Profits curtailed | Food makers say tight budgets are forcing consumers to look for bargains
Canadian food manufacturers are on track to book $4.7 billion in profits this year before taxes, a 1.8 percent increase over last year, says the Conference Board of Canada.
It expects a food manufacturing industry profit margin of 5.5 percent this year.
The business-oriented research centre predicts that before-tax profits will increase next year by three percent and reach $5.3 billion by 2016.
Still, the conference board considers this year’s $4.7 billion profit a tepid result.
“The food manufacturing industry is struggling through a tough 2012,” said a board analysis.
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“The slow recovery of the United States economy, a significant run-up in commodity prices and a slowing Canadian job market have all contributed to holding back growth in the food manufacturing industry.”
It also cited the emergence of the behemoth retail chain Walmart into the retail grocery trade as a significant factor in keeping prices lower and industry profits suppressed.
It said consumer food spending is restricted because of uncertain economic times, and retail chains are putting pressure on food manufacturers to keep costs in check.
“Large retailers are putting pressure on food manufacturers to keep any price increases to a minimum, and that has put a damper on profit margins that are already being squeezed by commodity prices,” said the conference board analysis.
“Weak consumer confidence and tight household budgets have caused consumers to cut back on spending, including on food.”
It said consumers are also being drawn increasingly to less expensive private brand products, which puts more pressure on name brand producers to come up with more competitive products.
At the same time, the consumer preference for more healthy food products is a challenge for the industry, said the conference board.
“Companies are targeting this new cohort of health-conscious consumers and attempting to capitalize on the particular food de-mands that resonate with this group,” it said.
Those products include more whole grain, gluten-free and allergy-conscious varieties.
The U.S. corn belt drought is identified as a major factor in higher commodity prices and lower food manufacturer profits this year.
U.S. trade restrictions, including country-of-origin rules that restrict or raise the price of imports from Canada, are also cited as factors.
The conference board argues that food manufacturers will not be able to increase food prices at least until next year to compensate for higher commodity costs.
Even then, increases will not cover the full extent of input cost increases.
