High costs threaten viability of well-loved Australian food brands locally

There are growing fears Australian brands will shut up shop locally with high costs threatening the future of much-loved grocery staples.

Food manufacturers in recent years have been hit with a near-90 per cent rise in gas prices, while oil and sugar are up 48 and 24 per cent, respectively. Cocoa prices have also spiked 190 per cent since the end of 2023.

Food and grocery is the biggest manufacturing sector in Australia, employing more than 275,000 people.

Australian Food and Grocery Council chief executive Tanya Barden said the cost of manufacturing locally was “so much higher” than other countries and had already forced many companies to move production offshore.

“Particularly multinational businesses, when their . . . assets in their manufacturing plants get to the end of life, they have to decide whether to keep production in Australia or move it offshore,” she said.

“That is what has been happening, we’re gradually losing these brands to offshore because they can operate in other countries that are cheaper . . . and that offer tax incentives or concessions.”

Her comments came after Reserve Bank of Australia governor Michele Bullock this week warned prices were not going back to where they were pre-COVID.

“The high inflation over the past couple of years has permanently increased the price level,” Ms Bullock said.

More food businesses were closing down Australian operations — previously just something personal care product manufacturers did, Ms Barden said.

“It might (also) be rationalising their range and reducing the number of products they produce here,” she said.

Manufacturers behind Coca-Cola, Milo, Nescafe, Allens Lollies, and chocolates M&Ms and Snickers have already warned of increasing challenges operating food businesses in Australia as a result of increases in the cost of ingredients.

Kellanova — formerly Kellogg’s — earlier this year said it always looked to find more efficiencies before passing on the costs, or considering alternative manufacturing options elsewhere, including offshore.

Executives from Bega Cheese, Vegemite’s owner, recently said it had forecast very few price increases for the 2025 financial year. Earnings will instead be driven through productivity.

As Australians face stubbornly high mortgage and utilities bills, many are increasingly turning to private labels or “home brands”.

A Woolworths spokesman said it offered a great own-brand range, which on average was 30 per cent cheaper than equivalent mainstream brands. Coles declined to comment.

IGA parent Metcash boss Grant Ramage said cost price inflation was dropping off rapidly.

He pointed to its data, which revealed wholesale price inflation — excluding tobacco and fresh produce — moderated to 1.8 per cent in the first half, compared with 6.5 per cent recorded last year.

Discount supermarket Aldi said its low-price model meant it could provide quantifiable savings for shoppers. It claimed Aldi shoppers saved $3.4 billion last year.

But Ms Barden highlighted the risks for household-name products to leave shelves as more shoppers — struggling with constant cost pressures — turned to private labels.

“There is a potential for some of the brands to then lose market share to private labels or to cheaper alternatives,” she said.

“That does then impact the viability of those brands in the long run.”

Ms Barden said food manufacturers were trying to strike the balance between recognising that consumers are doing it tough and offset any cost pressures.

“The alternative is passing through some of that cost, but trying to do that in a responsible way that balances the need for the business to make profits,” she said.