Potato Chip Production in Australia: declining revenues

According to industry research firm IBISWorld, potato chip manufacturers in Australia face tough conditions as a result of increasing health consciousness and rising import competition.

On occasion of the publication of a new report on the Potato Chip Production industry in Australia, IBISWorld points out that there has been a general shift towards healthier eating patterns, steering consumers away from the high-fat chip snack options. In order to compete with health snack food substitutes like fruit and muesli bars, producers need to create products to reach niche organic and premium markets.

Over the past five years, the Potato Chip Production industry in Australia has grappled with major shifts in downstream consumption patterns, the rising cost of key raw ingredients as well as increased competition from substitutes, imports and private-label products.

According to IBISWorld industry analyst Suzannah Rowley, “The ongoing rise in health consciousness has encouraged a general shift towards healthier eating patterns and a decline in popularity for unhealthy snacks such as potato chips, which are considered high in fat and salt.”

This has been the major cause of the 0.3% annualised decline in industry revenue over the past five years and it has also made the industry particularly vulnerable to the threat of healthy snack food substitutes such as fruit and nut bars or wholegrain crackers. These factors combined are expected to also cause industry revenue to decline 2.0% in 2012-13 to total $766.8 million.

Moreover, the rise potato prices have restricted profit growth, as has the increase in price competition generated by imports.

“Value-conscious consumer spending patterns have increased the popularity of cheaper private-label products since the onset of the global economic downturn,” says Rowley.

The larger players in the Potato Chip Production industry in Australia, including market leaders Frito-Lay and Snack Foods Limited, have been able to fight off some of these challenges thanks to the high degree of consumer loyalty for certain potato chip brands.

These challenges are expected to remain and restrict revenue growth over the next five years. Australian consumers are expected to become even more health and value consciousness, which will fuel the popularity and acceptance of private-label products at the expense of branded potato chips.

Moreover, input prices and potato chip imports are expected to rise, which will constrain industry profitability. However, there will still be plenty of growth opportunities for industry players that respond well to these trends, such as the ability to create niche organic or premium product lines to increase profitability.

Furthermore, the marginal decline in the Australian dollar is likely to facilitate the expansion of valuable export markets for Australian potato chips. These valuable opportunities are expected to help revenue grow over the next five years.

If you are interested in buying this IBISworld market research report, visit IBISWorld’s Potato Chip Production report in Australia industry page.