Tiger Brands chief executive Noel Doyle says his company is working hard to limit the impact of supply-chain and inflation costs, but it is inevitable that some costs are going to be passed on to South Africans in the coming months.
Doyle was speaking on the group’s financial results for the six months ended 31 March 2022 on Wednesday (25 May), a period which he noted proved to be a ‘tough operating environment’ for the company.
Tiger Brands cited a poor first quarter, driven by significant volume declines in bakeries and a protracted strike at the company’s snacks and treats division. This was compounded by the inability to offset the unexpected cost-push through sufficient price increases and availability challenges on certain raw materials, ingredients and packaging.
The group said cost-saving initiatives and supply chain efficiencies have been accelerated and are delivering ahead of plan. However, these were not enough to counter the high level of input cost inflation, resulting in gross margin compression to 29.2% from 30.6% in the corresponding period last year.
“We are acutely feeling the full impact of the global supply chain squeeze and related inflationary pressures in the level of cost increases coming through. We expect the challenging economic climate to remain with pressure on the consumer likely to intensify,” said Doyle.
“In this environment, we are increasing our efforts to reduce costs and further drive efficiencies to minimise the need for selling price increases. Nevertheless, significant price increases across most of the portfolio are inevitable. Despite this challenging operational environment, we continued to build momentum on strategic priorities that are aimed at improving the long-term performance of our business,” he said.
Price hikes coming
Analysts have warned that increases in the costs of groceries and food items will be inevitable in the coming months as the impact of the Ukraine war and inflation continues to be felt.
This will be further compounded by a petrol price increase of close to R4/litre next week, Agbiz chief executive Dr John Purchase told radio station CapeTalk.
“It is suggested that petrol will increase by R4 per litre in the next month, (while) huge quantities of fertiliser come from Russia and Ukraine (and) those prices are climbing by at least 30% to 50%. This is the price we pay for the madness of war.”
He added that shipping costs have quadrupled since the start of the pandemic, while other countries are also grappling with the impact of inflation and rising food prices.