Business News in Australia - 7 July 2024


Published: July 06, 2024

Australia Post Seeks Better Banking Deals as Rural Branches Close

7 July 2024 - As major banks continue to shut rural branches across Australia, post offices have become makeshift bank branches in many small towns. However, this arrangement is proving unsustainable for Australia Post, prompting CEO Paul Graham to seek renegotiation of contracts with the big four banks.

The Rise of Bank@Post

Since 2018, Australia Post has been handling banking transactions for major banks through its Bank@Post service. While initially seen as a win-win solution, the rapid closure of bank branches has led to an unexpected surge in banking activity at post offices.

"Australia's banks have closed thousands of branches across the country over the past few years, including branches in hundreds of regional towns. AusPost has stepped in to fill the void that this has left behind," Graham told a recent Senate estimates hearing.

Financial Strain on Australia Post

Despite handling over $10 billion in additional cash annually, Australia Post is losing money on these banking services. The current deals could bring in up to $900 million over the next decade, but this falls short of covering the costs associated with the increased volume of transactions, security upgrades, and cash transportation.

Seeking Fair Compensation

Graham aims to renegotiate contracts within the next three to four months, seeking price increases of around 30% and additional fees for high-volume and business banking transactions. This move has gained political support, with Treasurer Jim Chalmers urging ANZ to reach a deal with Australia Post as part of its Suncorp buyout approval.

The Future of Rural Banking

As Australia Post grapples with declining letter revenue and increasing parcel delivery demands, finding a sustainable solution for rural banking services is crucial. The outcome of these negotiations could shape the future of banking access in regional Australia.

Gas Shortages Loom: Industry Calls for Urgent Action

The Australian Competition and Consumer Commission (ACCC) has sounded the alarm on potential gas shortages hitting the east coast by 2027, a year earlier than previously forecast. This stark warning has prompted urgent calls from the energy industry for swift government action to boost supply.

Industry Response

Australian Energy Producers CEO Samantha McCulloch emphasised the need for immediate steps:

"The government must remove moratoria on new gas developments, speed up approvals, and reduce barriers faced by producers."

McCulloch also highlighted that recent price controls and the mandatory Gas Market Code have delayed new supply projects, undermining market certainty.

Woodside's Commitment

In response to the looming crisis, Woodside Energy has pledged to deliver 250 petajoules of gas from Victoria's Bass Strait by 2033. The company is working closely with Esso to maximise gas production and offer all available volumes to the market.

Market Reactions

The Energy Users Association of Australia (EUAA) noted some progress in building a competitive gas market but stressed that key reforms are still in progress. EUAA chief executive Andrew Richards reported mixed results for gas customers, with some seeing improved pricing while others continue to struggle.

Looking Ahead

As the industry grapples with these challenges, the ACCC report serves as a crucial reminder of the urgent need for new supply sources. With producer offers ranging from $12 to $17 per gigajoule and retailer offers between $12 and $20, the negotiating power remains firmly with sellers.

The Australian energy sector now faces a race against time to prevent potential shortages and ensure a stable, affordable gas supply for the east coast market.

UK Outdoor Retailer Mountain Warehouse Sets Sights on Aussie Market

British outdoor and lifestyle clothing retailer Mountain Warehouse is gearing up for a major push into the Australian market, with plans to open four new stores by the end of 2024. The company, known for its value-for-money family-focused offerings, aims to challenge established players like Kathmandu, Macpac, and The North Face.

Expansion Plans

Mountain Warehouse's Australian brick-and-mortar debut is set for 15 July at DFO Skygate in Brisbane. Three additional stores are slated to open in Melbourne at DFO locations in Moorabbin, Essendon, and Uni Hill. This expansion is part of a global rollout of 50 stores in 2024.

Competitive Edge

Founder and CEO Mark Neale highlights the company's unique selling points:

"Our offer is a bit broader than some of the other guys and it's definitely better value for money. It's more of a family offer. We sell a lot of kidswear."

Mountain Warehouse claims its products are up to 30% cheaper than comparable goods from competitors.

Australian Market Potential

The retailer has been operating online in Australia for seven years, generating about $10 million annually. With over 400 stores worldwide and success in markets like New Zealand, Mountain Warehouse sees significant potential in Australia.

If the initial four stores perform well, the company plans to expand further in 2025, potentially establishing a distribution centre in Melbourne.

As Mountain Warehouse prepares to make its mark on the Australian outdoor retail landscape, consumers can look forward to a new option for affordable, family-friendly outdoor gear and clothing.

Australian Office Occupancy Stalls in Post-Pandemic Era

As winter chills set in and seasonal illnesses spread, Australia's office towers are experiencing a new normal. Despite financial services companies pushing for a return to the office, full-time attendance remains low, impacting landlords and nearby businesses.

Key Findings

According to a National Australia Bank report, office attendance has plateaued at around 75% of pre-Covid levels in Sydney. Train station usage in inner-city areas has stagnated between 65-78% of pre-pandemic rates since July 2023.

"This simultaneous negative absorption or oversupply of office spaces and positive business conditions can be primarily attributed to the impact of the working from home trait," the NAB report stated.

City-Specific Trends

CBRE research shows varying occupancy levels across Australian cities:

  • Perth and Adelaide lead with 93% and 88% respectively
  • Melbourne lags at 62%, dropping to 43% on Fridays
  • Canberra's market is affected by flexible work arrangements for federal public servants

Impact on Office Space

The shift to hybrid work is causing record-high vacancy rates for prime office space in Sydney and Melbourne. However, Brisbane has seen a sharp decline in vacancies since late 2022.

Australia vs. US Comparison

Despite the challenges, Australia's office attendance is higher than in the US, where it's only about 50% of pre-pandemic levels. Factors contributing to this include Australia's more urbanised population, better public transport, and shorter commute times.

As businesses adapt to this new reality, the future of office work in Australia continues to evolve, balancing the benefits of remote work with the career advantages of in-office presence.

RBA Rate Cut Still Possible in November, Say Economists

Despite recent higher-than-expected inflation data, some economists believe the Reserve Bank of Australia (RBA) may still cut interest rates in November 2024. This comes as government subsidies are expected to help cap price increases, allowing the central bank to focus on protecting employment gains.

Market Expectations vs Expert Opinions

While most market economists now anticipate the RBA to maintain its cash rate target at 4.35% until March 2025, CBA and Westpac economists offer a different perspective. They suggest a November rate cut is still possible, depending on upcoming economic data.

"The RBA will continue to emphasise the trimmed mean rate of inflation, but the board will also need to acknowledge that headline inflation is within the target band," said CBA head of Australian economics Gareth Aird.

Key Factors Influencing RBA's Decision

Several factors will play a crucial role in the RBA's decision-making process:

  • June quarter inflation data (due 31 July)
  • June labour force data (due 18 July)
  • NAB's Monthly Business Survey (due 11 July)
  • Impact of government subsidies on headline CPI

Economists warn that a rate hike in August remains possible if core inflation surpasses expectations and the job market remains tight. However, they also note that the window for a November rate cut is narrow, with the risk of relief not arriving until 2025.

RBA's Balancing Act

The RBA faces the challenge of bringing inflation back to target while preserving employment gains. The central bank's decision will hinge on whether current policy settings are sufficient to achieve this balance within a reasonable timeframe.

Fonterra's $2bn Australian Asset Sale: What You Need to Know

Fonterra, the New Zealand dairy giant, is moving forward with its $2 billion sale of Australian consumer and food service assets. This significant business move, announced in July 2024, marks a shift in Fonterra's strategy towards focusing on its business-to-business commodities operations.

Key Points:

  • Fonterra is seeking advisers for the sale process
  • The company prefers a single buyer or possible float
  • Australian division accounts for 37% of profits and 29% of revenues
  • Local dairy farmers face challenges with recent farmgate price cuts

Market Dynamics

The Australian dairy industry is experiencing significant changes. While farmers have enjoyed high prices in recent years, they're now facing cuts from major processors. Interestingly, Coles farmers are in a stronger position due to longer-term contracts.

"From 2011 to 2019 the dollar-a-litre of milk was the talk of the town; now it sells for $1.60 a litre."

Potential Buyers and Complications

Bega and Saputo are potential buyers but may face ACCC scrutiny. The sale also includes Fonterra's Asian network, which might not suit local buyers. The complexity of the sale and regulatory considerations could lead to a prolonged process.

Industry Outlook

The Australian dairy industry has seen a decline in milk production, now at 8.2 billion litres annually. This reduction is largely due to demographic shifts, with many farmers retiring and few investing in large-scale operations. However, this has led to a relatively balanced market with little surplus milk.

As Fonterra progresses with this significant asset sale, the Australian dairy industry watches closely, anticipating the potential impacts on the local market and broader Asia-Pacific dairy trade.

Bega Boss: ASX Directors Should Embrace Country Town Values

Bega Cheese executive chairman Barry Irvin believes ASX-listed company directors should spend less time in city boardrooms and more time embracing country town values. This approach, he argues, better serves workers and enhances community understanding of Environmental, Social, and Governance (ESG) requirements.

Bega's Unique Approach

Unlike most ASX 300 companies, Bega is headquartered in the NSW south coast town of Bega, where it began as a dairy cooperative in 1899. Irvin credits the company's success to maintaining strong community ties and a sense of humility.

"When you keep your values close to you and remember your origins, you have a level of humility," Irvin said.

The Benefits of Rural Roots

Irvin emphasises that being close to workers and suppliers fosters a culture of responsibility among executives. This proximity creates a more connected and typically Australian workplace culture.

ESG and Sustainability

For Bega, sustainability and ESG issues are ingrained in the company's DNA. Irvin believes many companies need to rethink their approach, focusing more on action and less on rhetoric.

Future Growth and Consumer Trends

Bega aims to expand its presence in Asia and the Middle East while responding to shifting consumer demands for health, convenience, and sustainability. The company has noticed easing inflationary pressures across the industry.

As Bega celebrates its 125th anniversary, Irvin's message is clear: embracing rural values can lead to better business practices and stronger community connections.

Qualtrics CEO Zig Serafin: From Hardship to Tech Leadership

Zig Serafin, CEO of Qualtrics, has a remarkable journey from childhood hardship to leading a global tech firm. Born to Polish immigrants in San Diego, Serafin's early life was shaped by his father's untimely death when he was just 10 years old.

Lessons in Resilience and Leadership

Serafin's mother, Tina, became a pivotal figure in his life after his father's passing. Her determination to support the family while pursuing a nursing career taught Serafin valuable lessons in resilience and leadership.

"I watched her work hard to take care of the family. I watched the example of how she just stepped up as a leader in moments like that. That now fuels the way I approach tackling problems and challenges in different circumstances," Serafin reflects.

From Microsoft to Qualtrics

After a 17-year stint at Microsoft, where he led the team that created Microsoft Teams, Serafin joined Qualtrics in 2016. He became CEO in July 2020, steering the company through various ownership changes, including its recent $US12.5 billion privatisation.

Focus on AI and Customer Experience

Under Serafin's leadership, Qualtrics is investing heavily in AI to enhance customer and employee experiences. The company has committed $US500 million to AI innovation over four years, aiming to better understand human emotions and help brands close the experience gap with their customers.

Serafin's unique background and experiences continue to shape his leadership style, emphasising human connection and the importance of understanding customer needs in the rapidly evolving tech landscape.

Virgin Australia Co-founder Launches Iconic Walks Venture

Rob Sherrard, co-founder of Virgin Australia, has embarked on a new adventure in the tourism industry. Teaming up with entrepreneurs and conservation experts, Sherrard has launched Iconic Walks, offering unique hiking experiences in remote locations across the Northern Territory, Canada, and the Himalayas.

Eco-lodge Development in the NT

A key project for Iconic Walks is the development of an eco-lodge along the 62km Jatbula Trail near Katherine, NT. The company has partnered with the Jawoyn Association Aboriginal Corporation to form Worayang, a joint venture aimed at enhancing the trail experience while respecting indigenous culture and land.

"Working alongside Jawoyn Association leaders, we look forward to developing the Jatbula Trail Walk in ways that will benefit Jawoyn people, open the trail for more visitors and take care of the land for future generations," said Peter Mooney, CEO of Iconic Walks.

Global Expansion

Beyond Australia, Iconic Walks is offering treks in Nepal, including journeys to Mount Everest and Bhutan. In Canada, the company provides six-day explorations of British Columbia's Bugaboos as part of its Canadian Alpine Walks program.

A New Chapter in Tourism

Sherrard, known for his successful ventures in the airline industry and Tasmanian tourism, sees Iconic Walks as an opportunity to innovate in the walking tour sector. With prices starting from $5,000 for international treks, the company aims to provide exclusive, high-quality experiences for up to 12 guests per journey.

As the tourism industry recovers post-pandemic, Iconic Walks' focus on remote, nature-based experiences could position it well in the evolving travel market.

Seven Network's Cost-Cutting Drive in High-Inflation Economy

In today's high-inflation economy, businesses across all sectors are tightening their belts, and the television industry is no exception. Ryan Stokes, who holds the largest stake in Seven Network, emphasises the importance of cost management in the current economic climate.

Major Networks Implement Significant Cuts

Both Seven and Nine networks have announced aggressive cost-cutting measures:

  • Seven Network aims to save $100 million annually, with plans to cut about 150 jobs
  • Nine Entertainment is set to axe up to 200 positions across its TV and publishing divisions
"Cost focus is not new, and I think every business in this environment needs to have a strong discipline on continuing to rationalise costs where possible," Ryan Stokes told The Australian.

Seven's Strategic Restructure

Under new CEO Jeff Howard, Seven is implementing a comprehensive restructure, dividing the media business into three categories: television, digital, and WA. Stokes backs this overhaul, emphasising the need for Seven West to refine its cost base and capitalise on digital platforms.

Future Outlook

Despite persistent rumours about a potential sale of the broadcasting operations, Stokes remains optimistic about the media business's future. He sees opportunities, particularly in building out Seven's digital ambitions.

"We'd like to see a position where the business would get back to delivering earnings growth, but that's going to take time and effort," Stokes added, highlighting the potential for increased value through successful execution of their strategy.

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