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Tiger Brands pursues efficiency after sales volumes shrink

22nd February 2024

By: Reuters

  

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Tiger Brands, South Africa's biggest food producer, is reviewing spending and the number of brands it sells, it said on Thursday, after inflation drove consumers to buy less, knocking its revenues lower in the four months to the end of January.

It also flagged flat to lower operating income for the six months ended March 31, and said its Black Friday sales and promotional activity over the December period fell short of expectations.

The owner of Jungle Oats and Tastic Rice said group revenue for the four months ended Jan. 31 declined by 1% year-on-year, driven by volume declines, across most segments, of 8%, but offset by price inflation of 7%.

Consumer goods producers globally have raised prices to cope with surging costs for almost all raw materials, energy and packaging after Russia's invasion of Ukraine compounded pandemic-related supply chain logjams.

Inflation in food and non-alcoholic beverages has risen ahead of the consumer price index, with prices of essential items such as sugar, vegetables, meat, eggs, and rice surging by almost 20%, Tiger Brands said, quoting Statistics South Africa.

"Despite the volume regression over the period and consequential muted revenue performance, the benefit of improved factory efficiencies and price realisations negated the impact to the gross margin percentage," Tiger Brands said.

But it also said a detailed capital allocation framework review and portfolio rationalisation exercise was underway, with a further update expected during the course of the year.

It said it was cutting back on what it calls "stock keeping units" (SKUs), meaning the variety of products it sells, and trimming portfolios to reduce complexity, which will result "in manufacturing and procurement efficiencies in due course."

"It is important that we direct our resources, both financial and human capital, towards the business segments which generate or, have the potential to generate the highest returns," the food producer added.

On Wednesday, Tiger Brands announced a new operating model, simplifying its organisational structure into six business units with new managing directors appointed to head the units.

Edited by Reuters

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