Although the lower to middle-LSM consumer segment is expanding, economic factors continue to place pressure on disposable income. Most of these categories have shown low single-digit growth. For Pioneer Foods the long-life and cereal categories have, notwithstanding the aforementioned, shown good growth while some smaller brands were under pressure.
The weak rand resulted in upward cost pressure above inflation. The market structure has seen increased competition by large and small participants.
The Groceries division performed very well by gaining market share in most of its categories. Divisional revenue increased by 1% (due to Pepsi and biscuits) and operating profit by 26% mainly as a result of market share gains in cereals and long-life juice, as well as diligent cost management.
Weet-Bix and Liqui-Fruit were the star performers reflecting excellent volume growth. ProNutro benefited from increased marketing support, brand awareness and visibility.
The division exited three businesses during or immediately after the financial period, negatively affecting performance:
- Pepsi, due to a lack of efficiency in manufacturing and distribution (particularly in the informal market) and low brand awareness (effective date 14 July 2015).
- Vinegar, due to the industrial nature of the business (effective date 1 October 2015).
- Biscuits, due to limited differentiating factors, strong competition and category fragmentation (effective date 1 May 2015).
Challenges experienced during the year related predominantly to smaller brands and product categories such as nuts, rusks and salads. Turnaround initiatives are being implemented and improved performance is expected in the new financial year.
Product categories: Groceries: Cereals and other
The business produces a range of leading cereal brands, including Weet-Bix, Corn Flakes, Nature’s Source, ProNutro and Bokomo.
TEG volume increased/decreased by 3.2% for the industry.
Pioneer Foods gained further market share with volume growth well ahead of the market, consolidating its position as the number one cereal supplier in South Africa.
Dried fruit and nut products
Dried fruit and nut products are produced and marketed to retail, industrial and catering sectors. The Safari brand is a leading brand in the South African market.
The dried fruit industry (TEG category) continues to contract with negative volume growth of 7.5%. The nuts category showed volume growth of 4.4%.
Safari dried fruit performed well due to deflation in raw material cost and exiting low margin industrial business. Safari nuts experienced operational challenges and lost market share.
Desserts and Baking aids
A variety of value-added dessert products, including jelly, instant pudding, cake mixes and baking aids, form part of the Moir’s branded range.
Total industry TEG volumes in respect of Desserts and Baking Aids increased by 8.8% and 3.8% respectively.
Pioneer Foods faced increased competition in desserts and baking aids. Volumes were either stagnant or declined during the year.
Financial performance: Groceries: Cereals and other
2014: R2 362m
Operating profit margin
Product categories: Groceries: Beverages
The business produces a range of long-life fruit juice products, catering to the still and sparkling markets. Liqui-Fruit, Ceres and Fruitree brands form the bulk of products.
According to TEG figures, industry volumes increased by 1.8%. Branded volumes increased in general while private label offerings declined in most retail chains.
Liqui-Fruit, Ceres and Fruitree showed solid volume growth in the local market. Ceres in particular performed well following the
A range of dairy-based and fruit-based concentrate mixes are produced and marketed.
TEG volumes decreased/increased by 0.1%.
Total dilutables performed well, driven by volume growth and sound cost management.
Carbonated soft drinks
The Group had the sole franchise rights in South Africa to bottle, sell and distribute (under licence from PepsiCo International) the well-known international brands Pepsi, Miranda, 7Up and Mountain Dew.
Pioneer Foods exited the Pepsi business on 15 July 2015. The exit process was onerous due to closure costs.
Lipton Ice Tea is a leader in the ice tea category and is bottled by Ceres Beverages by agreement with the Pepsi Lipton International joint venture.
Ice tea is a growing category, with high double-digit growth rates.
Financial performance: Groceries: Beverages
2014: R2 411m
Operating profit margin
- Peck’s Anchovette
- Wild Island
A joint initiative with an external service provider enabled the division to improve cost-efficiency on boilers, instigated tariff reviews and created energy consumption awareness among employees. Load-shedding had a significant impact on operations, particularly in the aseptic packaging environment. The Ceres facility has uninterrupted power supply units installed and similar technology will in part be implemented at Wadeville in the next year.
Effluent treatment plants will be installed in Wadeville and at Werda to improve water efficiency.
Food safety remains a focus area. The business is expecting the promulgation of further health regulations in the medium term related to sugar and salt levels. Pioneer Foods participates in industry initiatives through the consumer goods council to encourage self-regulation rather than government-led restrictions.
- Relaunched ProNutro with enhanced nutrition and upgraded packaging
- New Moir’s cheesecake and Moir’s milk tart dessert pre-mixes
- Weet-Bix gluten free
- Otees banana milkshake
- Lipton 275 ml slim can
- Lipton two summer flavours (Peach/Guava and Strawberry/Kiwi)
- Ceres 1 litre in new prisma pack format with one-step opening “closure”
- Fruitree Squash: 2 litre
- Safari Cranberries, Safari Raisins & Cranberries, Safari Almonds 300 grams
- Safari Treats range
- Safari Just Fruit & Nut Bars singles and multi-packs
- Just Fruit sticks
The Groceries division still has further opportunities to unlock value from factory and logistic improvements. Increased amounts will be invested in the leading brands. Another focus area will be to increase the support of and emphasis on the smaller brands. The integration of Future Life to deliver the forecasted “bolt on” benefits will be a key priority for 2016.