Tiger Brands: a once proud company on its knees

The Financial Mail has not been kind to Tiger Brands of late, pasting its handling of the listeriosis crisis, the class action lawsuit that’s resulted, the implosion in its share price and more. Here’s its latest article on SA’s biggest food company.

It’s the largest food company in SA, with nine brands bringing in R1bn a year, and yet Tiger Brands has taken a thrashing, with its share price 24% lower than a year ago. In this context, CEO Lawrence MacDougall could have done without a looming class action lawsuit for the company’s role in the largest outbreak of listeriosis ever. But the case says a great deal about Tiger’s culture of accountability and regard for its consumers

It was the sort of pointed question no CEO would expect from the usually polite and respectful analyst community. It was November 22, and Lawrence MacDougall, the CEO of Tiger Brands, had just finished giving a 40-minute presentation on why the financial results for the year to September were so dismal.

As the floor opened for questions, Anthony Geard from Investec Securities took the microphone: “Lawrence, I only have one question; I think it is the burning issue. It really seems, over the past four years, Tiger has imploded. Do you think that you’re the right person to take the company forward?”

Tiger’s FD, Noel Doyle, who was seated next to MacDougall, stared at his shoes, while MacDougall gamely tried to cobble together some sort of a response.

“Whether I’m the right person or not is something the board needs to deliberate. Please feel free to give them a call … But I’m feeling good: we’ve got the capability, we’ve got the wherewithal, our balance sheet is strong, and we’re investing behind our brands,” he said.

But Geard has a point. Since MacDougall entered the CEO suite at Tiger’s Bryanston head office on May 10 2016, the share price has tumbled 39%. If you’d invested R10,000 in Tiger Brands that day, it would now be worth R6,066. Had you put that R10,000 into rival food producer AVI instead, it would today be worth R9,524 — or R10,770 if invested in the wider JSE all share index.

This should never have happened to a company with such a sackful of enviable brands. Walk into any household and chances are you’ll find one or other Tiger Brands product on the shelves.

As MacDougall put it: “We have nine R1bn brands: so, each of these brands, on their own, exceeds R1bn in turnover.”

You’ll know them: baby food brand Purity, All Gold tomato sauce, Koo tinned food, Crosse & Blackwell mayonnaise, Albany bread, Tastic rice, Golden Cloud wheat flour, Oros orange juice, and Ace mealie meal.

And yet, the financials were a mess: revenue inched up 3%, operating profit dived 20% and profit margins withered.

Tiger’s market share is slipping too.

Its slice of the bread market, through Albany, dropped one percentage point to 29%, with similar declines in grains, maize and cereals. Tastic rice’s portion shrank from 46% to 43%.

What happened? Sure, shoppers are battling to buy groceries in a country with GDP growth of less than 1%, but people must eat.

In a fascinating research report last week, brokerage HSBC cites a TymeBank survey that shows 76% of South Africans run out of money before the end of the month. This tallies with the claim by Doret Jooste, head of FNB’s money management unit, that “more than half of middle-income consumers spend their income in less than five days after receiving it”.

In this context, HSBC says “price and value-for-money will be the key drivers of sales growth” in food retail. In other words, shoppers are abandoning premium brands for lower-cost options — and Tiger is bearing the brunt.

MacDougall pointed out, for example, that 70%-75% of goods in the average shopper’s basket are now being sold on promotion.

At the same time, the new phenomenon of “private label” products (essentially no-name products sold under a supermarket’s brand) has gobbled market share. Private-label goods now account for 15% of the grocery market, and this is rising fast.

“Despite some evidence of brand loyalty, we believe Tiger will continue to face intense competition from both peers and private labels in major categories such as bread, rice, pasta and certain groceries,” HSBC says.

But the problem is deeper; Tiger has lost ground to peers such as AVI, Pioneer Foods and Libstar, which face the same challenges. So, it’s not just a wider problem with the market. What went wrong inside Tiger?

Financial Mail: Read the full article here [Paywall, but well worth a monthly R120 to access all media in the BusinessLive.co.za stable!]