Analysis of through-chain pricing of food products
(Summary version)
Freshlogic
24 August 2012
Introduction
Objective
Summary
• This document has been prepared by Freshlogic as an internal briefing
paper for Coles on a strictly confidential basis.
• It provides the following:
• An analysis of the share of retail sales prices available to primary
producers, processors and the retailer on products sourced and sold
by Coles
• A profile of average retail selling prices over time – in some cases
compared to average buying prices to illustrate the consistency of the
relationships between those prices
• Coles share of sales of produce taking account of the total volumes
available within the Australian market. Where applicable, this takes
account of product exported as well as imported volumes.
The Analysis shows:
1. In most fresh produce categories, the primary producer
receives over 50% of the retail selling price.
Sources of information
• The information used in this document has been derived from several
sources:
• Coles internal retail sales and category costings data
• Freshlogic’s THRUChain analysis model to determine Coles share of
sales of food categories
• Industry information and data on yields from cattle and sugar
production, as well as product conversion relationships that apply to
dairy products
• Information from wholesalers and producers as to costs incurred in
the early stages of fresh produce supply chains.
Page 2
Food prices and margins - Confidential & Copyright © 2012 Freshlogic
2. In processed products the farm gate share is lower but there
are additional processing and supply chain costs between the
farm and the consumer.
3. There is significant price fluctuation in many fresh produce
categories which flow from the farm gate through to
consumer pricing as part of regular seasonal cycles.
4. In every category analysed, Coles has a relatively small
proportion of total sales in the market.
Notes on these analyses
Share of the retail price
Definitions
• This has been based on Freshlogic’s analysis for the nominated financial
period in each case, which has relied upon:
• Coles dissections of direct store and other operating costs in the
relevant financial period associated with handling the products
• Coles data on average buying and selling prices, promotional costs,
discounts and other costs attributed to the products
• Freshlogic’s estimate of wholesale margins based on the typical nature
of sourcing and broking arrangements for supply to Coles
• Freshlogic’s estimate of other handling costs associated with the
movement and preparation of product from producer to wholesaler
Items disclosed in the “share of retail price” charts are defined as
follows:
• Farmgate is the apparent gross return available to the primary
producer/grower for the sale of product at the farmgate, calculated
as the wholesale price less a wholesaler’s margin, less Logistics costs.
• Beyond farm includes the following elements:
• Logistics are costs associated with transport from farm to
market, packing, packaging materials, storage and any ripening.
• Wholesale is the available wholesale margin deducted by a
wholesaler or broker from the wholesale price. This has been
set at 7.5% for fresh produce categories.
• Distribution are costs associated with transport from wholesale
market to the retailer, incurred prior to the retailer point of
purchase
• Retail costs are direct costs associated with products which
include
• Freight and logistics
• In-store handling costs
• Discounts
• Direct store labour
• Allocation of store and company overheads
• Retail margin is the amount of margin available, being net retail
price (after markdowns) less retail costs and retailer’s net
buying price.
Average prices over time
• The selection has used the most appropriate data to reflect the level of
retail prices over time.
Shares of sales
• Coles share of product sales in the case of fresh produce and selected other
lines has been calculated taking account of the total available supplies of
produce sold in domestic and export markets by Australian producers. This
excludes the volumes of produce sold into processing uses.
• The estimates of total available product is each category is based on
Freshlogic’s THRUChain model which reconciles total supply chain supply
and distribution across all agrifood categories and major product groups.
• Coles volumes of sales includes the estimated allowances for losses
through product handling.
Coles overall supermarket margins
Gross margin
Retail margins calculated in each category vary, as they
reflect individual product gross margins in each case less
direct product and store department costs
Page 3
Food prices and margins - Confidential & Copyright © 2012 Freshlogic
Cost of goods sold
CODB
EBIT margin
(4.6% for FY
2012)
Bananas
Share of the retail price
•
•
1 Bananas
The banana producer earned an average of 57% of the average retail price1 in
the 2012 financial year.
Costs between producer and wholesaler include packaging and transport,
which are assigned to the “beyond farm” share of prices.
- share of the retail price in FY 2012
3
Average prices over time
• The chart of average prices over time covers the 14 quarters to the end of the
2012 financial year. Prices are subject to seasonal variation due to variation in
the availability of produce. The spike in prices in 2011 was due to extreme
weather2.
Share of available volumes
• Coles sold about 20% of fresh bananas available3 in the Australian market in
2011/12, excluding processed bananas. There are negligible export volumes.
Total sales include sales into food service channels.
Production and supply
Source: Freshlogic
• Bananas are sourced from various growing regions4 but over 90% are grown in
Queensland5.
4 Major
growing regions
5
Annual tonnes by state
WA, 3.0%
NT, 1.0%
Source: Freshlogic
3 The
spike in pricing was due to the impact of
Cyclone Yasi on production and supply
Page 4
Food prices and margins - Confidential & Copyright © 2012 Freshlogic
NSW, 4.0%
QLD, 92.0%
Source: Freshlogic
Granny Smith Apples
Share of the retail price
•
•
1
The growers of Granny Smith Apples earned an average of 52% of the average
retail price1 in the 2012 financial year.
Costs between producer and wholesaler include packaging, storage and
transport, which are assigned to the “beyond farm” share of prices.
Granny Smith Apples - share of the retail price in FY 2012
2
Average prices over time
• The chart of average prices over time covers the 14 quarters to the end of the
2012 financial year. Prices are subject to seasonal variation due to variation in
the availability of produce.
Share of available volumes
• Coles sold about 18% of fresh apples available2 in the Australian market in
2011/12, excluding the effect of export sales and the significant volumes of
apples processed to pulp and juice. Total sales include sales into food service
channels.
Production and supply
Source: Freshlogic
• Apples are sourced from various growing regions3 with Victoria the largest
supplying state4.
3
Major growing regions
4
Annual tonnes by state
TAS, 11.4%
WA, 11.9%
VIC, 39.2%
SA, 7.3%
Source: Freshlogic
QLD, 13.4%
NSW,
16.9%
Source: Freshlogic
Page 5
Food prices and margins - Confidential & Copyright © 2012 Freshlogic
Kensington Mango
Share of the retail price
•
•
1
The Kensington mango producer earned an average of 35% of the average
retail price1 in the 2012 financial year, which is lower than other fresh
categories due to packing, handling and ripening costs.
Costs between producer and wholesaler include packaging and transport,
which are assigned to the “beyond farm” share of prices.
Kensington Mango - share of the retail price in FY 2012
2
Average prices over time
• The chart of average prices over time covers the 14 quarters to the end of the
2012 financial year. Prices are subject to seasonal variation due to variation in
the availability of produce.
Share of available volumes
• Coles sold about 18% of mango available2 in the Australian market in 2011/12,
excluding processed mangoes. Imports account for 2% of local fresh product
supply on average. Total sales include sales into food service channels.
Production and supply
• Mangoes are sourced from various growing
grown in Queensland4.
Source: Freshlogic
regions3 but
close to 70% are
3
Major growing regions
4
Annual tonnes by state
WA, 8.0%
NT, 23.0%
Source: Freshlogic
QLD, 69.0%
Source: Freshlogic
Page 6
Food prices and margins - Confidential & Copyright © 2012 Freshlogic
Strawberries
Share of the retail price
•
•
1
The strawberry producer earned an average of 55% of the average retail price1
in the 2012 financial year.
Costs between producer and wholesaler include packaging and transport,
which are assigned to the “beyond farm” share of prices.
Strawberries - share of the retail price in FY 2012
Average prices over time
2
• The chart of average prices over time covers the 14 quarters to the end of the
2012 financial year. Prices are subject to seasonal variation due to variation in
the availability of produce.
Share of available volumes
• Coles sold about 27% of strawberries available2 in the Australian market in
2011/12, excluding the volumes of processed mangoes. Total strawberry sales
include sales into food service channels.
Production and supply
Source: Freshlogic
• Strawberries are sourced from various growing regions3 with Queensland and
Victoria the largest supplying states4.
3
Major growing regions
4
Strawberry
production
tonnes
Annual
tonnes by
stateby state
TAS, 1.4%
WA, 22.0%
SA, 10.0%
Source: Freshlogic
VIC, 32.0%
QLD, 33.6%
NSW, 1.0%
Source: Freshlogic
Page 7
Food prices and margins - Confidential & Copyright © 2012 Freshlogic
Haas Avocado
Share of the retail price
•
•
1
The avocado producer earned an average of 35% of the average retail price1 in
the 2012 financial year, which is lower than other fresh lines due to packing
and ripening costs.
Costs between producer and wholesaler include packaging and transport,
which are assigned to the “beyond farm” share of prices.
Haas avocado - share of the retail price in FY 2012
2
Average prices over time
• The chart of average prices over time covers the 14 quarters to the end of the
2012 financial year. Prices are subject to seasonal variation due to variation in
the availability of produce.
Share of available volumes
• Coles sold about 23% of avocadoes available2 in the Australian market in
2011/12, which excludes a small volume of exports, but includes fresh
imported product to take account of seasonal gaps, which accounted for about
20% of available product in the Australian market. Total sales include sales into
food service channels.
Production and supply
Source: Freshlogic
4
• Avocados are sourced from various growing regions4 but close to 80% are
grown in Queensland5.
Major growing regions
5
Annual tonnes by state
WA, 7.8%
SA, 1.3%
NSW,
11.1%
3
The spike in pricing was due to the effect of poor
weather shortening supply
Source: Freshlogic
QLD, 79.7%
Source: Freshlogic
Page 8
Food prices and margins - Confidential & Copyright © 2012 Freshlogic
Broccoli
Share of the retail price
•
•
1
The broccoli producer earned an average of 42% of the average retail price1 in
the 2012 financial year.
Costs between producer and wholesaler include packaging and transport,
which are assigned to the “beyond farm” share of prices.
Broccoli - share of the retail price in FY 2012
Average prices over time
2
• The chart of average prices over time covers the 14 quarters to the end of the
2012 financial year. Prices are subject to seasonal variation due to variation in
the availability of produce.
Share of available volumes
• Coles sold about 21% of fresh broccoli volumes available2 in the Australian
market in 2011/12, which excludes a small volume of fresh exports and
processed broccoli. Total sales include sales into food service channels.
Production and supply
• Broccoli is sourced from various growing regions3 but more than half is grown
in Victoria4.
Source: Freshlogic
3
Major growing regions
4
Annual tonnes by state
TAS, 9.0%
WA, 8.0%
SA, 2.0%
VIC, 53.0%
QLD, 20.0%
Source: Freshlogic
NSW, 8.0%
Source: Freshlogic
Page 9
Food prices and margins - Confidential & Copyright © 2012 Freshlogic
Field Gourmet Tomatoes
Share of the retail price
•
•
1
The tomato producer earned an average of 50% of the average retail price1 in
the 2012 financial year.
Costs between producer and wholesaler include packaging and transport,
which are assigned to the “beyond farm” share of prices.
Field Gourmet tomatoes - share of the retail price in FY 2012
2
Average prices over time
• The chart of average prices over time covers the 14 quarters to the end of the
2012 financial year. Prices are subject to seasonal variation due to variation in
the availability of produce.
Share of available volumes
• Coles sold about 15% of fresh tomato volumes available2 in the Australian
market in 2011/12, which excludes fresh exports and significant volumes of
processed tomatoes which are canned and juiced; but includes fresh imported
product. Total sales include sales into food service channels.
Production and supply
• Tomatoes are sourced from various growing
Victoria the largest supplying states4.
Source: Freshlogic
regions3 with
Queensland and
3
Major growing regions
4
Annual tonnes by state
WA, 3.7% TAS, 0.1%
SA, 1.5%
QLD,
40.8%
Source: Freshlogic
NSW,
12.1%
Source: Freshlogic
Page 10
Food prices and margins - Confidential & Copyright © 2012 Freshlogic
VIC, 41.8%
Pre-packed Carrots
Share of the retail price
•
•
1
The carrot producer earned an average of 48% of the average retail price1 in
the 2012 financial year.
Costs between producer and wholesaler include packaging and transport,
which are assigned to the “beyond farm” share of prices.
Pre-packed carrots - share of the retail price in FY 2012
Average prices over time
2
• The chart of average prices over time covers the 14 quarters to the end of the
2012 financial year.
Share of available volumes
• Coles sold about 17% of fresh carrots available2 in the Australian market in
2011/12, which excludes a large portion of production which is exported; and
carrots used in processing. Total sales include sales into food service channels.
Production and supply
• Carrots are sourced from various growing regions3 with Western Australia and
Tasmania the largest supplying states4.
Source: Freshlogic
3
Major growing regions
4
Annual tonnes by state
VIC, 10.0%
TAS, 28.0%
NSW, 8.5%
QLD, 6.5%
SA, 16.0%
Source: Freshlogic
WA, 31.0%
Source: Freshlogic
Page 11
Food prices and margins - Confidential & Copyright © 2012 Freshlogic
Mushrooms
Share of the retail price
•
•
1
The mushroom producer earned an average of 57% of the average retail price1
in the 2012 financial year.
Costs between producer and wholesaler include packaging and transport,
which are assigned to the “beyond farm” share of prices.
Mushrooms - share of the retail price in FY 2012
2
Average prices over time
• The chart of average prices over time covers the 14 quarters to the end of the
2012 financial year
Share of available volumes
• Coles sold about 14% of fresh mushrooms available2 in the Australian market in
2011/12, which excludes a small portion of production which is used in
processing. Total sales include sales into food service channels.
Production and supply
• Mushrooms are sourced from various growing facilities3 located close to major
metropolitan centres with New South Wales and Victoria the largest supplying
states4.
Source: Freshlogic
3
Major growing regions
4
Annual tonnes by state
WA, 2.0%
TAS, 11.0%
VIC, 27.0%
SA, 22.0%
Source: Freshlogic
NSW,
30.0%
QLD, 8.0%
Source: Freshlogic
Page 12
Food prices and margins - Confidential & Copyright © 2012 Freshlogic
Milk – Private label
Share of the retail price
•
•
1
The analysis has been based on the pricing of Coles 2-litre fresh white fullcream milk for the 2012 financial year.
The milk producer earned an estimated 45% of the average retail price1 at
farmgate in the final quarter of the 2012 financial year. This is based on the
expected full year milk price that will be achieved on average in 2012 calendar
year by milk producers supplying milk processors across Australia. This takes
account of different prices in each region.
Coles 2 litre milk - share of the retail price in FY 2012
2
Average prices over time
• The chart of average prices over time covers the 14 quarters to the end of the
4th quarter of the 2011 financial year
Share of available volumes
• Coles sold about 17% of fresh milk available2 in the Australian market in
2011/12. This excludes sales of UHT milk.
Production and supply
Source: Freshlogic
• Fresh drinking milk (tier 1 milk) represents some 23-25% of milk production
and is produced in most States , proportionate with State populations
3
Major milk processing sites
• Packaged milk is processed in plants3 located close to major metropolitan
centres with New South Wales and Victoria the largest supplying states4.
4
% of drinking milk sales by state
TAS, 2.5%
WA, 11.3%
VIC, 24.4%
SA, 9.2%
Source: Freshlogic
QLD, 21.7%
Source: Freshlogic
Page 13
Food prices and margins - Confidential & Copyright © 2012 Freshlogic
NSW,
30.9%
Cheese - Brand
Cheese products
•
•
The analysis deals with cheddar cheese which is the major variety of cheese
sold in the Australian market.
Cheese is analysed on this and the following page and these pages should be
read together.
Share of the branded retail price
•
•
•
1
Branded cheddar blocks (average of main selling lines) - share
of the retail price in FY 2012
2
Major cheese manufacturing sites
The analysis is based on the weighted average per kilogram prices achieved in
major selling branded mature cheddar products in 250g, 500g, and 1kg pack
sizes in the 2012 financial year.
The milk producer earned an average of 29% of the average retail price1 in the
2012 financial year, based on an average farmgate prices paid at farmgate.
The costs of storage for maturation of cheese have been assigned to the
processing sector within these workings. A significant volume of cheese
produced in the Australian market is packed on a toll-manufacturing basis, the
costs of which are reflected beyond farm.
Production and supply
• Cheddar cheese is manufactured in a number of major plants2 across southern
Australian regions, with Victoria supplying 73% of output3.
Source: Freshlogic
3
Annual tonnes by state
WA, 1.1%
TAS, 12.4%
SA, 4.4%
NSW, 8.3%
VIC, 73.4%
Source: Freshlogic
Page 14
Food prices and margins - Confidential & Copyright © 2012 Freshlogic
Cheese - Private Label
Share of the private label retail price
•
•
•
The analysis is based on the weighted average per kilogram prices achieved in
major selling mature cheddar products in 250g, 500g, and 1kg pack sizes in the
2012 financial year.
The milk producer earned an average equivalent of 48% of the average retail
price1 of the cheese product in the 2012 financial year, based on an average
farmgate price paid in the industry at farmgate.
The costs of storage for maturation of cheese have been assigned to the
processing sector within these workings. A significant volume of cheese
produced in the Australian market is packed on a toll-manufacturing basis, the
costs of which are reflected beyond farm.
Average prices over time
• The chart of average prices over time covers the 14 quarters to the end of the
4th quarter of the 2012 financial year. Prices are shown for Coles and a main
selling supplier brand for 1kg and 500g product.
Share of available volumes
• Coles sold about 24% of cheddar cheese available2 in the Australian market in
2011/12, which included imports representing about 26% of product available
in the Australian market. Cheddar is imported for use in the packing of natural
cheese products as well as for processed cheese. Total sales include sales into
food service channels.
2
Source: Freshlogic
Page 15
Food prices and margins - Confidential & Copyright © 2012 Freshlogic
1
Coles private label cheddar blocks (average of main selling
lines) - share of the retail price in FY 2012
Bread – Private label
Share of the retail price
•
•
1
The analysis is based on a 680g Coles “value” loaf (priced at $1 per loaf in much
of 2012 financial year), and analysis of the processing stages involved in the
production of a loaf.
The wheat producer earned an average equivalent of 21% of the average retail
price1 of the Coles “value” product in the 2012 financial year, based on an
average farmgate price paid in the industry at farmgate. The grain component
of the loaf is based on the average usage of wheat in bread flour, using the
average hard wheat pool return projected by AWB Limited for 2011/12.
Coles 650g white loaf - share of the retail price in FY 2012
Average prices over time
• The chart of average prices over time, which compares Coles “value” white
bread with Coles private label branded product and a major selling branded
product, covers the 14 quarter period to the end of the 2012 financial year.
Share of available volumes
• Coles made about 33% of retail packet bread sales2 in the Australian market. In
addition, it sold about 22% of the in-store baked bread sales3 in the Australian
market. Total sales exclude sales into food service channels where bakeries sell
to takeaway, restaurants and other outlets.
Production and supply
2
Major bread making sites
• Packet bread is manufactured in a number of major plants4 located close to
major metropolitan centres.
4
3
Source: Freshlogic
Source: Nielsen
Page 16
Food prices and margins - Confidential & Copyright © 2012 Freshlogic
Sugar
Share of the retail price
•
The sugar cane grower earned an average of 20% of the average retail price1
for sugar products in the 2012 financial year, which is based on the Queensland
Sugar declared 2011 season pool price for sugar.
1
Coles raw sugar - share of the retail price in FY 2012
Share of available volumes
• The greatest use of sugar in the food industry is as an ingredient in the
manufacture of a wide range of food products which are also sold through
grocery stores.
• It was estimated that in the 2011 financial year, total grocery sales of packaged
sugar were 101,000 tonnes (per RetailWorld), of which Coles sold 30,900
tonnes (30% of retail sales) and less than 1% of production. These compare to
an average total sugar industry bulk sugar production of 4.3 million tonnes2.
Average prices over time
• The chart of average prices over time covers the 14 quarters to the end of the
4th quarter of the 2012 financial year
Production and supply
• Sugar is manufactured in a number of major plants3 in north eastern Australian
regions, with Queensland supplying about 94% of output.
3
Major sugar growing regions
2
Source: Freshlogic
Page 17
Food prices and margins - Confidential & Copyright © 2012 Freshlogic
Source: Freshlogic