
Heinz had to invest heavily in its expansion and acquisitions activities to establish a
strong foothold in a highly competitive market.
The unit's massive exposure to Australia could weigh on its top-line growth given our
expectations for a domestic demand slowdown in the foreseeable future.
By continually launching new products the company has to consistently invest funds
in advertising and marketing campaigns to build up brand awareness for these
products.
Opportunities
The company is steadily reducing staff levels in its Australasian operations.
Heinz will benefit from growing health consciousness in the country through its
healthy products and Weight Watchers brand.
Thanks to its local production facilities, Heinz is in a strong position to export its
products to regional high-growth markets in Asia.
Growing demand for convenience foods creates higher sales opportunities for Heinz's
soup and ready-meal lines.
Threats
Elevated commodities costs remain a threat to the company's profit margins.
Heinz's products face growing competition from cheaper imported products from
more cost-competitive Asian markets.
Waning consumer confidence and spending over the short term could dampen
domestic demand for its products.
Page 42
SWOT Analysis - Continued
It remains unclear whether the mega merger between Kraft and Heinz announced in
early 2015 will affect Heinz's Australian operations.
Company Overview
American food producer Heinz's presence in Australia dates to the 1880s, when it
began importing its products to the country. Heinz became incorporated in Australia in
1935 and began local production that same year. The company has steadily expanded
its operations through the years by means of a number of acquisitions as well as
organic growth. In 2989, the company established a research and development facility
in the country. Today, Heinz Australia's brands span across a diverse range of product
categories such as beans, condiments and sauces, soups, canned meals, frozen food
and infant nutrition. Well-known brands include Heinz Baby Food, Heinz Tomato
Sauces and Ketchup, Heinz Soups, Greenseas Tuna and Salmon products, Weight
Watchers meals and Hamper meat.
Strategy
Thanks to its ongoing spate of mergers and acquisitions activity as well as its innovative
product launches, Heinz has built considerable scale in the developed Australian and
New Zealand markets. This has allowed it to capitalise on the high existing spending
levels in these markets. While the parent company increasingly turns its attention to
high-growth emerging markets, Australia will remain central to its growth strategy, given
the country's accommodative business environment and stable growth opportunities.
To put this into context, Heinz Australia announced plans to invest AUD25mn to
upgrade beverage production facilities in Brisbane, Queensland and its baby food plant
in Echuca, Victoria. Heinz Australia also plans to shift production of sauces, beetroot
and some meal products from facilities in Girgarre, Brisbane and Wagga Wagga to its
facility in Hastings, New Zealand. This consolidation of its manufacturing processes is
expected to boost production efficiencies for the company and enable better use of
existing capacities. This would, in turn, sharpen the competitiveness of Heinz in the
Australian and New Zealand markets.
Developments
2015
In Q215, Mondelez International Australia said that it will not be affected by the global
merger between Heinz and sister company Kraft Foods. However, it remains unclear
whether Heinz's operations in Australia will be affected by the merger, which created
the world's fifth largest food company. The deal looks unlikely to directly affect Heinz's
Australian operations as Heinz is buying only Kraft North America, which was spun off
from then-parent company Mondelez in 2012. Mondelez still holds and distributes Kraft
brands in international markets including Australia. A spokeswoman for the Australian
Page 43
Competition and Consumer Commission (ACCC) said that it was 'aware' of the
transaction.
2014
In late 2014, the company announced that more than 240 jobs in Australia, New
Zealand and Papua New Guinea were to be axed as Heinz implements a 'streamlined'
structure. The company said that the move would allow it to become 'more flexible and
efficient' in 'extremely competitive local and global markets'.
2011
In Q311, the company announced plans to revitalise its operations in Australia, where
sales dropped by 8% on a constant currency basis in the first quarter. Senior officials at
the company called the Australian market an 'inhospitable environment for grocery
manufacturers', hinting at the power of the country's two major food retailers. The
company has already announced plans to close one plant in Australia as part of a
restructuring initiative of its global supply chain and manufacturing networks.
Heinz then cut its Australian workforce by 20%, equating to 346 jobs, closing down a
tomato sauce plant in northern Victoria and cutting a quarter of the jobs at the Golden
Circle cannery in Brisbane. Heinz shifted beetroot processing operations to Hastings in
New Zealand. Heinz Australia chief executive Nigel Comer denied at the time that the
shift to New Zealand was due to cheaper production cuts, saying the move was
consistent with a global strategy to remove 'duplication'.
Page 44
Lion
SWOT Analysis
Strengths
A large distribution network has enabled Lion to develop a strong, wide domestic
presence.
The company has a wide range of alcoholic drinks operations, including spirits, readyto-drink products and wine, which cater to the diverse tastes of the Australian
consumer.
Weaknesses
Rising health-consciousness is a weakness for Lion given its presence solely in the
alcoholic drinks sector.
Massive exposure to Australia could weigh on its top-line growth given our
expectations for a domestic demand slowdown.
The company could find it difficult to contain rising production costs, which will have
a negative impact on its top line should it pass on these costs to consumers.
Opportunities
A strong pickup in premiumisation momentum bodes well for Lion's premium beer
sales.
Lion's New Zealand beer business, although small, has stronger growth prospects
owing to slightly more marginal competition levels.
The company is targeting a push into Asian markets with its speciality cheese
products.
Threats
Excessive wine supplies, volatile exchange rates and unfavourable climatic factors
will continue to pose challenges to the domestic wine industry and weigh on Lion's
financial performance.
Company Overview
Lion Nathan is one of the leading alcoholic drinks producers in Australia and New
Zealand. The company was acquired by Japanese brewer Kirin in late 2010 and was
subsequently merged with Kirin's dairy subsidiary National Foods to form Lion Nathan
National Foods. In summer 2011, the company officially changed its name to Lion. The
Page 45
former Lion Nathan Australia and Lion Nathan Wine divisions are now referred to as
Lion - Beer, Spirits & Wine Australia. The former Lion Nathan New Zealand has become
Lion - Beer, Spirits & Wine New Zealand. Lion's interests span various product
categories such as beer, wine, spirits and ready-to-drink (RTD) beverages. RTDs are an
important growth area for Lion Nathan, with this product area vital in terms of
harnessing the spending power of young Australian consumers. Popular beer brands
marketed by Lion include Tooheys, Hahn and Steinlager, with its key vodka offering
Smirnoff.
Strategy
Throughout the longer term, the outlook for Lion is positive. The company is investing
strongly in brand marketing and new products, which is likely to leave it in a better
position to capitalise on the country's growing premiumisation trend. The acquisition of
James Boag & Son also demonstrates Lion's desire to move into the premium beer
segment in order to compensate for flagging fortunes of mass market beers. This move
is beginning to prove successful.
Although wine remains a small segment of Lion's overall sales, the challenging
conditions in the Australian wine sector will nonetheless dampen the company's overall
sales, at least to a certain extent. We remain concerned about the impact of persistent
oversupply pressure on Australian wine, demand weakness in export markets and a
growing share of bulk wine exports on the financial performance of domestic wine
producers. On the other hand, a strong Australian dollar is less of a threat to the
profitability of domestic wine producers, given our expectations of a weakening
Australian currency throughout the coming quarters.
The impact of wine oversupply on prices, and thus producers' profitability, is further
exacerbated by the increase of bulk wine exports, which typically carry lower prices.
Against the backdrop of rising competition from private label wine producers, the strong
Australian dollar and an oversupply situation, domestic wine makers have increased the
share of bulk wine exports to boost their export opportunities.
2015 sales: AUD4.71mn, decrease of 5.6%.
Page 46
Coopers Brewery
SWOT Analysis
Strengths
Substantial investment has ensured recognition and demand for key Coopers brands.
Its boutique, high-quality beer portfolio has carved a niche in the market.
An extensive range of product offerings allows Coopers to cater to the diverse tastes
of the Australian consumer.
Strong brand positioning on quality and domestically produced beers leaves Coopers
poised to benefit from the 'Eat Australia' campaign.
An amendment to the company's articles of association in autumn 2014 will make it

harder for any hostile takeover bids to succeed.
Weaknesses
Rising health-consciousness represents a weakness for Coopers given its sole focus
in the alcoholic drinks sector.
Coopers would have to sustain high levels of investment to maintain or grow its
market share amid an intensely competitive market, which could weigh on its margin
growth.
Competition and consumer price sensitivity prevent the company from passing rising
production costs on to consumers; this could hurt its profit margins.
Opportunities
An acceleration of premiumisation over the longer term is likely to drive Coopers'

premium beer sales.
Strong forecast demand growth in emerging markets will very likely continue to drive
Coopers' export sales of home brew kits, liquid malt extract and domestically
produced alcoholic beverages.
The shift towards convenience food and beverages is a boon for Coopers' home brew
kits.
The acquisition of Mr Beer allows Coopers to expand in North American markets.
Opportunity to further drive alcohol-free beer sales in Australia.
Page 47
Threats
Owing to its smaller size, the brewer is vulnerable to takeover bids from major
players.
The emergence of Pacific Beverages and its impressive portfolio of premium brands
has heightened competition in the high-growth premium beer sub-sector.
Stagnant volume sales of beer have negatively impacted the industry as a whole.
Company Overview
Australia-based beer company Coopers is a leader in the boutique beer segment. It

offers a range of eponymous ales, lagers and stouts with its flagship brand being
Coopers Sparkling Ale. The brewer's alcoholic beverages are manufactured in Australia
and exported throughout the world. Coopers also produces and exports home beer
brewing kits and malt extracts around the world.
Strategy
Throughout the past 15 years, Coopers has performed well in Australia, with its
boutique positioning and growing consumer preference for its products making it the
subject of a hostile takeover attempt by market leader Lion Nathan in 2005.
The continued outperformance of craft beers relative to mainstream brands and a small
but growing Australian craft beer export industry are certainly supportive of capacity
increases for Coopers. On Coopers' side is the fact that it can obtain a significant
increase in capacity by running a second production shift at its existing manufacturing
facility rather than relying on the construction of a new facility. This positions Coopers
to respond better in periods of high demand and to scale back production during
periods of consumption weakness. In this sense, its earnings are unlikely to be affected
by over-capacity, and yet its strategy should not be seen as indicative of expected beer
market strength.
However, the brewer will have to make major inroads into its rivals' market share if it is
to maximise the benefits of this capacity increase. After all, even after years of
benefiting from Australia's craft beer boom, Coopers' market share remains at around
4%.
Developments
2015
In June 2015, Coopers Brewery announced a deal to brew and distribute one of
America's leading craft beers, Brooklyn Lager, in Australia. Coopers managing director
Tim Cooper said: 'Brooklyn Brewery is regarded as one of the leaders of the American
Page 48
craft brewing movement. Its flagship beer, Brooklyn Lager, is a high-quality all-malt beer
which would fit well into the Coopers portfolio.'
In early 2015, the brewer reported record beer sales for the 2014 calendar year, with a
7.4% rise in volume sales to 77.3mn litres. This means that Coopers holds about 5% of
the total domestic beer market - the company's strongest position in its 150-plus year
history. Senior officials at Coopers said that the 2014 result was driven by rising
interstate sales and the contribution of Coopers' international beer portfolio,
representing 10.6% of the total volume. Early in 2015, Coopers spent more than
AUD4.5mn to install an additional four fermenters.
2012
Following SABMiller's acquisition of Foster's in 2011, Coopers stated that it will enter its
150th year in 2012 as the largest remaining Australian-owned brewer. Managing
director Tim Cooper said that the company would continue to vigorously maintain its
independence and continue to focus on producing quality products. The company has
also signed a distribution agreement with leading US craft brewer Anchor Brewing
Company, which is expected to increase Coopers' sales throughout the US.
For financial year ending June:
2012 sales: AUD186mn, growth of 7.5%
2013 sales: AUD216mn, growth of 16.1%
2014 sales: AUD231.3mn, growth of 7%
2015 sales: AUS235.1mn, growth of 1.6%
Page 49
Aldi
SWOT Analysis
Strengths
As the instigator of private labelling in Australia, Aldi's cheap and popular brands
provide excellent competitive differentiation.
A leading position in the domestic discount sector provides Aldi with a significant
competitive advantage over other retailers, given the outperformance of the discount
sector.
Aldi's small scale leaves it free from competition concerns when pursuing its growth
objectives.
Although market maturity restricts new store openings, Aldi is better poised than most
retailers to expand, needing smaller real estate areas and fewer customer numbers.
In comparison to many of its counterparts on the Australian market, Aldi has shown
rapid gains in profitability and revenue since 2010.
Weaknesses
A commitment to aggressive low prices places pressure on profit margins, a particular

concern during periods of rising operational costs.
Despite small store sizes, the crowded nature of the local market makes Aldi's
expansion ambitions seem excessively ambitious.
Australia's strict licensing authorities have blocked Aldi from selling its full liquor
range in many of its stores amid concerns over low alcohol prices
Opportunities
Aldi can still upgrade its discount offering, as it has done in Germany, offering cheap
organic and health food ranges to appeal to wealthier consumers should it need to
prioritise profits.
The Australian discount sector is expected to be a major beneficiary from near-term

domestic demand weakness; this could further fuel Aldi's revenue growth.
With the termination of competition restricting lease deals - a significant barrier to

Aldi's expansion plans - Aldi could find itself in a better position to accelerate its
expansion pace.
Page 50
The discounter has ambitious plans to expand in Western and South Australia in
2016.
Threats
The retailer believes that over time its share of the national market could reach 15%.
Although not as prone to fads as other developed markets, Australian consumers

could yet turn against the no-frills concept as quickly as they adopted it, leaving Aldi
and its relatively small stores unable to adapt sufficiently to remain competitive.
The retailer believes that its niche business model will remain its ethos for the
foreseeable future.
Market leader Woolworths have rebranded their private label products and lowered
prices in order to counter Aldi's growth. There are likely to be further defensive moves
from the Woolworths-Coles duopoly going forward.
Company Overview
Since entering the Australian market in 2001, Germany-based discount grocery retailer
Aldi has established a strong presence in the country. The company was the first
discount operator in Australia's supermarket-focused grocery sector, and its low pricing
and commitment to private labelling have had a considerable impact on rival and
consumer behaviour since its arrival. Aldi stores carry a range of products including
fresh fruit and vegetables, frozen goods, dairy, meat and groceries, as well as bathroom
and laundry essentials. Aldi was the first supermarket to introduce unit pricing in
Australia, which has since become industry standard. This assists customers to
evaluate prices between pack sizes and brands and enable consumers to make
informed choices.
Aldi has made a huge impact on competitive dynamics in Australia, for example,
causing Coles to cut its prices by 1.4%. The Reserve Bank of Australia conducted
a recent study that found Aldi was partly responsible for disinflation in the
economy.
Strategy
Underlining our view that Australia's discount sector presents the most explosive
growth opportunities among the country's mass grocery retail sub-sectors, Aldi has
unveiled plans to commit more than AUD1bn (USD982.2mn) to further bolster its
domestic presence by opening new stores and distribution centres.
Page 51
Developments
2016
Aldi opened its first store in Perth in Western Australia in June, with plans for a further
16 stores in the state. This is a faster rate of expansion than previously expected. The
discounter plans to have opened 65 new stores during FY15-16, the large majority of
which will be in South and Western Australia where the market is less saturated than the
East coast.
2015
In summer 2015, the retailer issued a fuller outline of its financial accounts between
2010 and 2013, showing a leap in sales from AUD3.14bn to AUD6bn and in pre-tax
earnings from AUD121mn to AUD261mn. Aldi included the figures in its submission to
the Senate inquiry into corporate tax avoidance and minimisation.
In early 2015, Aldi revealed that sales for its Australian arm in the calendar year 2014
increased by 13% to AUD6bn, underpinned by strong same-store sales growth and 25
new stores. The store network stands at 382, lifting Aldi's market share in eastern states
of the country to 11%. CEO Tom Daunt said that the retailer's national market share
could reach 15% over time, as it opened up to 120 stores in Western and South
Australia and added 20 stores a year in the east of the country. According to Daunt, the
retailer will maintain its lowest price position on the market, despite renewed
discounting and price investment from Woolworths and Coles.
2013
In December 2013, the company indicated that it did not sign a recent code of conduct
promoted by the Australian regulators to oversee dealings between retailers and
manufacturers. Aldi considered that the code was promoted to regulate conduct of the
largest two retailers in the country, Woolworths and Coles. Aldi argued that the code
focused on the practices of the two major retailers, while it has a very different business
model and approach to supplier relationship.
Page 52
Wesfarmers
SWOT Analysis
Strengths
Immense scale allows for the continued offering of competitive, low prices.
Wesfarmers' pricing strategies proved effective amid a highly competitive climate as it

and rival Woolworths worked to consolidate their dominance in the country's retail
sector.
Weaknesses
Substantial challenges lie ahead in terms of restructuring Coles' business model and
store operations.
The retailer's overseas expansion ambitions could lead to a loss of focus on its
domestic operations and enable competitors to take market share.
Opportunities
Private labelling remains a viable growth avenue, with such products generating
loyalty among price-sensitive consumers, whose incomes have been hit by rising fuel
prices.
Wesfarmers, free of Coles' previous restructuring errors, could have success in

turning the group around and closing in on Woolworths' market leadership once
again.
Threats
Aldi continues to aggressively expand in the sector, outspending Coles on monthly

advertising for the first time in 2015
Recent expansion of Australian retailer FoodWorks to all Australian states indicates

intensification in retail marketplace competition, which could eat into Wesfarmers'
market share. The potential interference of the competition commission is a shadow
hanging over much of Wesfarmers' expansionary activities.
At the end of 2014 Coles conceded that its supplier payments broke competition law
and faces fines over the issue which were imposed in mid-2015.
Page 53
Company Overview
Coles is one of the two dominant retailers in Australia. The firm was acquired by local
conglomerate Wesfarmers, and the transaction appears to have helped revive its
flagging sales. Much like its main rival Woolworths, Coles runs a number of grocery (BiLo, Coles and Coles Express), liquor (Liquorland Direct), clothing (Kmart and Target)
and stationery (Officeworks) divisions.
Strategy
Wesfarmers' focus on competitive pricing has been particularly effective in boosting

revenue growth, allowing it to outperform rival Woolworths. In a highly competitive mass
grocery retail market, competitive pricing has formed an ingrained feature of retailers'
strategies and is certainly an effective tool in protecting domestic dominance, in our
view.
Coles has some way to go in its restructuring if it is to restore the balance it once had,
yet tentative signs of improvement have come at the right time. Coles not only has to
compete with new rivals such as Costco (alongside traditional adversary Woolworths), it
also has to contend with growing pressure from the Australian Competition & Consumer
Commission (ACCC). Given how high-profile the ACCC's investigation into the sector
has been, it is likely to emerge with proposed amendments to existing legislation in
order to control the rate at which the market leaders can expand, to the detriment of
their rivals. This further underscores the importance of a clear organic growth strategy
and the ability to achieve strong same-store sales growth.
Several rumours have emerged that Wesfarmers is looking for acquisitions in the
domestic retail sector (most probably office and house supply, where the margins are
the highest) or abroad with a particular focus on Asia and online retailing space.
Developments
2016
In June 2016, Coles opened its first online-only 'dark store' in Melbourne, offering
consumers a click-and-collect service to appeal to the growing online grocery market.
The company plans to open up similar stores in other densely-populated areas along
the East Coast.
2015
In June 2015, Coles announced the purchase of most of the Supabarn chain of stores in
the Australian Capital Territory and New South Wales in a deal thought to be worth
around AUD70mn. The ACCC subsequently stated that a public inquiry would be held
to ascertain whether the Supabarn deal could lead to a substantial reduction of
competition in the market.
At the same time, Coles was ordered by the ACCC to pay back about AUD12mn to
around 100 Australian suppliers after a review found the retailer's buyers were
Page 54
'threatening and aggressive'. In a statement, Coles said it 'accepts and respects the
outcome of the independent arbitration process'.
In early 2015, the Australian federal government created a food and grocery code of
conduct to help ensure 'fair and transparent' dealings between the country's largest
retailers and their suppliers. Coles and Woolworths were involved in the development of
the code. The ACCC will oversee enforcement of the code and, although suppliers will
automatically be covered by the code, it will only cover retailers that are voluntarily
signatories.
Meanwhile, Coles plans to invest in farms in order to extend the selling seasons of
popular fruits and vegetables. The company intends to make the investments to ensure
the availability of popular produce in Australia all year round.
Financial Data
2015 total sales: AUD62,447mn (increase of 0.2%).

2014 total sales: AUD62,348mn.
Page 55
FoodWorks
SWOT Analysis
Strengths
Acquisition of supermarkets and Liquorland stores from Coles could accelerate its
long-term growth strategy.
Weaknesses
Strong focus on branding has proved successful for FoodWorks.
FoodWorks' lower pricing power, as compared with leading players Woolworths and
Coles, could result in lower sales opportunities for the company.
FoodWorks' smaller scale leaves it at greater risk of losing market share from the
ongoing price competition between Coles and Woolworths.
Opportunities
FoodWorks is expanding nationally, which is likely to increase its brand recognition.
Regional markets such as Vietnam and Indonesia have an underdeveloped organised

retail sector, which FoodWorks can look to capitalise on.
Threats

turning the group around, which could threaten FoodWorks' market share.
Discount retailers Aldi and Costco are a threat to FoodWorks' ability to grab market
share from the leading retailers.
Company Overview
FoodWorks is Australia's second largest independent retail group, behind Metcash's

IGA brand. The company was created from the merger of the FoodWorks Supermarket
Group and Australian United Retailers in November 2004. The company has a network
of more than 650 supermarkets, 400 of which are operated under the distinctive
FoodWorks banner. Recently, it acquired 45 Coles supermarkets and eight associated
Liquorland stores from Wesfarmers.
Strategy
Branding remains a key focus for the company as it looks to support its expansionary
strategies with improved core customer recognition. The company aims to develop new
store concepts and roll out an extended private label range
Page 56
FoodWorks' new South Australian stores are expected to operate under the FoodWorks
brand, as are a high proportion of the 300 stores the retailer plans to open or redevelop
as part of its long-term growth strategy. To date, FoodWorks' business strategy
appears to have paid off. However, we believe Foodworks will not be able to compete
with discounters on prices and could lose market share to its main competitors that
offer such competition.
2016
In March 2016, FoodWorks hit nationwide headlines for manipulating the price of
cigarettes in poorer areas, where people cannot afford premium priced brands. Antismoking groups accused the company, along with rival chains Coles and IGA, of
boosting sales by importing significantly cheaper brands from Ukraine which are
exempt from federal tax laws.
Financial Data
Total sales 2015: AUD50.5mn (decrease of 5.4%)

Total sales 2014: AUD53.4mn (decrease of 5.8%).
Total sales 2013: AUD56.6mn.
Page 57
Woolworths
SWOT Analysis
Strengths
Immense scale allows it to offer competitive, low prices.
Its financial clout will likely allow it to successfully absorb the costs of the voluntary
introduction of unit pricing.
Woolworths' supply contracts with multiple dairy suppliers could improve its ability to
cope with higher milk prices.
Strong expansionary focus is likely to help to protect Woolworths' market dominance

in this high-consuming retail market.
Weaknesses
A rate of up to 25 new supermarket openings annually seems too ambitious given the
saturated nature of the market in profitable urban centres.
Rumoured entry to the high-growth Indian retail market would require enormous
levels of investment, making Woolworths' existing market share vulnerable to local
competition.
With retail best practices in Australia lagging behind those elsewhere in the developed
world, Woolworths' ability to compete in international markets has not yet been
tested.
Opportunities
Private labelling remains a viable growth avenue, with such products generating
loyalty among price-sensitive consumers.
The convenience sector represents Woolworths' strongest long-term growth prospect

given the relative immaturity of its convenience network.
Its recent acquisition of the Macro Wholefoods retail chain will offer good long-term
growth opportunities in Australia's dynamic organic foods industry.
The partnership with eBay announced in early 2015 will increase footfall at the
retailer's stores.
Threats
The potential interference of the competition commission is a shadow hanging over

much of Woolworths' expansionary activities.
Page 58

turning the group around and closing Woolworths' market leadership once again.
Woolworths' competitive pricing strategies in a bid to secure its leading position

could act as a drag on its margin growth.
The retailer is increasingly being challenged by discounters such as Aldi and Costco.
Company Overview
Woolworths is the market leader in Australia's mass grocery retail sector. The retailer
also has a presence in New Zealand. Woolworths' retailing expertise spans across food
and grocery, liquor, petrol, general merchandise and consumer electronics. Like its
major rival Coles, Woolworths has a multi-category store offering, covering
supermarkets, convenience stores (under the Metro banner), discount stores (under the
Big W banner) and liquor outlets (under the Woolworths Liquor, Dan Murphy's and BWS
banners).
Strategy
The return of consumer confidence following the economic recession is likely to provide
a stimulus to the local retail sector, particularly for operators with a large discountfocused offering. However, the impact of a potential property meltdown on mortgageburdened Australian shoppers leaves the short-term picture looking
uncertain. Additionally, Woolworths may face difficulties in registering strong revenue
gains. The recent success of Coles, in addition to the ongoing expansion efforts of Aldi,
and now Costco, suggest that competitive pressure in the Australian retail sector will
continue to grow. This will necessitate a commitment to competitive pricing that could
weigh on short-term profitability.
Nevertheless, Woolworths remains the established market leader in Australia, and this
position suggests a bright future for the company beyond challenging short-term
sluggishness. The retailer's strategy of developing its private label range, in response to
growing consumer interest, coupled with its ongoing expansion plans - Woolworths
intends to add 20-30 new supermarkets to its chain per annum - will allow it to at least
maintain its market share in a highly competitive sector. Woolworths is also considering
further overseas expansion following its acquisition of Foodland's New Zealand
operations and subsequent success therein; India is one reported target.
Developments
2016
Woolworths continues to focus expansion on its express retail format, opening its 16th
Metro store in Sydney's central business district in June 2016. Despite the presence of
Page 59
major players 7-Eleven and Metcast Limited's Lucky 7, the convenience sub-sector
presents substantial growth opportunities in an otherwise saturated MGR sector. Given
increasingly time-poor consumers and high demand for urban living, Woolworths aims
to gain market share by offering a more premium outlet than its rivals.
The retailer faces accusations of exploiting supermarket cleaners, with outsourced
cleaning staff believed to be owed thousands of dollars in unpaid wages, according to
an independent study by Australia's Fair Work Commission. It follows separate
allegations in May 2016 about the gross underpayment of trolley collectors
subcontracted to Woolworths stores in New South Wales.
There are also unconfirmed reports that Woolworths have held preliminary talks with
South Africa-based household retailer Steinhoff International about selling its struggling
discount department store chain Big W. The potential sale of Big W would allow new
Woolworths CEO Brad Banducci to concentrate on protecting the dominant market
share of its flagship supermarkets which are under threat from Aldi.
2015
In June 2015, Woolworths announced its intention to cut around 1,200 jobs as part of a
'strategic change' plan, aiming to cut millions of dollars in costs and improve sales. The
retailer trimmed its profit guidance for the year to June, which would be only the second
fall in annual profits for the company. CEO Grant O'Brien also announced that he is to
step down: 'The recent performance has been disappointing and below expectations. I
believe it is in the best interests of the company for new leadership to see these plans
to fruition.'
There were unconfirmed press reports that US private equity giant KKR was preparing a
takeover bid for Woolworths. Although rumours of a takeover had died down by
October, the departure of the CEO, falling share prices and the falling value of the
Australian dollar leave the retailer vulnerable. In early 2015, Woolworths announced a
link up with eBay whereby customers of the e-commerce company would be able to
pick up their online orders from parcel pick-up points and lockers in more than 90
Woolworths supermarkets and Big W stores. Woolworths hoped the click-and-collect
service would increase foot traffic and sales in its bricks and mortar stores, while eBay
believed the deal would boost online sales by giving shoppers more options for taking
delivery of their orders.
The Australian federal government created a food and grocery code of conduct to help
ensure 'fair and transparent' dealings between the country's largest retailers and their
suppliers. Woolworths and Coles were involved in the development of the code. The
Australian Competition and Consumer Commission will oversee the code's enforcement
and - although suppliers will automatically be covered by the code - it will only cover
retailers that voluntarily sign up to it.
2014
At the end of 2014, the Australian Competition and Consumer Commission said that it
had received complaints about supermarket supplier issues in relation to Woolworths.
Page 60
There were reports that the retailer was billing suppliers for accounting mistakes more
than five years old.
In late 2014, Woolworths Liquor Group acquired Chinese company Summergate
Wine and its subsidiary Pudao Wines for an undisclosed sum. The move will strengthen
Woolworths' position in the country. Summergate chief Ian Ford is expected to stay as
CEO, while he and co-founder Brendan O'Toole will remain as board members of the
company. The acquisition, one of Woolworths' first overseas deals, is expected to help
it focus on the international market.
At the same time, Woolworths announced that it was branding 'not-so-appealing'
looking fruit and vegetables as 'The Odd Bunch' and putting a cheaper price tag on
these products, in the hope that customers would pick them up. According to the
retailer, around 25% of edible fresh produce is thrown away due to visual imperfection
or cosmetic damage every year in Australia.
In late 2014, the retailer introduced a AUD1bn supply chain overhaul, Mercury 11, which
will slash the cost of transporting groceries and general merchandise across the
country.
Financial Data
2015 total group sales: AUD60,679mn (decrease of 0.2%).

2014 total group sales: AUD60,773mn.
Page 61
Demographic Forecast
Demographic analysis is a key pillar of BMI's macroeconomic and industry forecasting model. Not only
is the total population of a country a key variable in consumer demand, but an understanding of
the demographic profile is essential to understanding issues ranging from future population trends to
productivity growth and government spending requirements.
The accompanying charts detail the population pyramid for 2015, the change in the structure of
the population between 2015 and 2050 and the total population between 1990 and 2050. The tables show
indicators from all of these charts, in addition to key metrics such as population ratios, the urban/rural split
and life expectancy.
Population
(1990-2050)
40
30
20
10
2050f
2045f
2040f
2035f
2030f
2025f
2020f
2015f
2010
2005
2000
1990
Australia - Population, mn
f = BMI forecast. Source: World Bank, UN, BMI
Page 62
Australia Population Pyramid

2015 (LHS) & 2015 Versus 2050 (RHS)
Source: World Bank, UN, BMI
Table: Population Headline Indicators (Australia 1990-2025)
1990
2000
2005
2010
2015f
2020f
2025f
17,096
19,107
20,274
22,162
23,968
25,597
27,084
na
1.1
1.4
1.8
1.5
1.2
1.1
Population, total, male, '000
8,525
9,531
10,116
11,085
11,975
12,779
13,511
Population, total, female, '000
8,570
9,576
10,157
11,076
11,993
12,817
13,572
Population ratio, male/female
0.99
1.00
1.00
1.00
1.00
1.00
1.00
Population, total, '000

Population, % y-o-y
na = not available; f = BMI forecast. Source: World Bank, UN, BMI
Table: Key Population Ratios (Australia 1990-2025)
Active population, total, '000

Active population, % of total population
Dependent population, total, '000
Dependent ratio, % of total working age
1990
2000
2005
2010
2015f
2020f
2025f
11,433
12,764
13,643
14,959
15,881
16,493
17,088
66.9
66.8
67.3
67.5
66.3
64.4
63.1
5,663
6,342
6,630
7,203
8,087
9,104
9,995
49.5
49.7
48.6
48.2
50.9
55.2
58.5
Page 63
Key Population Ratios (Australia 1990-2025) - Continued
Youth population, total, '000
1990
2000
2005
2010
2015f
2020f
2025f
3,766
3,982
4,012
4,212
4,481
4,927
5,162
32.9
31.2
29.4
28.2
28.2
29.9
30.2
1,897
2,360
2,618
2,991
3,606
4,177
4,832
16.6
18.5
19.2
20.0
22.7
25.3
28.3
Youth population, % of total working age

Pensionable population, '000
Pensionable population, % of total working age
Table: Urban/Rural Population & Life Expectancy (Australia 1990-2025)
1990
Urban population, '000
Urban population, % of total
2000
2005
2010
2015f
2020f
2025f
14,600.7 16,654.8 17,841.4 19,665.8 21,433.8 23,052.7
24,549.4
85.4
87.2
88.0
88.7
89.4
90.1
90.6
2,496.1
2,452.4
2,432.9
2,497.1
2,535.2
2,544.9
2,534.8
Rural population, % of total
14.6
12.8
12.0
11.3
10.6
9.9
9.4
Life expectancy at birth, male, years
73.8
76.8
78.4
79.5
80.5
81.6
82.5
Life expectancy at birth, female, years
79.9
82.2
83.3
84.0
84.6
85.3
86.0
Life expectancy at birth, average, years
76.8
79.5
80.9
81.8
82.5
83.4
84.2
Rural population, '000
Table: Population By Age Group (Australia 1990-2025)
1990
2000
2005
2010
2015f
2020f
2025f
Population, 0-4 yrs, total, '000
1,262
1,284
1,273
1,459
1,545
1,691
1,697
1,263
1,360
1,331
1,356
1,522
1,626
1,762
1,241
1,336
1,406
1,396
1,412
1,609
1,702
1,398
1,310
1,393
1,488
1,487
1,514
1,698
1,365
1,264
1,416
1,626
1,679
1,599
1,613
1,421
1,455
1,331
1,638
1,793
1,786
1,694
1,397
1,411
1,519
1,478
1,777
1,885
1,867
1,316
1,527
1,460
1,623
1,539
1,847
1,946
1,259
1,442
1,560
1,529
1,709
1,582
1,883
984
1,337
1,455
1,587
1,541
1,724
1,595
Page 64
Population By Age Group (Australia 1990-2025) - Continued
1990
2000
2005
2010
2015f
2020f
2025f
822
1,268
1,326
1,465
1,608
1,533
1,715
728
954
1,247
1,306
1,463
1,587
1,516
738
791
932
1,215
1,280
1,431
1,556
662
675
757
904
1,189
1,236
1,386
493
635
621
706
852
1,120
1,171
375
511
549
551
632
768
1,019
222
295
401
441
465
524
646
100
170
189
267
300
325
374
33
58
79
92
132
155
174
12
16
24
28
42
52
Population, 100+ yrs, total, '000
Table: Population By Age Group % (Australia 1990-2025)
1990
2000
2005
2010
2015f
2020f
2025f
Population, 0-4 yrs, % total
7.38
6.72
6.28
6.59
6.45
6.61
6.27
7.39
7.12
6.57
6.12
6.35
6.35
6.51
7.26
7.00
6.94
6.30
5.89
6.29
6.29
8.18
6.86
6.87
6.72
6.21
5.92
6.27
7.99
6.62
6.98
7.34
7.01
6.25
5.96
8.31
7.62
6.57
7.39
7.48
6.98
6.25
8.18
7.39
7.50
6.67
7.42
7.37
6.89
7.70
7.99
7.21
7.32
6.42
7.22
7.19
7.37
7.55
7.70
6.90
7.13
6.18
6.95
5.76
7.00
7.18
7.16
6.43
6.74
5.89
4.81
6.64
6.54
6.61
6.71
5.99
6.33
4.26
4.99
6.15
5.90
6.11
6.20
5.60
4.32
4.14
4.60
5.48
5.34
5.59
5.75
3.88
3.54
3.74
4.08
4.96
4.83
5.12
2.88
3.32
3.06
3.19
3.56
4.38
4.32
2.20
2.68
2.71
2.49
2.64
3.00
3.77
1.30
1.54
1.98
1.99
1.94
2.05
2.39
Page 65
Population By Age Group % (Australia 1990-2025) - Continued
1990
2000
2005
2010
2015f
2020f
2025f
0.59
0.89
0.94
1.21
1.25
1.27
1.38
0.20
0.31
0.39
0.42
0.55
0.61
0.64
0.05
0.06
0.08
0.11
0.12
0.17
0.19
Population, 100+ yrs, % total
0.01
0.01
0.01
0.01
0.02
0.02
0.03
Page 66
Glossary
Food & Drink
Food Consumption: All four food consumption indicators (food consumption in local currency, food
consumption in US dollar terms, per capita food consumption and food consumption as a percentage of
GDP) relate to off-trade food and non-alcoholic drinks consumption, unless stated in the relevant table/
section.
Off-trade: Relates to an item consumed away from the premises on which it was purchased. For example, a
bottle of water bought in a supermarket would count as off-trade, while a bottle of water purchased as part
of a meal in a restaurant would count as on-trade.
Canned Food: Relates to the sale of food products preserved by canning. This is inclusive of canned meat
and fish, canned ready meals, canned desserts and canned fruits and vegetables. Volume sales are measured
in tonnes as opposed to on a unit basis to allow for cross-market comparisons.
Confectionery: Refers to retail sales of chocolate, sugar confectionery and gum products. Chocolate sales
include chocolate bars and boxed chocolates; gum sales incorporate both bubble gum and chewing gum;
and sugar confectionery sales include hard-boiled sweets, mints, jellies and medicated sweets.
Trade: In the majority of BMI's Food & Drink reports, we use the UN Standard International Trade
Classification, using categories Food and Live Animals, Beverages and Tobacco, Animal and Vegetable
Oils, Fats and Waxes and Oil-seeds and Oleaginous Fruits. Where an alternative classification is used due to
data availability, this is clearly stated.
Drinks Sales: Soft drinks sales (including carbonates, fruit juices, energy drinks, bottled water, functional
beverages and ready-to-drink tea and coffee), alcoholic drinks sales (including beer, wine and spirits) and
tea and coffee sales (excluding ready-to-drink tea and coffee products that are incorporated under BMI's
soft drinks banner) are all off-trade only, unless stated.
Mass Grocery Retail

Mass Grocery Retail: BMI classifies mass grocery retail (MGR) as organised retail, performed by
companies with a network of modern grocery retail stores and modern distribution networks. MGR differs
from independent or traditional retail, which relates to informal, independent-owned grocery stores or
traditional market retailing. MGR incorporates hypermarket, supermarket, convenience and discount
Page 67
retailing, and in unique cases cooperative retailing. Where supermarkets are independently owned and not
classified as MGR, BMI will state so clearly within the relevant report.
Hypermarket: BMI classifies hypermarkets as retail outlets selling both groceries and a large range of
general merchandise goods (non-food items) and typically more than 2,500sq m in size. Traditionally only
found on the outskirts of towns, hypermarkets are increasingly appearing in urban locations.
Supermarket: Supermarkets are the original and still most globally prevalent form of self-service grocery
retail outlet. BMI classifies supermarkets as more than 300sq m, up to the size of a hypermarket. The
typical supermarket carries both fresh and processed food and will stock a range of non-food items, most
commonly household and beauty goods. The average supermarket will increasingly offer some added-value
services, such as dry cleaning or in-store ATMs.
Discount Stores: Although most commonly between 500sq m and 1,500sq m in size, and thus of the same
classification as supermarkets, discount stores will typically have a smaller floor space than their
supermarket counterparts. Other distinguishing features include the prevalence of low-priced and private
label goods, an absence of added-value services, often called a no-frills environment, and a high product
turnover rate.
Convenience Stores: BMI's classification of convenience stores includes small outlets typically less than
300sq m in size, with long opening hours and located in high footfall areas. These stores mainly sell fastmoving food and drink products (such as confectionery, beverages and snack foods) and non-food items,
typically stocking only two or three brand choices per item and often carrying higher prices than other
forms of grocery store.
Cooperatives: BMI classifies cooperatives as retail stores that are independently owned but club together
to form buying groups under a cooperative arrangement, trading under the same banner, although each is
privately owned. The arrangement is similar to a franchise system, although all profits are returned to
members. The term is becoming more archaic, with fewer cooperatives remaining that conform to this
model. Most cooperative groups now have a more centralised management structure, operate more like
normal supermarkets, and are thus classified as such in BMI's reports.
Page 68
Methodology
Industry Forecast Methodology
BMI's industry forecasts are generated using the best-practice techniques of time-series modelling and
causal/econometric modelling. The precise form of model we use varies from industry to industry, in each
case being determined, as per standard practice, by the prevailing features of the industry data being
examined.
Common to our analysis of every industry is the use of vector autoregressions. Vector autoregressions allow
us to forecast a variable using more than the variable's own history as explanatory information. For
example, when forecasting oil prices, we can include information about oil consumption, supply and
capacity.
When forecasting for some of our industry sub-component variables, however, using a variable's own
history is often the most desirable method of analysis. Such single-variable analysis is called univariate
modelling. We use the most common and versatile form of univariate models: the autoregressive moving
average model (ARMA). In some cases, ARMA techniques are inappropriate because there is insufficient
historic data or data quality is poor. In such cases, we use either traditional decomposition methods or
smoothing methods as a basis for analysis and forecasting.
BMI mainly uses ordinary least squares estimators. In order to avoid relying on subjective views and
encourage the use of objective views, BMI uses a 'general-to-specific' method. BMI mainly uses a linear
model, but simple non-linear models, such as the log-linear model, are used when necessary. During periods
of 'industry shock', for example when poor weather conditions impede agricultural output, dummy variables
are used to determine the level of impact.
Effective forecasting depends on appropriately selected regression models. BMI selects the best model
according to various different criteria and tests, including but not exclusive to:
R2 tests explanatory power; adjusted R2 takes degree of freedom into account
Testing the directional movement and magnitude of coefficients
Hypothesis testing to ensure coefficients are significant (normally t-test and/or P-value)
All results are assessed to alleviate issues related to auto-correlation and multi-collinearity
Page 69
BMI uses the selected best model to perform forecasting.

Human intervention plays a necessary and desirable role in all of BMI's industry forecasting. Experience,
expertise and knowledge of industry data and trends ensure that analysts spot structural breaks, anomalous
data, turning points and seasonal features where a purely mechanical forecasting process would not.
Sector-Specific Methodology
Within the Food & Drink industry, issues that could result in human intervention might include but are not
exclusive to:
Significant company expansion plans;
New product development that might influence pricing levels;
Dramatic changes in local production levels;
Product taxation;
The regulatory environment and specific areas of legislation;
Changes in lifestyles and general societal trends;
The formation of bilateral and multilateral trading agreements and negotiations;
Political factors influencing trade;
The development of the industry in neighbouring markets that are potential competitors for foreign direct
investment.
Example Of Food Consumption Model

(Food Consumption)t = 0 + 1*(GDP)t + 2*(inflation)t + 3*(lending rate)t + 4* (foreign exchange
rate)t + 5*(government expenditure)t + 6*(food consumption)t-1 + t
Sources
BMI uses the following sources in the compilation of data, developments and analysis for its range of Food
& Drink reports: national statistics offices; local industry governing-bodies and associations; local trade
associations; central banks; government departments, particularly trade, agricultural and commerce
ministries; officially released information and financial results from local and multinational companies;
cross-referenced information from local and international news agencies and trade press outlets; figures
from global organisations, such as the World Trade Organization (WTO), the World Health Organization
Page 70
(WHO), the UN Food and Agricultural Organization (FAO) and the Organisation for Economic Cooperation and Development (OECD).
Risk/Reward Index Methodology

BMI's Risk/Reward Index (RRI) provides a comparative regional ranking system evaluating the ease of
doing business and the industry-specific opportunities and limitations for potential investors in a given
market. The RRI system divides into two distinct areas:
Rewards: Evaluation of sector's size and growth potential in each state, and also broader industry/state
characteristics that may inhibit its development. This is further broken down into two sub-categories:
Industry Rewards: This is an industry-specific category taking into account current industry size and
growth forecasts, and the openness of the market to new entrants and foreign investors, to provide an
overall score for potential returns for investors.
Country Rewards: this is a country-specific category, and the score factors in favourable political and
economic conditions for the industry.
Risks: Evaluation of industry-specific dangers and those emanating from the state's political/economic
profile that calls into question the likelihood of expected returns being realised over the assessed time
period. This is further broken down into two sub-categories:
Industry Risks: This is an industry-specific category whose score covers potential operational risks to
investors, regulatory issues inhibiting the industry and the relative maturity of a market.
Country Risks: This is a country-specific category in which political and economic instability,
unfavourable legislation and a poor overall business environment are evaluated to provide an overall
score.
We take a weighted average, combining industry and country risks, or industry and country rewards. These
two results in turn provide an overall Risk/Reward Index, which is used to create our regional ranking
system for the risks and rewards of involvement in a specific industry in a particular country.
For each category and sub-category, each state is scored out of 100 (100 being the best), with the overall
index a weighted average of the total score. Importantly, as most of the countries and territories evaluated
are considered by BMI to be 'emerging markets', our index is revised on a quarterly basis. This ensures that
the index draws on the latest information and data across our broad range of sources, and the expertise of
our analysts.
In constructing these indices, the following indicators have been used. Almost all indicators are objectively
based.
Page 71
Table: Food & Drink Risk/Reward Index Indicators
Rewards
Industry rewards
Food and drink consumption per capita, USD
Indicator denotes overall breadth of market. Wealthier markets

score higher.
Per capita food consumption growth, fiveyear compound annual growth, %
Lead Food & Drink growth indicator. Scores based on compound

annual growth over our five-year forecast period.
Market fragmentation
Subjective score reflecting how relatively developed the industry

is. Higher score reflects a more fragmented industry.
Country rewards
Population size, mn
Indicator denotes size of market.
GDP per capita, USD
Proxy for wealth. Size of population is important but needs to be

considered in relation to spending power. High-income states
receive better scores than low-income states.
Youth population, %
The size of the 0-15 age group as a percentage of the total

working age population. Younger populations are generally
considered to be more desirable.
Risks
Industry risks
Mass grocery retail penetration, %
The proportional contribution of the organised food retailing

sector; higher scores reflect better developed routes to
consumers and more efficient internal trade systems.
Regulatory environment
Subjective score based on the industry-specific regulatory

environment and the presence of potentially restrictive legislation.
Country risks
Short-term economic growth
Score from BMI's Country Risk Index (CRI). It evaluates likely

growth trajectory over a two-year forecast period, based on
BMI's forecasts and projections of business and consumer
confidence.
Income distribution
Middle 60% of population as % of total spending. Higher score is

an indicator of incomes being spread more equitably.
Lack of bureaucracy
From CRI. It evaluates the risks to business posed by official

bureaucracy, the broader legal framework and corruption.
Market orientation
Subjective score from CRI to denote predictability of openness to

foreign investment and trade.
Physical infrastructure
From CRI. Poor power/water/transport infrastructure act as

bottlenecks to sector development
Source: BMI
Page 72
Weighting: Given the number of indicators/datasets used, it would be inappropriate to give all subcomponents equal weight. Consequently, the following weights have been adopted:
Table: Weighting
Component
Weighting
Rewards
60%
- Industry rewards
30%
- Country rewards
30%
Risks
40%
- Industry risks
20%
- Country risks
20%
Source: BMI
Page 73

BMI Australia Food and Drink Report Q4 2016 PDF

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Q4 2016

Published by:BMI Research

Australia Food & Drink Report Q4 2016

Part of BMIs Industry Report & Forecasts Series

2016 Business Monitor International Ltd

Australia Food & Drink Report Q4 2016

Table: Food Sales (Australia 2013-2020) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Mass Grocery Retail ................................................................................................................................ 22

Industry Risk Reward Index ............................................................................................. 24

Industry Risk Reward Index ....................................................................................................................... 29

Market Overview ............................................................................................................... 31

Recent Developments ..............................................................................................................................

Competitive Landscape .................................................................................................... 39

Business Monitor International Ltd

Australia Food & Drink Report Q4 2016

Company Profile ................................................................................................................ 40

Demographic Forecast ..................................................................................................... 62

Table: Food & Drink Risk/Reward Index Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72

Business Monitor International Ltd

Australia Food & Drink Report Q4 2016

BMI Industry View

Food and Drink Spending

Food, sales, AUDmn

Non-alcoholic drinks, sales, AUDmn

f = BMI forecast. Source: National statistics, BMI

Business Monitor International Ltd

Australia Food & Drink Report Q4 2016

Key Trends & Industry Developments

Business Monitor International Ltd

Australia Food & Drink Report Q4 2016

Australian consumers have high disposable incomes, allowing them to spend

Geography and demographics prevent the establishment of large, hypermarket-style

The government is keen to encourage foreign investment and offers a transparent

The shift towards health-consciousness among Australian consumers represents an

Business Monitor International Ltd

Australia Food & Drink Report Q4 2016

Food & Drink SWOT Analysis - Continued

Business Monitor International Ltd

Australia Food & Drink Report Q4 2016

No change in forecasts since Q216.

Business Monitor International Ltd

Australia Food & Drink Report Q4 2016

Business Monitor International Ltd

Australia Food & Drink Report Q4 2016

No change in forecasts since Q216.

Food, sales, AUDmn (LHS)

Food, sales, AUDmn, % growth y-o-y (RHS)

f = BMI forecast. Source: BMI, national statistics

Business Monitor International Ltd

Australia Food & Drink Report Q4 2016

Business Monitor International Ltd

Australia Food & Drink Report Q4 2016

Table: Food Sales (Australia 2013-2020)

83,236.6 87,468.6 90,478.5 94,081.6 98,381.9

Food, sales, AUDmn, %

Bread, rice and cereals,

Baked goods, sales, AUDmn

Baked goods, sales, AUDmn,

16,681.8 17,531.4 18,107.1 18,826.9 19,686.0

Bread, rice and cereals,

Meat and Poultry, sales,

Fish and fish products, sales,

Fish and fish products, sales,