Even Vegemite feels the bite as economic growth stalls


It didn’t help that the country is enduring its worst property downturn in a generation, with dwindling house prices and a credit crunch weighing on households.

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In March, consumer confidence plunged to its weakest reading since September 2017.

Grocery stores, which make up more than half of the consumer-staples index, are also pessimistic on their customers’ spending power.

Australia’s largest supermarket chain, Woolworths, which accounts for 44 per cent of the sector on the ASX, said in February it expects a subdued consumer environment for the foreseeable future, flagging that earnings at its second-largest unit would fall.

Coles, which makes up 15 per cent of the sector, started a review of its business because the drought that’s been gripping parts of the country has pushed up costs. Other companies such as Vegemite maker Bega Cheese have also come out with disappointing results.

And while the federal budget unveiled this week tax-relief provisions meant to make consumers feel a bit richer, Credit Suisse analysts said the policies won’t be significant after factoring in the effects of people being pushed into higher tax brackets as they earn more.

Of course, not every consumer-staple company is lagging — sales abroad have helped protect some of them from the declining domestic economy.

Organic food producer Bellamy’s, which derived more than a quarter of its revenue from overseas in 2018 with China a key market, has soared 50 per cent this year. For dairy company a2 Milk, up 36 per cent on the Australian exchange, almost a third of sales came from outside the antipodean nations.

Still, overseas exposure isn’t always a plus. Vitamin maker Blackmores, which generated about 30 per cent of its sales from China last year, has tumbled 23 per cent since the end of December as the world’s second-biggest economy struggles with softening consumer sentiment. That’ll lead to weak third-quarter sales, Citigroup analysts led by Sam Teeger warned this week.

Bloomberg

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