Warning about looming rising food prices

TIGER Brands, the largest food product manufacturer on the continent, warned yesterday that “significant double-digit price increases” were inevitable across the majority of its food and household products.

The group, which owns iconic South African food brands such as Koo, Fattis and Monis, Jungle Oats, Enterprise, All Gold, Purity, Oros and Tastic Rice, said yesterday that its profit margins had been crunched in the six months to March 31 as cost-saving initiatives were not in time, or enough, to counter “unprecedented” rising input prices from the global supply chain squeeze, chief financial officer Deepa Sita said in a telephone interview.

“It’s not looking good for consumers,” she said.

She said people who had worked at Tiger for decades had never seen this kind of rapid increase in input costs. Prices for raw food materials such as wheat and maize, for example, had increased between 20 and 40 percent in the six months.

Packaging prices, including tinplate and paper, had increased in tandem with oil prices, and there were global stock shortages of some commodities. In addition, there were problems at the ports, there were shipping delays, sometimes more expensive air freight was required, and locally diesel prices were also rising fast, she said.

Chief executive Noel Doyle warned in a statement that significant price increases across their portfolio were inevitable, despite their best efforts to reduce costs.

The group had lifted prices in its bakeries division in the first half, but the result was double-digit declines in volume sales, said Sita.

First quarter group sales were poor and financial results were also impacted by a long strike at the Snacks & Treats division. “The group’s improved top line and profitability in the second quarter fell short of negating the slow start to the year,” he said.

Revenue from continuing operations increased 2 percent to R16.8 billion. Volume growth in Exports and International was offset by domestic volume declines in Milling and Baking.

The Out of Home business showed strong volume growth recovery in line with post lockdown demand, and Rice, Beverages and Groceries delivered good performances respectively.

Doyle said cost-saving initiatives and supply chain efficiencies had been accelerated and were delivering ahead of plan. But these were not enough to counter the high level of input cost inflation, resulting in gross margin compression to 29.2 percent from 30.6 percent in the corresponding period last year.

An unchanged interim dividend of 320 cents per share was declared.

“We are acutely feeling the full impact of the global supply chain squeeze and the related inflationary pressures in the level of cost increases coming through. We expect the challenging economic climate to remain, with pressure on the consumer likely to intensify.” He said they were increasing their efforts to reduce costs and further drive efficiencies to minimise the need for selling price increases.

During the first half of the financial year, total General Trade sales – focused on spazas, superettes, tabletops, hawkers and forecourts in the informal market – were up 11 percent led by Groceries, Home and Personal Care and Baby.