SA’s biggest food producer Tiger Brands is grappling with private-label products, which have become a growing competitor in the retail sector as consumers look for cheaper options.
CEO Tjaart Kruger told investors on Wednesday that these products, typically sold as house brands for retailers such as Shoprite and Boxer, are undercutting traditional brands by offering a cheaper alternative.
The surge in private labels has been largely driven by hard-pressed consumers increasingly opting for more affordable options in the prevailing tough economic climate.
Kruger said private label products are priced as much as 30% lower than branded counterparts, making them budget-friendly alternatives.
According to Kruger, these labels bypass regulatory quality standards and reduce product specifications to lower their costs. He said canned baked beans, for instance, may be sold by private labels at a cheaper price, but with inferior ingredients or a lack of regulatory compliance.
While Tiger Brands leverages its scale to keep costs low, the rise of private labels is putting pressure on its market share. However, the competition isn’t just from private labels. Big retailers such as Boxer and Shoprite are aggressively expanding into the informal market, intensifying the battle for market share, Kruger said.
Combined sales of private label goods in SA are expected to surpass R100bn next year. According to global marketing research firm NIQ, private-label products are growing in popularity, driven by retailers such as Shoprite, whose in-house brands contributed more than R30bn to its supermarket sales in 2024.
Shoprite’s private-label sales rose 12.8% this year, accounting for 21.3% of its supermarket revenue. However, the performance of Pick n Pay’s private labels remains stagnant, accounting for 11%-12% of sales.
Still, Tiger Brands remains confident it will adapt and thrive Kruger said the food producer is in a good position to compete.
“We are very conscious of private labels but we are happy to compete. We are not scared,” he said.
Earlier on Wednesday Tiger Brands reported a 4% increase in full-year earnings, driven by price hikes to offset rising input costs and gains from the sale of its noncore assets.
Headline earnings per share for the year to end-September rose to 1,810c from 1,735c the previous year.
Earnings per share were up 13% to 1,942c, boosted by one-off profits from asset sales.
Tiger Brands, which includes brands such as Tastic, Albany, Doom and All Gold, reported revenue of R37.7bn, a 1% increase from last year.
Price inflation of 7% offset a 6% decline in overall volumes, with domestic volumes down 8%, the group said. However, strong growth in exports and the food service channel partially offset the domestic slump.
Revenue from the group’s culinary division rose 5% to R8.9bn, while operating income soared 51% to R819m. The snacks, treats, and beverages segment reported a 9% increase in revenue to R5.8bn despite margin pressures from rising cocoa and citrus costs.
However, the group said the grains division underperformed, with operating income falling 55% despite a 2% increase in revenue.
Tiger Brands concluded the year with net cash of R757m, a strong rebound from net debt of R923m at the same stage in 2023. The group declared a final dividend of 684c a share, bringing the total dividend to 1,034c, a 4.3% increase from a year ago.
The group expects continued pressure on consumer spending but is optimistic about sustaining growth through cost leadership and marketing. It plans to invest further in its power brands and expand its presence in key channels, including general trade and exports.
Shaun Chauke, senior equity research analyst at Nedbank Commercial Banking, said the results and strategy show Kruger is the right person to steer the ship.
“Tiger Brands is simply on a winning streak, an overall good set of results with the business gaining momentum on its strategy. We believe that the Tiger is now out of the kitchen and getting ready for the jungle given that some of its wounds have recovered while in the kitchen — two factors which we believe are crucial,” Chauke said.
Update: December 4 2024
The story contains new information and additional comment
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