Tiger Brands CFO Deepa Sita sees alarming inflation pressures on the 2022 horizon
This is an interview with Deepa Sita, the CFO of Tiger Brands, SA’s largest food producer. The food producer already sees growing inflation pressures at its 41 factory sites, which might translate to higher consumer inflation next year.
Food producers like Tiger Brands experience changes in inflation before consumers do.
The consumer knows Tiger’s food brands well because they probably feature in their pantry: All Gold tomato sauce, baby food brand Purity, KOO tinned food, Crosse & Blackwell mayonnaise, Albany bread, Tastic rice, Golden Cloud wheat flour, Oros squash concentrate and Ace mealie meal.
Tiger normally sees changes in inflation through its wide chain of producing household goods. At a factory level, there would be increases or decreases in the cost of raw materials (for instance, the price of wheat used in flour), product packaging, electricity, and fuel (used by trucks to deliver goods from the factory to the end-user) — all informing the direction of inflation. For Tiger, it meant higher inflation of 7% during the year to 30 September 2021.
Higher inflation is usually looked at as a negative because it increases input costs (materials, labour) for food producers. And for consumers, it reduces their standards of living. Tiger’s 7% inflation suggests that the inflation consumers are experiencing is much higher than what official figures indicate. The pace of inflation will be a big story in 2022; it will inform when central banks around the world will return to a normal interest rate cycle. But it’s still 2021 and Tiger’s CFO, Deepa Sita, in conversation with Business Maverick, says the food producer already sees growing inflation pressures.
Question: Tiger’s 7% inflation seems unusually high. Before the Covid-19 pandemic, inflation was usually contained at about 5%. Is this an abnormal inflation pattern?
Answer: Inflation certainly feels high, if you look at it in the context of all the cost pushes we have experienced. The sad reality is that even at 7% inflation, we haven’t fully been able to recover that cost-push [through the sale of household goods or increasing food prices]. We are not only seeing the normal annual inflation coming through, but we are also seeing double-digit inflation due to challenges around the post-Covid-19 economic recovery. We are seeing the impact on the supply side of things — there are shipping delays, shipping costs going up, the price of steel and packaging costs are going up. Taking all of this into account, a 7% inflation rate is not enough. It should be higher.
Q: Is this a sign of higher inflation to come from next year?
A: We anticipate that we are going to see another inflation of around 7%, based on what we’re currently experiencing at Tiger. We think we will see much of the same when it comes to inflation in 2022. Our competitors are also feeling inflation pressures. It is certainly a market-wide dynamic.
Q: Is Tiger passing down the inflation pressures to the consumer through price increases for household goods?
A: We are forced to absorb the inflation pressures and not pass the cost to the consumer. The broader food-producing industry is also forced to do so. For example, there is a lot of competition in the bread category and the market is focusing on heavy discounting of bread products. The reality is that consumers are facing serious financial pressures. And even without price increases, we are seeing the consumer financial pressures reflecting in the negative sales volumes for our products.
[Sales volumes at Tiger fell by 2% during the year to end September. Tiger’s operating margin (one of the measures of profitability) fell 7.2% from 8.3% due to once-off costs (R732-million) related to civil unrest in July and an expensive recall of certain KOO and Hugo’s canned vegetable products from the shelves over safety concerns.]
Q: How does Tiger plan to grow sales volumes when consumers are increasingly facing financial pressures and intensifying competition among Tiger’s competitors?
A: This is something we are trying to work on through cost-saving initiatives and product innovations. We have committed to another R480-million in cost savings in 2022. This is the same amount of savings we achieved in 2021. Achieving a further R480-million will take working with vendors on the innovation side of things, getting alternative and cheaper packaging solutions for our products. There is also room to cut costs at a factory level and improve efficiency. We are also focusing on innovation through launching new product lines that offer consumers nutritional value and value for money. We are investing in food start-up businesses through our venture capital fund. We are not looking to acquire these businesses but invest in them and in areas that are complementary to our existing brands. DM/BM
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