Tiger Brands CEO Noel Doyle sees dark clouds ahead – but a silver lining of food inflation relief
As South Africa’s largest food manufacturer, the financial performance of Tiger Brands is a barometer of the country’s economy. Tiger’s performance also tells a story about the financial health of consumers and their spending patterns during boom-and-bust economic times. Tiger makes many of SA’s household brands including Albany bread, Tastic rice, Purity baby food, Koo canned beans, Jungle Oats, Oros juice, Black Cat peanut butter and All Gold jam.
Tiger Brands has released results for the six months to March 2021 in which revenue from continuing operations increased by 8% to R16.4-billion, the operating margin improved to 9.6%, and the company resumed an interim dividend of 320 cents a share.
In this interview, Tiger CEO Noel Doyle talks about the impact of Covid-19 on consumers, the economy and rising food inflation.
Q: Has the financial state of the consumer worsened considering that the government’s Covid-19 relief measures such as the R350 a month grant and Unemployment Insurance Fund payouts have ended?
A: From a total market perspective, we have seen an intensification of the consumer financial pressure since January 2021. We have looked at all data from retailers [Tiger’s customers]. On a 12-month moving basis [ending December 2020], sales volumes in Tiger’s defined basket of goods were down about 6%. On a three-month moving basis [the first quarter of 2021], volumes were down about 14%. This tells you that the consumer is in a bad space. We could feel towards the end of December 2020 that the consumer financial state has deteriorated dramatically.
Q: Are you nervous about the next few months?
A: I am concerned about the underlying consumer demand for food and other household goods. An uncontrolled third wave of Covid-19 infections, which results in a lot of people getting ill, could be disruptive. The kind of lockdown that includes another ban on the sale of alcohol and cigarettes won’t be negative for us in terms of demand, but we might get a lot of disruptions in the running of our factories.
Q: As volume, market share and margin growth remain under pressure, can Tiger absorb input costs such as the rising price of maize, or will you pass the costs to consumers through price increases of Tiger’s goods?
A: The reality is that the market is not able to absorb costs. There is a tightrope of getting your volumes and margins right. We have been able to absorb some of the increasing raw material costs such as maize and wheat. We haven’t recovered most of the costs through large price increases. Our margins are under pressure and have gone backward, especially in our grains business [comprising Albany (bread), Tastic (rice), Ace (maize), Jungle Oats and Fatti’s & Moni’s (pasta)].
Q: Is there scope to invest in price or reduce the price of goods?
A: We don’t have a huge amount of scope to invest in price, but we cannot lose market share to competitors. Our competitors are scratching for volumes. The easier way to get volumes up is to compete on a price basis. We are seeing a lot of this in the market. We had some nice volume growth in the first quarter [of 2021]. But volumes might decline in the second quarter.
Q: Food inflation increased to 6.7% year on year in April 2021, from 5.9% in March. It’s an area of concern for many economists because rising food inflation takes the biggest toll on the poor. Will food inflation continue to rise judging from your internal numbers?
A: We are probably past the food inflation peak, subject to what happens with the currency. In our portfolio of brands, we are seeing some easing in the price of soft commodities [maize, wheat and others]. We are going to see a much lower rate of food inflation, particularly in our grains business. There will be some relief for consumers at the bottom end. I expect that food price inflation will start to taper off by the end of the year.
Q: Where is growth going to come from for Tiger?
A: We are seeing good opportunities for Tiger in the rest of Africa markets such as Nigeria and Mozambique. It can be a good growth driver for us, especially in the new financial year. We have a good balance sheet. We can either expand our brands organically [by launching new products] or buy businesses that came to the market at a reasonable price. We might have to buy market share considering that the market is declining. DM/BM