Australian beverage manufacturers ended last year with a strong $2.93 profit margin on each dollar invested in Q4 2023, according to a new report from inventory management software provider Unleashed.
Unleashed said the beverage industry’s Q4 profit margins marked a significant resurgence from its $1.75 figure in Q4 2022, and reflected an upwards trend for Australian manufacturing, in a quarter where nine sectors saw their highest profit margins in two years.
For beverages, a combination of lower lead times of 12 days (3 days below the Australian average of 15) and strong customer demand for local beverage products led to an uptick in profit margins.
However Bad Shepherd brewer Dereck Hales said there were still a multitude of issues affecting smaller operators.
“Competitive pressure from large retailers and large producers in the form of cheaper white label products, tap contracts and lower cost alternatives are all causing stress for the local manufacturer,” Hales said.
While beverage and food producers often index closely together, Australian food manufacturers didn’t enjoy the same soaring profit margins during Q4, 2023. Food producers had an average profit margin of $1.87 per dollar spent on inventory, more than $0.30 cents below the Australian average of $2.22.
The main concern for the food manufacturing industry has been the upward trend in overstock levels (the cost of stock over and above the optimum levels for a business), now at an average of $222,370, up from $135,970 in Q1 2022.
This trend puts has put increased pressure on businesses to move stock, and can create difficult decisions for businesses already in a tough spot.
Over the ditch in New Zealand, embattled food producers bounced back to the best Q4 since 2021, but the same recovery has not been seen in Australia.
Unleashed head of product Jarrod Adam said that in this environment the ability to take advantage of demand can come down to supply chain efficiency.
“Short lead times allow firms to carve back inventory levels, creating a virtuous cycle of improved cash flow – as well as lower supply chain costs – that leave them more flexible and able to invest in response to demand,” he said.
Australian manufacturing in general faced a roller coaster year which saw profitability drop to the lowest point since 2021, but ended Q4 with an average profit of $2.22 for each dollar invested in inventory.
Steady sales in Q4 came as a pleasant surprise for many manufacturers, with 74% of those surveyed saying demand had been either better than, or as they’d expected.
However, the ability to turn that demand into profit largely appears to be the result of steadily improving supply chain conditions throughout 2023, said Adam.
“Lower lead times in Q4 appear to have given manufacturers the confidence to shed some of their ‘Just in Case’ stock and shift towards more profitable ‘Just in Time’ strategies,” he said.
In 2023 lead times (measured in the Unleashed report by recording the time taken between placing a purchase order and receiving the goods) went from 31 days in Q1, to just 15 days by Q4.
Over the same period, overstock levels (the value of inventory held over and above optimal levels for that business), went from an average of $276,000 in Q1 to $187,000 in Q4.
“The Q4 2023 results reflect the strength of Aussie manufacturers in a difficult environment. But the broad uptick in profit was not spread equally across all industries, and sentiment from businesses shows many believe there are difficulties ahead. However the fact remains that Q4 2023, has set Aus. Inc in a good position heading into 2024,” Adam said.
The Manufacturing Health Index draws on GMROI (gross margin return on inventory investment) – a measure of the profitability made on inventory – across 16 manufacturing categories. The data from Unleashed’s software shines a light on performance, and customers were also surveyed to gain first-hand insights into the specific challenges and opportunities they face.
Australia’s return of $2.22 for Q4 2023 is outpaced by its UK contemporaries at £2.33, but well above New Zealand’s $2.05.
The nine Australian industries that posted record profitability this quarter were; Automotive and Auto Supplies, Industrial Machinery, Office Equipment and Supplies, Beverages, Furniture and Fixings, Clothing Footwear and Accessories, Electrical and Electrical Components, Health Medical Supplies and Equipment and Sport Entertainment Recreation.