Our operating environment
In the review period, our operating environment has had a markedly greater impact on our performance. Given the number of issues outside our control, we have had to focus carefully on balancing the trade-off between addressing each issue effectively and preserving our own capitals.
Minimal economic growth in South Africa, and rand volatility during the year, has meant a steady decline in consumers' discretionary spend (compounded by higher VAT, fuel and utility costs). In response, we are managing our input and operating costs to ensure affordable prices for consumers.
The South African economy slipped into recession in the second quarter of 2018, shown below. The country's last recession was during the 2008 – 2009 global financial crisis with three consecutive quarters of economic decline.
South African economic growth over time
Quarter-on-quarter growth in gross domestic product (GDP)
Despite the VAT increase, food inflation continues to fall
Annual food inflation continues to slow despite April's rise in value added tax (VAT) from 14% to 15%, with some food items being cheaper than they were a year ago.
Oils, bread, fruit and sugar are cheaper than they were a year ago
Percentage change in food and drink prices, June 2018 compared with June 2017
The VAT increase will take time to filter through to the inflation rate, as will the rise in fuel prices. But motorists are already feeling the impact – with petrol prices up 9% over the past year, fuel and meat show the highest year-on-year price increases.
Higher inflation as taxes take a toll
South Africa's consumer inflation rate jumped to 4,9% in September after a seven-year low of 3,8% in March. Much of the increase reflects price rises in product groups that attract specific taxes – alcohol, fuel and sugary drinks.
Impact of drought
The protracted drought in the Western Cape obviously affected the supply of fruit and vegetables, although much of the produce from that area is designated for export markets. To manage the impact on our operations, we focused on reducing water consumption, and securing alternative sources of supply (see case study in our sustainability report).
- Tiger Brands retained the lead in packaged food in 2018, with a 26% volume share. While we lost share in the review period, we made good progress in new product launches to address expressed consumer needs for convenience, healthier foods and affordable pack sizes.
- The breadth and diversity of our portfolio enables the group to address the full range of consumers' shopping needs, particularly those in the middle-income bracket (living standards measure
5 – 8).
- The quality of our brands appeals to all consumer groups. As acknowledged premium brands, they are trusted and many are considered heritage brands. This means consumers are prepared to pay slightly more for the quality they know they will receive.
The economic environment has resulted in retailers becoming more focused and assertive in executing their strategies.
We are monitoring a number of trends among retailers:
- Transforming data into insights for more meaningful solutions
- Retailers are differentiating formats across their group, eg from small convenience stores to large one-stop stores and discounters
- Enhancing their agility to respond to changing shopper dynamics and support sustainable growth, for example increasing their own category penetration through private-label products.
We are working closely with our customers on mutually beneficial solutions that ensure our products are competitive while meeting their need to attract consumers to their stores. Through our joint business-planning initiatives, we are demonstrating our expertise in growing categories, revising our assortment based on understanding the shopper in each store format, improving our price-pack architecture to increase availability and build effective partnerships.
In the year ahead, we will focus on embedding appropriate technology that enhances monitoring the return on investment of our promotional activity while effectively meeting the needs of our customers. We will also implement channel-specific category management methodologies focused on differentiated sales, assortment and relevant innovation.
Our ultimate aim is to be a preferred supplier – for our product range, innovation, capabilities and execution. We believe we have the resources and expertise to achieve this aim.