Constrained consumers battered by interest rate hikes and a cost-of-living crisis are cutting back on foodstuffs and non-essentials such as tomato sauce, baked beans and mayonnaise, Tiger Brands results for the six months to end-March showed.
SA’s largest food producer posted weaker results and warned of tough times ahead, sending its share price into a tailspin. The share closed 16.83% lower at R157.82 on Tuesday, the largest fall since 2008.
“The elastic has snapped,” said Tiger Brands CEO Noel Doyle, adding that consumers are unable to stretch their budgets any further.
The extent of the sales drop in its Crosse and Blackwell, Koo and All Gold brands in the six weeks from mid-February surprised the food producer. Tiger Brands had issued a performance update in February suggesting it expected strong operating results for the six months to end-March.
However, it faced six weeks of very poor trade as data on sales volumes showed consumers were opting for cheaper brands of baked beans or chutneys, and in some cases going without, he said.
Doyle had previously noted the resilience of consumers, but now believes that the cumulative interest rate hikes have pushed people “over the edge”.
In December, “we were saying, we don’t quite understand why the consumer is so resilient”.
Thushen Govender, chief growth office for the company’s consumer segment, said the speed of the drop in demand for sauces and canned vegetables in March took him by surprise.
Similarly, clothing discounter Pepkor, owner of the Pep and Ackermans brands, on Tuesday reported a weak sales performance in March.
According to the consumer price inflation data from Stats SA, overall food prices in SA were up 14.4% year on year in March, the highest since March 2009, with the price of staples such as bread, cereals and maize rising even more during this period.
Further evidence of the financial strain on consumers can be seen in the declining sales of Purity baby products, including baby body lotion and baby cereals. Families are opting for a single body cream suitable for all members or a cereal that everyone can consume, including the baby, Tiger Brands said.
The company had anticipated a spike in food demand during Easter based on previous years before the pandemic, but this turned out to be a “blip rather than a peak”, Doyle said.
“Consumers tend to splurge only during Christmas,” he said, adding they could not afford a second big event.
Other food producers are facing headwinds too. SA’s largest chicken producer, Astral, is struggling to cover increased energy and feed costs, resulting in a loss equivalent to R3.20 for every chicken sold. Similarly, Quantum’s egg division, Nulaid, operated at a loss during the first six months of the year to March, as it could not raise egg prices sufficiently to compensate for rising input costs.
Since most of Tiger Brands’ products, such as Tastic, Black Cat, Mrs Balls and Jungle Oats, are considered premium the company is now investing in cheaper brands and packaging options to appeal to cash-strapped consumers. Doyle said the firm needs to provide more affordable choices.
To reduce costs, Tiger Brands has introduced plastic containers for tomato sauce and peanut butter, as well as launched a more affordable mayonnaise brand called Kasi Magic and a cheaper Koo tomato sauce. It has also introduced smaller containers for All Gold jam.
In addition, the company is constructing a new peanut butter factory, which will produce a cheaper version of Black Cat peanut butter from next year.
Tiger Brands warned it will struggle to deliver the same full-year operating income at the end of its current financial year if the tough operating conditions were to continue.
“Improving the performance of the groceries, bakeries and rice segments will be prioritised in the short term. Nevertheless, should current operating conditions persist, maintaining full-year operating income in line with last year will be challenging,” the company, valued at R34.2bn on the JSE, said.
Total revenue rose 16% year on year in the reporting period, driven by price inflation of 17%, but overall volumes declined 1%.
In terms of financials, the company kept its interim dividend unchanged at 320c. Gross profit, revenue minus the cost of sales, rose 7.2% to R5.24bn, while net profit declined 3.3% to R1.19bn. Headline earnings per share, a common profit measure in SA that excludes certain items, improved 0.3% to 731c.
Cash generated by operations was down more than two-fifths to R304.6m
Tiger Brands exports its products across Southern Africa and a total of 25 countries in Africa. The company’s five priority markets are Cameroon, Mozambique, Zambia, Zimbabwe and Nigeria.
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