Low growth, competition has SA food firms looking beyond borderComment on this story
Johannesburg - Local food producers were aggressively looking to expand outside the country as competition intensified and growth stagnated in the domestic market, an analyst said last week.
Recent developments in expansion into countries elsewhere on the continent include Tiger Brands, which announced last week that it had acquired 100 percent stakes in Kenya-based Rafiki Millers and Magic Oven Bakeries. The company said the acquisitions would give it a meaningful presence in Kenya’s milling and bread baking industry.
“The acquisitions strengthen our international operations and provide a solid platform to participate in a growth category where the group has significant expertise,” it said.
The food maker recently increased its stake from 63.5 percent to 70 percent in Nigeria’s Dangote Flour Mills group.
In its trading update, Tiger Brands said continuing turnover for the first quarter of the current financial year amounted to R7.7 billion, 10 percent higher than that of the previous similar period.
Another manufacturer, Premier Foods, with brands such as Blue Ribbon bread and Iwisa maize meal, has increased its footprint in Swaziland, by acquiring Ngwane Mills for R100 million.
The group also owns the newly formed Premier Swazi Bakers, valued at R90m, which was formed after Premier Foods bought stakes in local bakeries Mr Bread and Swaziland United Bakeries in 2012.
Vunani Securities analyst Anthony Clark said South African food producers were seeking growth in countries outside the borders because there was a lack of expansion in the domestic market. He added that the local landscape had been competitive but somehow stagnant.
“We have five major food companies in the country which cannot steal market share from each other.”
He said it was natural for these companies to expand outside the borders.
“Africa has fast-growing economies, predominantly in the oil-producing countries such as Angola, Ghana, Nigeria and the eastern economic hub of Kenya and Tanzania, and that is where food companies are looking for growth.”
Clark said economic growth in these countries was coming off a low base and was exceeding that of South Africa.
Unlike retailers, such as Woolworths and Shoprite, which are starting to re-evaluate their presence in countries elsewhere in Africa, food producers are making sizable inroads. Woolworths recently announced its plan to exit Nigeria, and Shoprite sold its three Tanzanian stores to Kenyan retailer Nakumatt.
Clark said retailers operated differently from producers because they offered South African brands, which were not popular in these markets.
“Tiger Brands will instead buy the manufacturing facility of a certain product, refine and improve the quality of that product and then sell it to the same market.”
Brand loyalty remained key in these markets, Clark said, adding that people would only buy a brand that they knew, but generally appreciated improved products.
Despite, this Tiger Brands said it was not satisfied with its operations in Nigeria as trading conditions remained tough. Dangote Flour Mills had continued to sustain operating losses in the quarter as the result of ongoing volume and price pressures. - Business Report