Clover ices new projects to head off SUGAR TAX

Com­pany will in­stead fo­cus on re­search­ing ways to de­velop and pro­duce a new range of drinks

CityPress - - Business - JUSTIN BROWN justin.brown@city­press.co.za

Clover has put on hold most of its new projects to fo­cus on mit­i­gat­ing the mul­ti­mil­lion-rand ef­fect of the im­pend­ing sugar-sweet­ened bev­er­age tax. “A lot of re­sources were ded­i­cated to new projects ... I froze all those projects and I put peo­ple to work on sugar tax-re­duc­tion projects. I didn’t stop ev­ery­thing, but I put many of the projects on hold,” Marcelo Palmeiro, Clover’s ex­ec­u­tive for cor­po­rate and brand de­vel­op­ment, said dur­ing an in­ter­view on Fri­day.

In re­sponse to the pro­posed sugar tax, which was first an­nounced in the bud­get speech in Fe­bru­ary last year, as well as con­sumer trends, Clover this week launched its first sugar-free bev­er­age, Tropika Slenda.

Palmeiro said that the pro­posed sugar tax would af­fect at least 10 of the com­pany’s bev­er­age brands, in­clud­ing Tropika, Danao, Man­hat­tan Ice Tea, Frankie’s, Nestea, soya milk shakes, smart drinks and flavoured wa­ter.

He said that Clover was look­ing to bring out many dif­fer­ent prod­ucts to re­duce the im­pact of sugar tax on the com­pany.

The re­search and de­vel­op­ment in­volved with mak­ing the new prod­ucts, as well as as­so­ci­ated pack­ag­ing and mar­ket­ing, plus changes to pro­duc­tion pro­cesses at the com­pany’s fac­to­ries, could cost Clover mil­lions, he said.

He said the sugar tax wasn’t likely to have any ef­fect on jobs at Clover at this stage.

Clover chief fi­nan­cial of­fi­cer El­ton Bosch said this week that the com­pany was look­ing to re­duce the ef­fect of sugar tax by in­tro­duc­ing zero-sugar drinks, cut­ting the su­crose con­tent in its drinks and re­for­mu­lat­ing its bev­er­age prod­ucts or launch­ing prod­uct vari­a­tions.

The re­for­mu­la­tion of a bev­er­age in­volves ad­just­ing the drink by the re­moval or re­duc­tion of its sugar con­tent. The change to sugar con­tent of a bev­er­age al­ters its flavour and body, which is the feel of the drink in a con­sumer’s mouth, Palmeiro said. “Re­for­mu­la­tion in­volves a re­think of a drink’s de­sign,” he added.

In his bud­get speech last month, Fi­nance Min­is­ter Pravin Gord­han an­nounced that the im­ple­men­ta­tion date for the new sugar tax would be de­layed from April 1 un­til later this year, when Par­lia­ment had ap­proved the new leg­is­la­tion and it is signed into law.

A pro­posed sugar tax is to be levied at 2.1c per gram of sugar, ex­clud­ing VAT, on sugar-sweet­ened bev­er­ages to which caloric sweet­en­ers have been added. The pre­vi­ous pro­posal was for a sugar tax of 2.29c per gram of sugar.

Gord­han also said the sugar tax would be charged only when the sugar con­tent ex­ceeds four grams per 100ml of a bev­er­age.

Bosch said that the ini­tial level of the pro­posed sugar tax would have re­duced Clover’s turnover by 3.5% to 4%.

In the six months to De­cem­ber, Clover had rev­enue of R5.1 bil­lion, so the ini­tial sugar tax pro­posal could have cut the com­pany’s rev­enue by as much as R200 mil­lion dur­ing that half-year.

Bosch said that – given the lat­est lev­els of the sugar tax, plus Clover’s plans to mit­i­gate the tax – the worst-case sce­nario now was for the tax to re­duce Clover’s rev­enue by 1%.

“The bud­get speech has pro­vided mas­sive re­lief. We do be­lieve that our new for­mu­la­tions [of prod­ucts], as well as the launch of sugar-free prod­ucts, will dra­mat­i­cally re­duce Clover’s ex­po­sure to the sugar tax and that’s with­out putting through any price in­creases,” Bosch said.

It would take Clover at least 12 months to ad­just its bev­er­age prod­ucts to the sugar tax, Bosch said.

Nevash­nee Naicker, a Tiger Brands spokesper­son, said the group was still in the en­gage­ment process re­lated to the sugar tax and hadn’t planned any changes to its bev­er­age prod­ucts.

“Tiger is com­mit­ted to re­duc­ing its sugar in its bev­er­ages in line with the pro­posed tax. How­ever, it is im­por­tant to re­mem­ber that re­for­mu­la­tion takes a long time,” Naicker said.

2.1c THE AMOUNT OF THE PRO­POSED SUGAR TAX TO BE LEVIED PER GRAM OF ADDED SUGAR

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