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Tiger Brands warns about sharply rising food prices in the next few months

TIGER Brands , which owns iconic South African food brands such as Koo, Fattis and Monis, Jungle Oats, Enterprise, All Gold, Purity, Oros, and Tastic Rice, yesterday said that its interim profit margins had been crunched as cost saving initiatives were not in time, or enough, to counter “unprecendented” rising input prices from the global supply chain squeeze. Image: Supplied

TIGER Brands , which owns iconic South African food brands such as Koo, Fattis and Monis, Jungle Oats, Enterprise, All Gold, Purity, Oros, and Tastic Rice, yesterday said that its interim profit margins had been crunched as cost saving initiatives were not in time, or enough, to counter “unprecendented” rising input prices from the global supply chain squeeze. Image: Supplied

Published May 26, 2022

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TIGER Brands, the largest food product manufacturer on the continent, yesterday warned that “significant double digit price increases” are inevitable across the majority of its food and household products.

The group, which owns iconic South African food brands such as Koo, Fattis and Monis, Jungle Oats, Enterprise, All Gold, Purity, Oros, and Tastic Rice, yesterday said that its profit margins had been crunched in the six months to March 31 as cost saving initiatives were not in time, or enough, to counter “unprecendented” rising input prices from the global supply chain squeeze, chief financial officer Deepa Sita said in a telephone interview.

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“It’s not looking good for consumers,” she said.

She said people who had worked at Tiger for decades had never seen this kind of rapid increase in input costs. Prices for raw food materials, for example, such as wheat and maize had increased between 20-40 percent in the six months.

Packaging prices, including tin-plate and paper, had increased in tandem with oil prices, there were global stock shortages of some commodities. In addition, there were problems at the port, there were shipping delays, sometimes more expensive air freight was required, and locally, diesel prices were also rising fast, she said.

CEO Noel Doyle warned in a statement that significant price increases across its portfolio were inevitable, despite their best efforts to further reduce costs.

The group had lifted prices in its bakeries division in the first half, but the result was double digit declines in volume sales, said Sita.

First quarter group sales were poor and financial results were also impacted by a long strike at the Snacks & Treats division.

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“The group’s improved top line and profitability in the second quarter fell short of negating the slow start to the year,” he said.

Revenue from continuing operations increased 2 percent to R16.8 billion. Volume growth in Exports and International was offset by domestic volume declines in Milling and Baking.

Snacks and Treats and Home and Personal Care. The Out of Home business showed strong volume growth recovery in line with post lock-down demand, and Rice, Beverages and Groceries delivered good performances respectively.

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Doyle said cost-saving initiatives and supply chain efficiencies had been accelerated and were delivering ahead of plan.

But these were not enough to counter the high level of input cost inflation, resulting in gross margin compression to 29.2 percent from 30.6 percent in the corresponding period last year.

An unchanged interim dividend of 320 cents per share was declared.

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“We are acutely feeling the full impact of the global supply chain squeeze and related inflationary pressures in the level of cost increases coming through. We expect the challenging economic climate to remain with pressure on the consumer likely to intensify,” he said.

He said they were increasing their efforts to reduce costs and further drive efficiencies to minimise the need for selling price increases.

During the first half of the financial year, total General Trade sales - focused on spazas, superettes, table-tops, hawkers and forecourts in the informal market - were up 11 percent led by Groceries, Home and Personal Care and Baby.

The South African informal market was valued at about R164bn per year according to Trade Intelligence.

Doyle said Tiger Brands would work to further unlock the potential of the township economy through a private sector partnership with the Department of Small Business Development.

The collaboration, announced in Parliament on May 10, 2022, sought to integrate informal entrepreneurs in South Africa’s townships into the formal food and beverage supply chain as active commercial distributors in their local communities. Initiatives under this partnership include infrastructure, such as warehousing and logistics, as well as other business support such as stock finance and technical skills, he said.

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