Australia's economic prospects have continued to deteriorate as a result of the global slump, with thishaving a marked effect on the country’s food and drink sector, as discussed in BMI’s recently publishedAustralia Food & Drink Report for Q309. While the economy will receive a boost from the wide rangeof policy measures unveiled in the first months of 2009, these are unlikely to prevent it from slipping intoa more prolonged period of downturn - with the slowdown led by falling rates of private consumptiongrowth and investment.
As discussed in the report, Australian retail sales rose by a seasonally-adjusted 0.2% month-on-month (mo-m) in January. Sales were supported by the lag from an AUD10.4bn (US$7.2bn) fiscal stimulusmeasure, in the form of cash handouts, distributed in December. The second round of cash payments,AUD12.3bn (US$8.5bn) - distributed in mid-March - is expected to have a similar impact on salesgrowth in March and April. However, it is widely believed that the retail sector will not report the sort ofgrowth that the package was designed to trigger, as most consumers have not spent the majority of thepayment. In fact, according to local estimate, only 25% of the December handout was spent, even as thegovernment ramps up measures to encourage this course of action as a means of helping lift the localeconomy. As Australian retailers wait to see what impact a second cash handout will have on consumerspending, the sector continues to brace itself for what looks set to be a challenging 2009, as consumerspending begins to track plummeting consumer confidence and the economic slowdown continues toweigh on private consumption. In another bad sign, unemployment reached 5.2% in February, Australia'shighest level in four years.
Despite this poor state of the economy and the retail sector, in March US wholesale retail giant Costcoconfirmed that it is on course for Australian retail market entry in 2009, revealing that a Melbourne storeis due to open its doors in July. Many expected Costco to delay its plans for the Australian market, asAustralia's unique population demographics had already hampered the company in terms of competitivereal estate procurement. Further risks were present in terms of the already fiercely competitive nature ofthe market, both consumer and wholesale, and the weakness of Costco's brand in the country relative toits peers. Exacerbating these existing concerns, weak consumer confidence was viewed by many as a dealbreaker. Costco, however, has argued that weak trading conditions could be conducive to the growth of itsformat.
Another retailer seeing an opportunity in the downturn is market leader Woolworth’s. The retailer hassaid that it hopes to benefit from the current crisis by increasing its property portfolio as a number ofsmaller retail chains collapse. According to the report in the Australian Financial Review, Woolworthshas said that it could also take advantage of its relative economic strength by purchasing property it wouldthen try to sell at a later date, highlighting the fact that there will always be winners and losers duringsuch downturns.
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