Peter Motlare

Insights from SA’s two leading food-bev CEOs

Recent shareholder meetings at Tiger Brands and AVI have revealed some interesting insights from their respective CEOs. Tiger boss, Peter Matlare, has said that while SA’s competitive landscape will change with Walmart’s entry, it’s counting on its own efficiency and the strength of its brands to survive and prosper.

Matlare told Moneyweb that Tiger had a Walmart game plan in place for three or four years.

“The top-end retailers, Shoprite, Pick n Pay, Spar and Woolworths are not inefficient. The same goes for Massmart. We command 12%-15% of the shopping baskets of most the major retailers. Consumers like our brands, so we are not overwhelmed. Walmart has an interesting procurement strategy, so I think things will get more competitive. We will look at taking out cost wherever we can.”

Low food inflation for the past two years has been a dampener on the earnings performances of Tiger and its retailer customers. They thrive on inflation.

Overseas there is much concern about rising food inflation. Millions in China, India, Russia and Brazil are “eating more upmarket”. Simultaneously a lot of food is going into ethanol for fuel.

So far, says Matlare, the strong rand, together with squeezed disposable income, continue to curb food price rises in SA, says Matlare. Global wheat prices have softened since last year, when failure of the Russian crop caused a great leap. Maize prices continue to rise while those of rice are stable.

He reckons Tiger’s prices, on average, have risen 6% in the past year – more or less in line with the CPI.

Matlare said recent acquisitions in Cameroon, Ethiopia, Nigeria and Kenya are performing to expectations but it will be some years before they boost group earnings in a meaningful way. Matlare said the target was to build earnings from the rest of Africa to 20% of the total in three to five years. At present they represent 10%.

New acquisition Cross and Blackwell exceeds expectations. Tiger remains acquisitive and, being ungeared, has considerable financial firepower for sizeable takeovers.

CrutchleyAnnouncing AVI’s financial results recently, AVI CEO Simon Crutchley said that while it would be difficult to sustain the 31% headline earnings growth achieved in the year to June, it remains ambitious and the target is to keep growing at “double digits”.

AVI is something of a market darling. While most shares sagged in the 2007-2008 market bust, AVI steamed upwards, virtually doubling from 2008. Today it is near an all-time high – up 30% on the year’s low.

The food and fashion high flier has grown operating profit at 17.4% pa compound in the six years of Crutchley’s administration. Crutchley was a lonely man, when he branched out from food and beverages into fashion through the purchase of A&D Spitz five years ago.

It turns out to have been an inspired decision. Operating profit in personal care and footwear has grown from R166m in 2006 to 369m in 2011 – nearly a third of the total.

AVI group is spending R432m on various projects. In the food arena, Entyce has spent R75m on a coffee creamer tower. That will bring cost efficiencies and obviate the need to buy from outsiders, including competitors. It is spending more millions on a coffee agglomerator that will improve the granular quality of Frisco coffee.

Bakers’s very old biscuit factory is being modernised with a pumpable shortening line and improved final packaging processes. These are aimed at lowering costs. Crutchley laments some bad decisions on pricing and product rationalisation in Bakers in the past year. The company currently lacks an MD and Crutchley himself has moved in. Another underperformer was the potato crisps division, where competition has been suicidal.

Source: Moneyweb