Tiger tames costs to claw back top spot

Africa ex­pan­sion out of ur­gent basket af­ter mis­ad­ven­tures

Sunday Times - - BUSINESS TIMES - RAY NDLOVU

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

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Pic­ture: GETTY IMAGES

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