Tiger Brands to Remain Key Player in South Africa

Tiger Brands expects to remain a key player in South Africa despite a decline in demand and increased retail competition in the country.

"Tiger Brands offers consumers a basket of staple and discretionary products. We note that while the South Africa economy has been facing some headwinds, the real expenditure on food and beverages has remained positive over time," Batanai Matsika, a sub-Saharan Africa research analyst in food and agriculture at BPI Capital Africa, said in an equity research note.

"In addition, the group has a portfolio of defensive food products that cater from a wide range of LSM groups."

Tiger Brands Limited is a packaged foods company headquartered in South Africa that deals in dairy, grain, toiletries and beverages, among others.

Matsika however explained that Tiger Brands continues to face a number of constraints, including slow demand in its South Africa market, which is also its primary operating market.

Macro-economic prospects for South Africa for 2014 are pinned at 2.3 per cent, compared to Mozambique's, whose prospects are at 8.3 per cent, and Chad at 10.8 per cent.

"A protracted economy in the domestic market negatively impacts Tiger Brands' profitability as consumers cut back on consumption. Consumers in South Africa are currently under pressure on the back of modest macro conditions," Matsika explained.

He added that the South African retail market had become increasingly competitive as large players such as Woolworths and Shoprite began to establish a larger presence within the continent. Counterfeit products are an additional challenge in Zimbabwe and Mozambique.

"The entry of Walmart through the acquisition of Massmart has also increased competitive pressures. Tiger Brands also competes with multinational groups such as Mondelez International, Unilever and Nestlé," said Matsika.

Despite the decline in demand from Tiger Brands' South Africa market, Nigeria has been pinpointed as the firm's key strategic market. Tiger Brands already owns 63.5 per cent of Dangote Flour Mills, which is a part of the successful Dangote Group conglomerate.

Haco Brands in Kenya, of which 51 per cent is owned by Tiger Brands, is a leading player in the foods category and also a crucial part of Tiger Brands' East African presence.

"We believe Tiger Brands will remain a key player in the domestic market in South Africa, while key investment attraction is still increasing exposure in high growth markets in the rest of Africa," said Matsika.

SOURCE: http://www.cnbcafrica.com/news/special-report/2014/07/31/tiger-brands-retail-africa/