Tough consumer environment hits Tiger Brands

The consumer environment in the country is becoming more challenging, food group Tiger Brands said this week.

During the company’s interim results presentation, Tiger Brands chief executive Noel Doyle said the group did not believe the consumer environment would improve any time soon, but was likely to deteriorate.

“It is incredibly challenging,” he added.

He said consumer confidence continued to decline, and that in addition, high levels of food inflation and a significant increase in interest rates would result in consumers becoming more value-conscious and shift more towards essentials and basic food items.

According to the company’s consumer information survey the difficult environment was changing consumer behaviour.

That information showed 87% of consumers were concerned about inflation, 52% only bought essential food items and 41% bought lower-cost meats.

The company said it faced a challenging operating environment due to prolonged periods of loadshedding.

In addition, high inflation levels and lower disposable income adversely impacted consumer behaviour in terms of volumes.

The group said it anticipated a significant reduction in certain internationally priced commodities, but the rand weakness offset this. At the same time, it expected operating costs to rise significantly because of higher levels of loadshedding.

The total cost of loadshedding for the half year ended March amounted to R76-million – a more than six-fold increase compared to R12-million in the corresponding period last year. “In a low to no growth environment, our efforts will prioritise efficiency improvements and cost reduction initiatives to meet the consumers’ need for affordability,” the group said.

The group put price inflation at 17% during its latest six months ended in March. This compares with consumer price inflation data from Statistics South Africa, which showed that South African food prices increased by 14.3% over the year ended April.

Tiger reported price inflation of 24% in its milling and baking unit, driven primarily by wheat, maize, and sorghum raw material cost increases.

Revenue rose by 16% to R19.4-billion during the half year ended March 2023, driven by the price inflation of 17%. However, group operating margin fell to 7% from 8.9%. Profit after tax fell by 3.3% to R1.2-billion.

Tiger’s share price traded as high as R193.02 on Monday before the group released its results on Tuesday. However, after the release of the interim results, the share price fell as much as 24%, and on Friday, the share price closed at R151.30.

The food group said loadshedding would likely persist at elevated levels, and inflation was unlikely to abate.

“The challenging environment will continue. We expect the current headwinds to persist,” Tiger Brands chief financial officer Deepa Sita said.

The company’s chief consumer growth officer Thushen Govender said the group experienced cost inflation across most raw materials and packaging components.

“The squeeze on the consumer will accelerate. The latest interest rate hike by the South African Reserve Bank will result in a further pinch on the economy, and the impact of loadshedding on consumers and shoppers will be felt further as we enter the winter months,” the group chief growth officer for grains Yokesh Maharaj said.

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