Food producer RCL will look at adding more affordable versions of some of its premium products to retain customers who are increasingly trading down because of high food prices.
The maker of brands such as Yum Yum peanut butter, Ouma Rusks, 5 Star Super Maize Meal and Mageu Number 1, said the food market continues to feel the pressure of high input costs which contribute to elevated prices and subdued consumer demand.
Though food price inflation has moderated from the historic highs experienced in the 2023 financial year, it remains above total consumer price index inflation as recorded by Stats SA. The lack of volume growth in the total food basket further highlights the financial pressure being felt by consumers.
RCL expects consumer demand to remain soft in the coming months, with cost pressures persisting despite moderating from recent highs.
“Affordability is driving consumers to value options. Market data shows that most categories across the industry, with very few exceptions, are down, which is a concern for food producers”, said Rob Field, RCL's CFO.
RCL launched Yum Yum spread, which has a slightly different formulation to the original brand. Field said the product was received positively by consumers. “That’s where the power of brands comes in. Consumers trust a particular brand, and consume something else within the brand.”
Field said RCL would continue to evolve its portfolio “with good innovation from a value offering ... within each of our categories that we produce offering consumers the choice to stay in the brand and to have a value offering. However we achieve that, like changing the formulation, you still have a quality product with a lower price point.”
This week, RCL reported a revenue increase of 8.1% to R20.1bn for the six months to December. The grocery, baking and sugar businesses increased revenue by 6.5% to R12.9bn. Despite ahead-of-market growth in the peanut butter and porridge categories, volumes and profitability remained challenged across most categories due to soft consumer demand. Price increases have helped to partially offset some of the high input costs, RCL said.
Field said there was a small uptick in sales of Yum Yum last month following a recall of some peanut butter brands as consumers reverted to trusted brands.
While input costs remain elevated, Field said consumers need some price relief.
“I think prices of some soft commodities are busy coming off the highs. So we hope that there’ll be no need for further price increases; consumers need relief. We are hopeful that the worst is behind us so that we can stabilise the cost of food.”
Field said since the beginning of this year trading remains tough. “There’s been no relief from a fuel cost perspective or interest rates. All of the economic drivers are still painful for consumers. And so this is going to take longer, sadly.”
Another food producer, AVI, which makes Bakers biscuits, Five Roses tea, Ellis Brown and Willards, reported an increase in revenue for the six months to December, helped by among other things, an increase in prices across most of its food categories. It said the operating environment remains uncertain both domestically and internationally. Locally, “port inefficiencies, load-shedding, and continued infrastructure failures will continue to add cost and complexity to our business”.
We are hopeful that the worst is behind us so that we can stabilise the cost of food
— Rob Field, RCL's CFO
Casparus Treurnicht, portfolio manager and research analyst at Gryphon Asset Management, said given the high input costs, food producers have no choice but to increase prices and they are at the same time increasingly investing in infrastructure to keep operations going since the “government have deserted them in that sense. This is all costing consumers more as the [producers] simply must pass these increases on to consumers — and that is how government service destruction causes more inflation.”
Treurnicht said that “if wages adjust for it then consumers should be fine. The problem comes in when there are massive job losses due to these producers becoming less competitive with imported goods. And that is happening.”
Consumers are feeling a lot of pressure since the pandemic and it does not seem to be getting better, he said. “They experienced the setback three to four years ago but there was no major recovery. We must put ourselves on a different path than before and it all begins with creating more opportunities and making things work better. We can only blame our leaders.”
Meanwhile, RCL said it would unbundle its chicken business, Rainbow, into a separate listing in the coming months.
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