You are currently viewing our desktop site, do you want to visit our Mobile web app instead?
 Registered users can save articles to their personal articles list. Login here or sign up here

Tiger Brands working hard to regain SA consumers’ trust

Heps down 12% as the company recovers from listeriosis crisis.

NOMPU SIZIBA: Tiger Brands came out today [Wednesday] with its half-year results for the six months ended March 2019. The company reported earnings, before one-time items, dropping 12% to R7.59/share. The packaged-food company has been struggling in a tough economic environment, and is still reeling from the listeriosis crisis a couple of years back. Tiger Brands declared a lower dividend for its shareholders, but compensated by way of a special payout of R3.06/share for shareholders as a result of selling off its Oceana business.

My colleague Ryk van Niekerk caught up with Tiger Brands CEO, Lawrence McDougall.

RYK VAN NIEKERK: Lawrence, welcome to the show. Your results for the previous financial period were severely hit by the impact of the listeriosis outbreak. You have subsequently re-opened the affected meat-processing plants. Have you now fully recovered from the outbreak – operationally, at least?

LAWRENCE MCDOUGALL: Thanks, Ryk. When you unpack the numbers, the like-for-like comparisons of the Enterprise sales for the full six months last year, the domestic performance was actually up 6%, 2% up in volume. We are quite pleased about it, particularly on the headline earnings. If you unpack the unbundling of Oceana, the headline earnings are only down 2% from the 12% that was reported.

So yes, we are back in the market now. We have not fully recovered. We only started distributing very, very late in December, so we missed the full Christmas season. It took us a while to ramp up the factories. We are in full production now and we are starting to regain our distribution. The retailers have been fantastic in their support to help us get the products back onto the shelf very quickly. And where we have achieved distribution, the consumer offtake has been very pleasing.

But we need to understand that competitors took advantage of our not being on the shelves, to gain market share, and we now need to fight back really hard to gain the consumer’s trust and to get the share of their wallets back in the months ahead of us.

RYK VAN NIEKERK: Have you seen that the reputational damage you may have suffered flowing from the outbreak – have you seen that flow through to the sales of other products within the stable as well?

LAWRENCE MCDOUGALL: No, not at all. I think you would have seen in our report that we reported market share up in both volume and in value, if you exclude the value-added meats products. So not at all. We are feeling pretty good about that.

We’ve also been able to launch several bits of innovation into the market, which has kept our brand alive and top of mind for consumers, capitalising on the trends of health and wellness, on-the-go, and smaller pack sizes, with understanding that at the moment, as the consumers become more stressed in terms of discretionary spend, they are also shopping more often, but they are willing to shop up to premium brands when they are on promotion. This fits exactly with where we are with our very, very strong brands.

RYK VAN NIEKERK: Just lastly on listeriosis, I see you received an insurance payout of  around R100 million during the period. What has been the total compensation you’ve received from insurers, and are more payments in the pipeline?

LAWRENCE MCDOUGALL: As we highlighted, we’ve received a summons now, which actually then takes the class action to the next stage. The next stage is firstly that liability needs to be determined, and then only after that will the courts lay down some quantum against each of those classes. We’ve said right up front that, if liability is indeed determined, we are not going to frustrate the process at all and [we’ll] try and work through that as quickly as possible. And we do have insurance that we believe is appropriate for a company of our size. That quantum is yet to be determined. So, to answer your question, we would have to wait a few months to understand what that quantum is before we can fully answer the question appropriately.

RYK VAN NIEKERK: But that is in relation to the class action. What I’m referring to are payments from insurers following the closure of some of your processing plants.

LAWRENCE MCDOUGALL: As we’ve said, we released those. The R100 million we’ve received now is for the products that we withdrew from the market, and there are other smaller bits that we need to recover from insurance. But we’ve not released those details yet.

RYK VAN NIEKERK: Let’s come back to your products and the consumer environment. You do state in the results that you have experienced depressed sales because of the depressed consumer environment. How do you foresee the environment changing in the next few months? We most likely will see a recession during the first half of this year, but there are expectations that things may pick up. Do you also expect a stronger second half of the year?

LAWRENCE MCDOUGALL: That would be very risky for me to answer. [Chuckle] I think every indication is that the discretionary income of the consumer will remain under pressure. We have seen indications that consumers are also paying down their high debt levels, so some of the discretionary income is going to pay off the debt. But we saw, even in this morning’s press, there are further indications pointing towards moving to a negative second quarter, which will then effectively start moving us towards that technical recession again that we had at the beginning of 2018. We truly hope we don’t get to that. I think the government and what they do with their spending and attracting foreign investment is going to be critical in helping us not move into that phase.

Read: Fuel prices mostly to blame for increase in cost of living

But, from our side, we need to take appropriate action within our business to make sure that we maintain our sales growth and remain profitable through these tough times. The consumer is going to be looking for value. But, at the same time, the lower-income groups in particular cannot afford to make mistakes on the brands that they choose, and they do vote with their money. So quality in the brand that they trust will always remain top of mind with consumers.

RYK VAN NIEKERK: Don’t you see some consumers buying down from the premium brands, and rather going for supermarkets’ house brands? Is that a trend you see?

LAWRENCE MCDOUGALL: Yes, that is indeed true. Many of the retailers have actually got some very good private-label strategies at the moment. But, at the same time, as I mentioned in the presentation earlier this morning, about the same size of portion that is moving down is those moving up – those trading into brands, and where they are looking for value within those well-known brands.

So not everybody is trading down to the lower cost. They are also looking for value on the brands that they love and trust. It’s in that space where, if I can give an example, adding 10% extra value versus a 10% price reduction, consumers see value.

At the same time, looking at branded products, if we put a Black Cat peanut butter and an All Gold jam together, consumers are seeing value in those two offerings together – or jam with a loaf of bread – we are definitely seeing the trend where consumers are saying that those types of offers offer them value and, if they are in the brands that they love and trust, they want to trade into those spaces as well.

So it’s a challenge for us not to get caught in that no man’s land between the value offering and the premium brands, and make sure that we are making offerings available to the consumer who trades up into our brands.

RYK VAN NIEKERK: Then your exports are also slightly down. I would have expected that, with a weaker currency environment, the exports would have performed better. What happened there?

LAWRENCE MCDOUGALL: Yes, 80% of our exports flow into Angola, Zimbabwe, Mozambique and Nigeria. As you know, our neighbouring states are not in particularly good shape at the moment from a forex availability perspective but also just the economy. So yes, we made good progress on our distributor reorganisation in Nigeria, and also in East Africa, but we were particularly hard-hit in Angola, Zimbabwe and Mozambique.

Read: Mozambique flooding crisis classified in line with Syria

Then of course we had the floods and things that happened in Mozambique as well, which disturbed the distribution to the north, but also the general economy. So the neighbouring states have seen pretty tough trading in the last six months.

RYK VAN NIEKERK: Our thanks to Lawrence McDougall.

Get access to Moneyweb's financial intelligence and support quality journalism for only
R63/month or R630/year.
Sign up here, cancel at any time.

AUTHOR PROFILE

COMMENTS   0

To comment, you must be registered and logged in.

LOGIN HERE

Don't have an account?
Sign up for FREE

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR

LATEST PODCASTS

Podcasts

SHOP NEWSLETTERS TRENDING CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: