JOHANNESBURG - Shares in South Africa’s biggest consumer foods producer Tiger Brands and RCL Foods fell on Monday after the government linked a deadly listeria outbreak to cold meat products “polony” made by Tiger unit Enterprise Food.
Tiger Brands lost about R5.7bn in market capitalisation just in one day, based on a number of analysts. The company dropped a little over 7% in morning trade.
Both Tiger Brands and RCL Foods suspended processed meat production at their plants, after health authorities ordered a recall of cold meats linked to listeria from both domestic and international outlets.
Health Minister Aaron Motsoaledi said on Sunday the outbreak had killed 180 people since January 2017 and that it had been traced to meat called “polony” from a Tiger Brands factory in the northern city of Polokwane.
He said a plant owned by RCL Foods was being investigated.
The minister also told South Africans not to consume ready-to-eat processed meat across the board due to the risk of cross-contamination.
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The announcement prompted a frenzied clearing and cleaning of the shelves by local supermarkets chains Shoprite, Pick n Pay, Spar and Woolworths, which also urged consumers to return the products for refunds.
Zambia’s high commissioner to South Africa, Emmanuel Mwamba, urged South African retail chain stores operating in Zambia to recall ready-to-eat meat products imported from that country following the confirmation of the source of listeria bacteria.
Bloomberg reported that Tiger Brand shares fell as much as 13%, the most since December 2015, and traded 7.7% lower at 1:14pm in Johannesburg.
RCL Foods Ltd., which is also suspending production and recalling some products, initially declined but traded 2.4% higher on Monday afternoon.
Enterprise is a business unit within Tiger’s value-added meat product division, which contributes roughly 7% to revenue and 2 percent to operating profit, “so this is a small contributor,” Sumil Seeraj, an analyst at Standard Bank Group Ltd., said by phone.
Tiger Brands’ other products range from dishwasher soap to peanut butter.
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An analyst told Business Insider that this was a small part of Tiger Brand's business and although it may hurt the company, it will not sink it.
South Africa’s processed meat market grew about 8% in 2017 to a retail value of $412 million, according to Euromonitor International.
Tiger Brands has a 35.7 percent market share, followed by Eskort Bacon Co-Operative with 21.8 percent.
Rhodes Food, Rainbow Chicken (RCL Foods) and Astral Foods each have less than 5 percent.
Tiger Brands said it had suspended operations at both Enterprise manufacturing facilities in Polokwane and the town of Germiston, east of the commercial hub of Johannesburg.
ANGRY CONSUMERS
Dozens of customers who had bought the items lined up outside a Tiger Brands outlet, carrying bags of cold meat products and demanding refunds.
“I already packed my kids lunch with this product, so I’m shocked,” said Tshepo Makhura, a 37-year-old call centre agent.
“I lost trust with Enterprise. I’ll be scared even if they say this problem is solved. I would rather go back to peanut butter and jam.”
Deline Smith, a 57-year-old housewife with three full bags, said: “I don’t even want the money back they can just take it, I want to just remove it ... I hope my grandchildren are going to be okay because we gave them food over the weekend from these parcels.”
Analysts said profits were unlikely to be hit hard because the recalls did not affect the two firms’ largest divisions.
Tiger Brands makes consumer goods, ranging from rice, breakfast cereals, bread, juices, canned meats and vegetables and energy drinks.
“The divisions may not be huge in terms of their contribution to the topline but from a brand perspective it’s not good,” said Michael Treherne, an analyst at Vestact in Johannesburg.
Standard Bank analyst Sumil Seeraj estimated the recall would cut operating profit at Tiger Brand’s value added foods division by 6 percent at most.
“The big hit is going to come with inventory write-offs because they are recalling all these products. That’s most likely where they will lose because the inventory write-off will affect operating profit from that division,” Seeraj said.
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“Enterprise has a very strong brand in meat. In the short term consumers will switch to other forms of protein,” he said.