Tiger expects consumers to struggle
• Company not sure if wheat and rice will be available after May
Tiger Brands, which was already expecting a drop in first-half earnings, said it is expecting even more constrained consumer spending and a recession after the Covid-19 crisis has subsided.
SA is in a three-week lockdown that was imposed by the government to combat the Covid-19 pandemic, which has infected 1,845 people locally and more than 1.3-million people worldwide.
Only essential service providers such as food retailers are allowed to operate.
Before the lockdown, people stockpiled on food — leading to huge sales growth in rice, pasta and cereal — but sales of sweets and home care products declined. Despite a huge uptick in demand for pasta and rice and a stronger cash position, Doyle predicted a difficult second half year as consumers will be in dire financial straits.
“If we were in a value economy before this event, we for sure will be in a deep value economy after this event. We are preparing for tough times,” Doyle said.
“The top 20 and 30 people in the organisation are very focused and match-fit for what is coming down the track, after the immediate crisis subsides.”
For the current time period, the company said it was able to supply stores with product despite a huge spike in wheat, oats and pasta sales in March. It had imported rice and pasta and was just managing to meet demand for these products.
Overall, Doyle said, raw material supplies were guaranteed until the end of May. After May, the company was unsure about product availability as there were restrictions on global exports of wheat and rice.
Vietnam is cutting rice exports and Russia is decreasing wheat exports in response to the epidemic.
Tiger Brands has kept factories open and increased cleaning and disinfecting of plants while ensuring social distancing among staff. It has shut down non-essential factories and those where it couldn’t ensure sufficient spacing among staff.
Tiger Brands closed sorghum-based beverage factories, its home care factories and its sweet factories. Its sweet brands include Jelly Tots, Beacon chocolates and Fizz Pops. It had seen sales of sweets and snacks fall as consumers switched spending to essential foods. Doyle explained that buying chocolate was also an “impulse buy”, which is less likely as people stay at home.
Tiger Brands has asked for clarity from the department of trade & industry on the regulations on price, as it cannot increase its profit margins above what margins were in December, January and February. The government’s regulations say that profit margins until June cannot be above the margins from December to February.
“This does have the effect of reducing the company’s ability to recover cost increases preceding this three-month period, where such price increases were deferred, or to fully recover year-on-year cost increases where price increases are normally scheduled to be taken annually or semi-annually,” Doyle said.
The company had also asked for clarity on providing pesticides, as pest control was listed
THE REGULATIONS SAY THAT PROFIT MARGINS UNTIL JUNE CANNOT BE ABOVE THE MARGINS FROM DECEMBER TO FEBRUARY
1.2% the decline in the Tiger Brands share price on Wednesday to R177.63
1,845 the number of people who have been infected with the deadly coronavirus in SA so far
as an essential service but provision of pesticides — which it manufactures — was not listed as essential.
Doyle expected the bread price to possibly rise in future as wheat prices increased, and that consumers would switch from buying rice to maize, which is considerably cheaper.
Tiger Brands has been seeking to emerge from a scandal that resulted in one of its firms being linked with the listeriosis outbreak two years ago that led to more than 200 deaths.
The outbreak was linked to a factory in Polokwane and the company is still facing a classaction lawsuit.
Its shares dropped 1.2% on Wednesday to close at R177.63, valuing it at R33.7bn.