What is the effect on retail businesses moving to owned brands?
One of the first questions I get asked by acquirers of Food Supply businesses is what % of the business is into Retail?
The effect of the movement by retail from Branded to Owned Labels has seen a shift in valuation increase towards businesses with a focus on foodservice vs. retail over the last 24 months.
The risk associated with retail supply is increasingly making acquirers nervous, whereas food service typically allows for a much greater & safer spread of customers.
Over the last couple of years, I have seen a number of Small to Medium Food Manufacturers with a heavy reliance on retail customers in Australia, within a very short space of time, drop in value dramatically. As SKU’s are removed, discount rebates removed etc… This provides huge capacity availability in production leading to competition on price via contract manufacturing of private labels.
The reduction of brands becomes a race to the bottom on price.
For opportunistic manufacturers, they view the increase in capacity & resources as an opportunity to develop new products for higher margin alternative markets to retail as well as focus on establishing presence outside of Australia.
What are you doing to combat this issue?
Contact Specialist broker Emil Parthenides for more information.
Specialist – M&A
Mob: 0412 817 059