Australia's food market appears to be "normalising" after a "chaotic" five-year period – impacted by factors including Covid, supply chain disruptions and inflation – Rabobank says in a newly-released report.
However, it is a "new normal", characterised by altered consumer-purchasing behaviour and extensive structural change to the market and supply chains, the agribusiness banking specialist says. And primary producers and food and beverage manufacturers operating in the Australian consumer market are having to respond to this evolving "food ecosystem".
In the report, Australia's food market is embracing the new normal, the bank's RaboResearch division says March 2025 marks the "five-year anniversary" of the start of a tumultuous period for the Australia's food market.
Report author, RaboResearch senior analyst – consumer foods Michael Harvey said this had been caused by a "convergence of forces", including the global Covid pandemic, labour market upheavals, global and local supply chain bottlenecks, geopolitical conflicts driving commodity and energy prices higher and local weather-related supply losses.
"As result, we saw a period of reduced food and ingredient availability, multi-decade high food price inflation and changes in consumer behaviour, including a switch away from out-of-home dining to eating in," he said.
"All of this happened amid an unprecedented decline in real disposable incomes for Australian households, which changed food-purchasing behaviour, particularly among lower-income younger Australians."
Challenging for all players
The operating environment has been challenging for all players in the food market – from primary producers and manufacturers to retailers and food service operators, Mr Harvey said. And these challenges have reshaped the landscape for all stakeholders in the Australian food market.
"The food market environment appears to be normalising in 2025. However, behind the scenes, there has been extensive structural change to the market and supply chains across the food service and food retail sector," he said.
"These changes are creating opportunities for suppliers, driven by evolving consumer preferences and tastes. And all food and beverage suppliers will need to understand the implications of these changes for their respective businesses in order to respond."
Grocery basket shifts
The report says there have been "ongoing shifts inside the grocery basket" with "most households" having altered their food-purchasing behaviour to adjust to cost-of-living pressures.
And this has supported the food retail channel – with consumers increasingly opting to eat in – as well as helping discounters win market share and retail 'private label' (own brand) penetration gain momentum.
"A recent, prolonged trend has been a shift to in-home meal preparation and entertaining, which has provided a boost to the retail channel," Mr Harvey said. "While tighter household budgets have also influenced consumers' purchasing decisions inside the grocery channel."
The report said key consumer trends observed included: trading down to supermarket private label/'own-brand' versions of products, shifting from fresh to long-life or frozen goods, increased purchasing of promotional/discounted items, engaging in multi-store shopping and reducing volumes bought or delaying purchases.
The report said food retailers had been responding to these shifts in consumer behaviour by working with suppliers to 'innovate' offerings, including 'meals to go' and healthy snacking products, as well as investing in e-commerce and online platforms and expanding 'own brand' private label options.
Mr Harvey said private label penetration was now regaining some momentum in the market, after being negatively impacted by Covid-related supply chain disruptions.
"As we go into 2025, private labels are regaining market share and conditions are favourable for this trend to continue. Consumers will remain value conscious and retailers are focused on growing their own brand offerings while ensuring supply chain resiliency to support their product ranges," he said.
Food service – slow road to recovery
Australia's food service sector – including restaurants, cafes and bars – has been slow to recover from the pandemic and other challenges seen in the past five years, the report says.
"This is understandable," Mr Harvey said, "given the Australian economy emerged from lockdowns gradually, with more people working from home and with real incomes squeezed. As a result, consumers' propensity to spend on dining out has decreased in the current economic context."
And this has also left some clear winners and losers within the food service sector, he said.
"Cafes, bars and full-service restaurants have been hit the hardest, experiencing significant declines in performance," Mr Harvey said. "Conversely, limited-service and chain operators have emerged as the winners, with Australian consumers increasingly opting for takeaway, delivery and drive-through services."
Overall, he said, the food service sector had also struggled with margin pressures compounded by wage inflation and higher input costs.
Looking ahead, he said, an increase in foot traffic and a recovery in restaurant margins will be essential to stabilise performance in the Australian food service sector. "While there are early signs of improvement, dining out will remain a luxury for many Australian households until household budgets substantially improve," he said.
Key trends of note in the Australian food service sector, the report said, included: the rapid expansion of some global QSR (quick service restaurant) brands, rising popularity of bubble tea, enhanced focus on customer convenience and time saving, ongoing expansion of sushi brands and consumer preference for barista-made coffee.
Attractive market
Overall, the report says, the Australian consumer food market remains highly attractive for food and beverage companies and farm suppliers, with a growing population and a highly-urbanised consumer base.
"As a result, the domestic food market is expanding in volume and value, and food purchasing – including food service dining – generally outperforms other discretionary spending," he said. "And this expansion also comes amid potential trade disruptions and access to offshore markets."
RaboResearch Disclaimer: Please refer to Australian RaboResearch disclaimer here
