Tiger tames costs to claw back top spot
Africa expansion out of urgent basket after misadventures
RETURNING Tiger Brands to the top of the food chain after some misadventures on the African continent starts with a focus on reining in its costs. That’s according to CEO Lawrence MacDougall, whose growth plans are anchored on creating a “cost-conscious culture” across the company producing South African staples such as All Gold tomato sauce and Jungle Oats.
It’s not a unique recipe, in that under the stewardship of his predecessor, Peter Matlare, a large emphasis was placed on reducing costs.
Since 2014, it has slashed costs by R708-million.
Through the latter part of Matlare’s tenure, costs were a major focus and flagged at corporate presentations.
He would eventually leave his position in December 2015 after excursions outside South Africa failed to reap the required dividends.
Tiger Brands bought a stake in Dangote Flour Mills in Nigeria in October 2012 for R1.5billion.
After taking losses and writeoffs of more than R5-billion, the firm was sold back to Aliko Dangote’s group for a token $1 in December 2015.
In the six-month period to end-March, MacDougall’s costcutting measures brought in a saving of R136-million.
While MacDougall continues to look for efficiency gains, the one departure from Matlare’s term is that expansion into the rest of the continent isn’t in the emergency tray.
The cost-cutting of operations appears justified given that South Africa’s food industry is faced with a multiplicity of economic challenges.
These include depressed consumer spending, a weak currency and the overall impact on the economy of a ratings downgrade.
Reuben Beelders, portfolio manager at Gryphon Asset Management, said Tiger Brands’ approach to Africa was going to be more “slow and steady” rather than “divide and conquer”.
Part of Tiger’s cost-focus strategy has been adopting “relevant pack-size architecture” in the different categories for middle-class consumers, who make TIGER BY THE TAIL: CEO Lawrence MacDougall and former CEO Peter Matlare both turned their attention to cutting costs up 70% of its sales.
Products that have been downsized include Tastic rice (from 2kg to 1kg), All Gold tomato sauces and jams and Oros.
Beelders said a lot could be done in terms of pack sizing and ensuring that customers got the right product, in the right quantities and at the right price.
“The demand is not always consistent and tastes change. Consider the current focus on Banting diets.
“This is a fairly new development and possibly one where suppliers can serve the customer at a slightly higher margin,” he said.
Analysts see the dent from Africa in part as a reason why Tiger Brands lags in stock performance against its industry peers, because of the poor decisions of the past.
Over a five-year period, Tiger Brands’ shares have gained just under 56%, compared to Pioneer Foods’ increase of 152%, Sovereign Foods’ 100.8% and Rhodes Foods’ 91.67% over the same period, according to Bloomberg data.
Adrian Cloete, a portfolio manager at PSG Wealth, said what Tiger still had in its favour was its well-diversified portfolio, and investors had the view that it was a “defensive stock” which could weather multiple downturns.
Tiger’s “strategy is therefore attempting to both control costs and grow market share within their product categories”, he said.
The focus is now at home, where Tiger Brands plans to
If multinationals get aggressive it could affect Tiger Brands
grow its market share.
Market share growth has been identified as a key pillar and Tiger Brands plans to grow volumes by 1% to 2% above category growth each year.
“For a mature business like Tiger Brands, that is as much as can be reasonably achieved without disrupting market pricing,” said David Lerche, a senior investment analyst at Sanlam Private Wealth.
“This will be difficult as the NOT SO SAUCY: Tiger Brands, producer of brands such as All Gold tomato sauce, faces a multiplicity of economic challenges market is highly competitive with limited overall volume growth given the poor state of the South African consumer. Competitors also plan to grow market share.”
While Tiger may enjoy an edge over its domestic competitors, multinationals backed by global operations, capital and vast experience present a challenge.
The gloves could come off should the multinational companies decide to take the fight to Tiger Brands’ doorsteps as global economic headwinds persist.
“In certain categories, if multinationals decide to be aggressive, this could affect Tiger Brands and they could come under competitive pressure,” said Cloete.
While the domestic market remains a key focus, Tiger says it still has its sights on the continent and that it has “refined” its approach, part of which includes exiting noncore categories in Kenya and Ethiopia. Comment on this: write to let[email protected]nesstimes.co.za or SMS us at 33971