Tiger considers private brands

• Group historically avoided selling cheaper versions of its products under supermarket labels

Tiger Brands, producer of Koo, Oros and Beacon, will consider some private label production for retailers, a move it has always shunned as undermining its quality and distinctive flavours. The group sells its brands at slightly higher prices than competitors.

Tiger Brands, producer of Koo, Oros and Beacon, will consider some private label production for retailers, a move it has always shunned as undermining its quality and distinctive flavours.

The group sells its brands at slightly higher prices than competitors. It has avoided producing cheaper versions of its products to sell under a supermarket brand and undermine its business model.

CEO Noel Doyle said the group looked for private label opportunities in the past two years. He was speaking at the release of Tiger Brands’s annual results when it raised its final dividend 29% year on year to 653c per share, bringing the fullyear dividend to 973c.

Headline earnings per share, a profit measure that strips out impairments and one-off items, jumped 51% to 1,702c as profit soared 60.7% to R2.9bn in the year to end-September.

The retailer had to balance enormous input costs as maize and vegetable oil prices spiked globally after Russia invaded Ukraine, with Tiger Brands reporting input inflation of 18% in its second half. It said the cost of mitigating regular load-shedding is four times that of the Eskom tariff.

Food producers walk a tightrope when they pass input costs on to consumers, who respond by finding cheaper competitors or buying less.

In showing just how tough passing on prices to consumers is, bread sales fell after Tiger Brands raised the price of its Albany bread and consumers switched to competitors. The company had to lower bread prices after three months.

Doyle said weakening demand is a “big concern”.

It appears that for the fullyear Tiger Brands managed to balance increasing costs while mitigating a rapid drop in demand.

EXPORT FRUIT

Total revenue from continuing operations rose 10% to R34bn with price inflation at 11% and volume down 1%.

Its export fruit businesses grew 19% to R4.3bn, helping to offset decreases in volumes of pasta, bread, flour and maize as well as personal care and household goods divisions.

Doyle said potential private label businesses won’t work when retailers, buying maize for example, switch suppliers every few months.

“We’re not really interested in that kind of business. It is very disruptive to the supply chain. But we are open to do business where there’s a mutual level of commitment and it makes sense for both parties.”

Though it cannot make private label Jungle Oats, for example, as it has a distinctive flavour created in the milling process, it has been producing private label bread for Shoprite in the Western Cape.

“We’ve been so against private label historically, the challenge is to get people internally to wrap their heads around it,” he said.

“And because the retailers are used to not dealing with us about private label, and also having a mindset that said, ‘don’t give the big guy too much business’, there’s also been a kind of a psychological barrier.”

Tiger Brands has spent two years trying to break down those barriers, and to look for those opportunities.

MOST CHALLENGING

Asked why an investor would buy a share in a company with premium food products as consumers are forced to buy cheaper goods such as unbranded rice, or maize or oats, Doyle said, “Are we going to be a great growth story for the next two to three years? I don’t think so.

“Can we show some growth? Look what we’ve been able to do in the last year ... even the last six months, which have probably been one of the most challenging [periods] in terms of inflation and pressure on the consumer.”

Coming back from the world’s largest listeria scandal and two product recalls, Tiger Brands faces some sceptical investors. “Have we got our house in order? Have we got stability? Have we got momentum?” Doyle says the group’s results and investments show it has a “management team that is finally getting its act together”.

In response to stressed consumers, it is trying to offer goods such as Crosse & Blackwell mayonnaise cheaper in a plastic bottle. Its Black Cat peanut butter includes a minimum of 91% peanuts, making it harder to compete with other lower-quality brands on price. It is opening a peanut manufacturing facility that will allow it to make different qualities of peanut butter.

“With a new manufacturing facility, we’ll have a product where we will communicate clearly to the consumer, this brand is 90% peanuts, this brand has 70% peanuts,” Doyle said.

“We are starting to get off our high horse and put ourselves in a position where we’re going to give the consumers what they can afford,” he said

CAN WE SHOW SOME GROWTH? LOOK WHAT WE ’ VE BEEN ABLE TO DO IN THE LAST YEAR