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South Africa Food and Drink Report Q4 2010
Business Monitor International, Oct 2010, Pages: 57
Business Monitor International's South Africa Food and Drink Report provides industry professionals and strategists, corporate analysts, food and drink associations, government departments and regulatory bodies with independent forecasts and competitive intelligence on South Africa's food and drink industry.
Consumer confidence is returning slowly after headline retail sales (compiled by Statistics South Africa) declined for 14 consecutive months (year-on-year) up until March 2010. However, the recovery will be drawn out with high household debt and unemployment continuing to weigh down on spending. Discretion remains the key trend with companies continuing to place a strong focus on value. A strong pick up in private consumption is unlikely to materialise over the near term, with the recent boom in headline retail sales more illustrative of the one-off spending boom provided by the World Cup than a sustained rebalancing in household debt levels (consumers entered 2009 quite leveraged). Longer term, growth in South Africa’s two-tiered food and drink industry (highly segmented and increasingly premiumised on the one hand and extremely underdeveloped on the other) will largely be driven by the emerging middle class.
Headline Industry Data ! 2010 per capita food consumption = +8.62%; forecast to 2014 = +52.11%
- 2010 beer volume sales = +4.71%; forecast to 2014 = +21.11%
- 2010 mass grocery retail sales = +6.02%; forecast to 2014 = +44.09%
Key Company Trends
Consumer Weakness Persisting – Consumer weakness continues to persist in South Africa with leading food companies painting cautious outlooks. In May 2010, Tiger Brands cautioned that net income for the year to September 30 2010 would be weaker than previously anticipated, as consumer confidence remained stubbornly weak.
Also in May, Pioneer Foods reported a decline in H110 (six months to March 2010) earnings. Headline earnings per share dipped more than 50% year-on-year (y-o-y) to ZARc81.7, while sales revenues fell 5% y-o-y to ZAR8bn (US$1bn).
SABMiller Likely To Bid For Fosters – SABMiller and Japan's Asahi are likely to bid for Foster's Group's beer business after it completes a planned de-merger of its beer and wine businesses in H111 (calendar). The long standing underperformance of Foster's wine business had until now largely deterred interest in its beer business from the world's largest beer companies. Calling on significant scale (second largest beer company in the world by market capitalisation and third largest by annual revenue), a strong acquisitional track record and the lowest debt to EBITDA ratio of the world's five largest beer companies by market capitalisation, SABMiller is currently the favourite to acquire Foster's beer business in our opinion, with a balance sheet strong enough to carry a deal of this scale.
Key Risks to Outlook
Weak Confidence – With confidence still weak and South Africa’s unemployment rate still so high, consumer confidence remains some way off a sustained recovery, despite the near-term boost provided by the World Cup.
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