South Africa’s largest food producer, Tiger Brands, is taking measures to reduce its spending and streamline its product portfolio, after facing lower revenues and higher inflation in the first four months of 2024.
The company, which owns brands such as Jungle Oats, Tastic Rice, and KOO canned vegetables, said on Thursday that its group revenue declined by 1% year-on-year, driven by an 8% drop in sales volumes across most segments. This was partly offset by a 7% increase in prices, as the company passed on some of the rising costs of raw materials, energy, and packaging to consumers.
Inflation and supply chain challenges
Tiger Brands said it was operating in a challenging environment, with inflation in food and non-alcoholic beverages rising above the consumer price index, and prices of essential items such as sugar, vegetables, meat, eggs, and rice surging by almost 20%, according to Statistics South Africa.
The company also faced supply chain disruptions due to the ongoing conflict in Ukraine, which affected the availability and cost of wheat, sunflower oil, and other commodities. In addition, the company had to deal with the impact of load shedding, water shortages, and labor unrest in some of its operations.
Restructuring and rationalization
To cope with these pressures, Tiger Brands said it was implementing a detailed capital allocation framework review and a portfolio rationalization exercise, which would be completed by the end of the second quarter.
The company said it was cutting back on the variety of products it sells, known as stock keeping units (SKUs), and trimming its portfolio to reduce complexity and improve efficiency. It also said it was decentralizing its procurement and support functions from its head office to its six business units, which were established in February as part of a new operating model.
“It is important that we direct our resources, both financial and human capital, towards the business segments which generate or, have the potential to generate, the highest returns,” the company said in a statement.
Outlook and opportunities
Despite the volume decline and muted revenue performance, Tiger Brands said it managed to maintain its gross margin percentage, thanks to improved factory efficiencies and price realizations. It also said it expected its operating income for the six months ended March 31 to be flat or slightly lower than the same period last year, excluding the impact of the disposal of its value-added meat products business in November 2023.
The company said it was optimistic about the prospects for growth in the second half of the year, as it planned to launch new products and innovations, and invest in its brands and marketing. It also said it was exploring opportunities to expand its presence in the rest of Africa, where it currently operates in Nigeria, Kenya, Ethiopia, and Cameroon.
Tiger Brands said it was committed to delivering value to its shareholders, customers, and communities, and to contributing to the recovery and development of the South African economy.
Source:Â ReutersÂ
