Operational review
Consumer Brands – food
Grattan Kirk
Business executive: Consumer Brands – foods
Salient features
- Successful Groceries turnaround evident in market shares and improved profitability
- Brand health evident from top awards (page 24)
- Improved manufacturing performance
- Groceries portfolio strategy implemented – relaunch of Hugo brands
Segment overview
This division houses many of the group’s iconic brands and includes Groceries, Snacks and Treats, Beverages, Valueadded meat products and Out of home.
Strategy
Entrench brand leadership and recover market share in specific categories through improved operating performance, innovation, cost efficiency and enhanced manufacturing facilities.
| Rm | 2015 | 2014 | % change |
|---|---|---|---|
| Turnover | 10 108,1 | 9 464,4 | 7 |
| Operating income* | 1 095,9 | 977,3 | 12 |
| Operating margin (%) | 10,8 | 10,3 |
Performance
The division reported a pleasing performance with turnover up 7% to R10,1 billion and operating income rising 12% to R1,1 billion, despite challenging trading conditions and higher input costs. The operating margin improved from 10,3% to 10,8%.
Groceries
With leading brands such as Koo, All Gold, Mrs Ball’s, Black Cat and Crosse & Blackwell, Groceries recorded an excellent financial performance for the year. Turnover rose 7% to R4,3 billion (2014: R4,0 billion) while operating income increased by 28% to R411 million (2014: R320 million). Market shares improved across most categories compared to the prior year, notwithstanding pricing adjustments taken to recover costs and a fiercely competitive trading environment.
In line with the ongoing focus on our manufacturing facilities, the commissioning of the R230 million mayonnaise facility in Boksburg, Johannesburg, was completed in June 2015, with improved production and supply chain efficiencies.
To maintain and improve market share, new product ranges and variants are continually introduced across all major categories. Recent innovations include KOO Chakalaka, a traditional spicy vegetable relish, and the relaunched Hugo’s brand, a more affordable offering backed by the same quality guarantee as our premium brands.
The benefit of strategically investing in our brands was evident in the group’s excellent 2015 rankings in the Sunday Times top brands awards (page 24), with KOO displacing international leaders as South Africa’s favourite brand. KOO was also recognised as the number one brand in the Ask Afrika Icon Brands survey. The appeal of the Hugo’s brand is clear in its steady progress into the top 10.
Snacks and treats
This business focuses on sugar confectionery: chocolate (Beacon), gums and jellies (Maynard) and hard-boiled sweets (Smoothies).
In 2015, Beacon chocolates underwent a successful product reformulation and brand relaunch which is being supported by further marketing investment and innovation. Capital expenditure of R70 million has been committed to upgrade the chocolate facility in 2016.
As the price sensitivity of this category requires continuous innovation, we commissioned a new R150 million gums and jellies plant in Durban during the year which has increased capacity and enhanced innovation. We will continue to invest in 2016 to enhance our capability in the hard-boiled sweets category.
During the year, a procurement fraud was uncovered in the Snacks and Treats business which had been perpetrated over a number of years. Criminal proceedings have been instituted against the individuals involved and corrective action taken where appropriate.
Beverages
The focus on innovation in this highly competitive category, particularly new variants for brands such as Oros, Energade, Rose’s and Hall’s, is reflected in excellent growth and further cost benefits after commissioning the consolidated beverages facility in 2014.
Turnover rose 5% to R1,2 billion (2014: R1,1 billion), while operating income grew by 9% to R138 million (2014: R127 million). The operating margin increased from 11,4% to 11,8%.
Capital expenditure in 2016 and 2017 will enhance our ability to further penetrate this market while expanding our presence in specific categories.
Value-added meat products
Valued-added meat products (primarily the market leader, Enterprise) continued to gain market share, despite a subdued category and ongoing raw material cost increases.
As affordability is key in this segment, the business has recently added value through a number of innovations, including resealable packaging and no-pork products, an important benefit for many consumers.
Out of home
This business posted reasonable results for the year, increasing turnover by 2% to R444 million (2014: R437 million) while operating income declined by 4% to R86 million (2014: R90 million). Out of home sells all Tiger Brands’ products to food services customers such as caterers and restaurants, and is uniquely able to tailor solutions for these customers. This is a distinct competitive advantage in difficult trading conditions where customers face immense cost pressures.
Outlook
Trading conditions are expected to remain challenging in the year ahead, given the low economic growth scenario and widespread pressure on consumer spending. Accordingly, we will focus on maintaining market share, driving cost savings and efficiencies and prioritising marketing efforts. In a highly competitive market, where it is not always possible to pass through cost increases, we will continue to focus on innovation across all categories to reinforce our core brands.