Food producer Tiger Brands’ struggling bakery business is likely to take about two years to return to its glory days as the group implements drastic changes in the business that might result in job losses.
The maker of Albany bread said revenue from milling and baking decreased by 16% to R5.1bn in the six months to March, driven solely by volume declines. Bread volumes were negatively affected by the company’s “deliberate strategy to protect naked margins by not participating in some of the heavy discounting that took place in the previous year”, it said.
Explaining some of the problems at its bakeries, CEO Tjaart Kruger, who joined the company in November, said there had been machinery breakdowns at some facilities, resulting in late deliveries. Moreover, drivers had also not been incentivised properly — an issue that was now being addressed.
“We had too many breakdowns. Trucks were leaving late, resulting in lost sales for the day. Every bakery does 120 routes a day and reaches 30,000 to 40,000 customers a day,” he said.
Our brand is better and more recognised than other brands. If we get our quality and availability sorted out, and do that consistently well, we will get back onto a growth path
— Tjaart Kruger, Tiger Brands CEO
Tiger Brands is rolling out technology that will help the company plan and monitor routes for drivers to ensure they improve deliveries to clients.
On incentives, Kruger said, “The commissions drivers receive were not structured well enough in certain areas. We must have an incentive in place that motivates drivers to do more.”
The company has been losing market share over the past few years. Kruger said the group’s share of the bread market was still big enough, (but) “we must just turn the business around and then start growing the business ahead of the market”. He added, “Our brand is better and more recognised than other brands. If we get our quality and availability sorted out, and do that consistently well, we will get back onto a growth path.”
He expects the division to start delivering good results from 2025. “We should be able to get results closer to where we want to be within two years. The absolute turnaround will take two years.”
Tiger Brands CFO Thushen Govender said the group would “prioritise margin recovery”. He said, “We won’t chase market share at all costs, and once we believe we have reached a sustainable level, we will consider fast-tracking investment behind our brands, as well as innovation. But in the early stages the focus will be on margin recovery.”
Analysts said Tiger Brands’ competitors had been aggressive in gaining market share and had invested heavily in their manufacturing facilities.
Jan Meintjes, portfolio manager at Denker Capital, said competition in the bakery business had become fiercer. Premier, the maker of Blue Ribbon bread and Snowflake flour, and Pioneer, which produces Sasko bread and is owned by PepsiCo, had taken market share from Tiger Brands, which had also lost its position in the informal sector. “Especially Premier has invested heavily in modern equipment at scale over a number of years. This has improved quality and efficiencies, and raised the bar [in relation to] Tiger. Tiger Brands has fallen behind from a capex point of view and will have to invest more to regain competitiveness, especially in Gauteng.”
Lwando Ngwane, equity analyst at All Weather Capital, said the bakery and grain businesses were “highly commoditised and very competitive, with low barriers to entry”. The profit margins in Tiger Brands’ grains division had come under immense pressure over the past few years, in a climate where private labels continued to steal market share from branded players.
“Some of Tiger Brands’ competitors have been ahead in terms of capital allocation and investing in the right technologies to improve factory efficiencies and route to markets. Tiger Brands is going to have to do a lot of work to catch up with its peers and regain its leading market positions, especially in the informal and general trade markets. This will require redirecting capital to the right bakery innovations, among other things.”
Tiger Brands plans to discontinue or sell 20% of its underperforming products over the next three years, to reduce the complexity of its operations, as it targets about R500m in savings across its business.
Its total revenue for the half-year to March fell by 1%, driven by price inflation of 8% and overall volume declines of 9%. The maker of brands such as Koo baked beans, All Gold tomato sauce, Black Cat peanut butter, Tastic rice, Doom insect repellent and Ace maize meal said there had been significantly improved performances from the groceries, beverages, personal care and baby divisions of its business. However, this success had been offset by underperformance in the grains portfolio and volume declines in bakeries.
The company is implementing a new turnaround plan to revitalise the group and stimulate sustainable growth and profitability, focusing on brand relevance and affordability for consumers.
Meintjes said Tiger Brands in a “transition phase and operating in an economy where volume growth does not exist and food inflation was running at almost double digits.
“Given this environment the result is not unexpected, and could be regarded as a reasonable outcome.”
Ngwane said the current turnaround plan and strategy under Kruger “appears to be restructuring the business into a better shape with a leaner corporate structure and a more streamlined operating model.” Kruger introduced new managing directors to head six business units which “should see better accountability and an improvement in the speed of execution, which is much needed for the troubled company.”
She said “it is also encouraging to see management’s push to become a low-cost producer through relooking at the portfolio and disposing off non-core and loss-making SKUs (stock-keeping units) at fair value. An improvement in operational efficiencies should provide the company with more flexibility to remain competitive in a tough consumer environment such as the one we are currently in.”
While Tiger Brands is operating below its potential, it has a very strong balance sheet and strong market positions in many brands, said Meintjes.
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