Our operating environment

Tiger Brands is the largest constituent by market capitalisation of the R147 billion JSE Food Producers Index. Listed and unlisted food producers in turn supply a R474 billion food market, ranging from national supermarket chains to informal outlets.

South Africa

SA food market   South Africa GDP annual growth rate

South African food ination impacted by severe droughtWith over 80% of the group’s turnover and almost 90% of its operating income generated in South Africa, conditions in this market have a large bearing on our performance.

Economic growth in South Africa was barely positive for most of the reporting period, with GDP growth forecasts for calendar 2016 at around 0,4% and just 1% for FY17. These poor forecasts reflect weak private consumption, in turn an indicator of rising unemployment, high household debt and food inflation spiralling up amid South Africa’s worst drought in a century.

Any improvement in these forecasts will depend on satisfactory resolutions of some major political issues to restore business confidence to more acceptable levels.

In contrast to significant depreciation in recent years, including at the start of our financial year, the rand subsequently appreciated over 16% against the US dollar in 2016 to date. The caveat to this remains political risk which remains difficult to quantify and any adverse developments could easily spark a new round of depreciation. The currency volatility of recent years has exerted major inflationary pressure on input costs and pricing, increasing the pressure on consumers and reducing demand.

Collectively, these factors continue to affect consumer confidence and constrain household consumption levels. Consequently, consumers are adjusting their consumption habits, favouring lower-priced products where necessary and deferring purchases of discretionary items.

Currency volatility exerts inationary pressure on input costs   Household consumption expenditure growth

Key trends over the next five years

Demand

  • Strong population growth in Africa – with the highest global proportion of people under 30, future consumers looking for a modern shopping experience. Africa has one of the fastest-growing middle-class segments in the world
  • Rapid urbanisation continues, with increased income changing consumer patterns despite the challenges presented by urbanisation
  • While slowing household expenditure is forecast, economic pressure supports the growth of value segments and highlights the importance of affordable quality.

Supply trends

  • Food markets reflect volatile commodity prices and rising input costs
  • Skills shortages make talent management critical for business success
  • Streamlined value chain will be imperative to manage efficiencies and costs in a competitive environment
  • Shifting route to market (new markets, formats, channels and categories such as liquor stores and pharmacies) critical to create accessibility for urban and rural consumers
  • Extended distribution footprint to service growing number of general (informal) trade stores.

External factors

  • Domestic economic and infrastructure constraints, as well as political uncertainty, suppress South African GDP growth
  • Moderate growth in developed economies and slowing growth in emerging market economies, particularly China, continue to affect Africa.

Rest of Africa

In sub-Saharan Africa, economic growth has weakened markedly. Low commodity prices continue to weigh heavily on public finances, not just in oil-dependent states like Nigeria, but also in more diversified economies like Ghana. In addition, widespread drought is significantly affecting agricultural productivity and local food markets.

Fundamentally, however, the region already enjoys strong mining, agriculture and oil production. A growing pool of young and well-educated people is poised to enter the workplace. Investments in infrastructure, and the wider adoption of new technologies such as mobile and internet, could accelerate the growth of a consumer and service-led economy.

Admittedly, the region faces significant challenges. Even as democracy spreads across its constituent countries, there are still logistical bottlenecks; poor governance; threats of increased terrorism and social unrest caused by rising urban unemployment; vulnerability to commodity price shocks and economic downturns in key trading partners, indicating risk to the region’s transformation.

Based on our continual market scans and consensus insight, we believe the outlook remains encouraging for Africa to gather momentum and create greater opportunities for its rapidly growing population. This, in turn, creates opportunities for retailers and manufacturers such as Tiger Brands.