Tiger Brands, the company well over 100 years old and famous for ubiquitous products like All Gold, Albany and Oros, seems to be turning a corner after several missteps disappointed investors. Credit should go to the branch and root review and restructuring of the business by the current CEO, Tjaart Kruger, whose term in office has been extended by the board for another 3 years until December 2028. The company, which had fallen out of favour with investors, appears to be striking the right note based on measures being taken to restore its former glory.

Ushering in new leadership and operations 

In Tiger Brands’ presentation of its results for the first half of 2024 (H1 2024), management highlighted that it had completed its operating structure. With 6 managing directors being appointed across the business, they've removed layers of management and reduced their headcount – which will achieve a potential yearly cost saving of R100m by FY25. 

As part of this process, the group has moved the decision-making process to the frontline employees, allowing the business to be nimble.

Prioritising efficiency and cost-saving

Tiger Brands has also identified R500m in cost savings throughout the value chain, which has streamlined their product offerings across all segments, and potentially reduce stock-keeping units by 20% over the next 3 years. 

CIB believes that establishing a cost structure that enables sustainable growth will be important in the medium term, while in the short-term enhancing its sales mix to the general trade will be vital to recovering margins. That’s why the business is targeting about 90 000 stores in the 2024 financial year (80% of the target achieved for stores and 60% for sales. They have also identified 600 stores for Tiger-specific branding. 

CIB acknowledges that this is not a quick fix but appreciates that Tiger Brands has a strong balance sheet and room to reduce its higher fixed cost component.

Focusing on the long-term.

In H1 2024, the business also spent R560m in capex, with a planned capex of R568m in the second half of 2024, with a focus on automation, capacity expansion and efficiency optimisation. We believe this investment is crucial as it will allow Tiger Brands to have a competitive advantage over the long term; and give them an opportunity to improve their margins (such as increasing its vertical wheat flour production supplied to its own bakeries) from the current 50% to 60% (opposed to Premier Foods’ current 60%). This could also enable Tiger Brands to lower its production costs. 

We believe fixing this cost structure will enable Tiger Brands to achieve its cost leadership strategy and regain its lost market shares.

For CIB, the most important strategic initiative is establishing a cost structure and operating model that enables sustainable growth, because any of the other stated initiatives will be difficult to execute if Tiger Brands does not solve its cost structure. On the upside, businesses such Deciduous fruit, maize, personal care and chocolate present disposal opportunities.

The future of Tiger Brands

In short, we present the following 3 schools of thought around Tiger Brands: 
 

1. The bull case – the new kid on the block
   They believe in the execution of the stated initiatives and lean more towards balance sheet strength in the event of failure. We assume a situation where a company’s cost structure improves, and its sales mix leans more in favour of the general trade.
   
   
2. The bear case – the 100-year-old camp
   They have seen all the turnaround failure stories over the past 100 years. They have no hope to see a potential turnaround for Tiger Brands. The company’s cost structure deteriorates, and its sales mix moves towards formal retail.
   
   
3. The neutral case – the wise side-lined uncle
   They can explain all the theoretical experiences of other people’s failures and successes but do not participate in the action and miss out, but perhaps end up wiser.

More than just a brand: A century-old legacy

Overall, we think Tiger Brands’ story is one of patience. We believe that Tjaart Kruger is the right person to steer the ship and execute the strategy thanks to his experience in the business and knowledge of Premier Foods. Tiger Brands has the balance sheet to invest in the key projects needed to improve its operational performance – and its top brands are still among South African consumers’ favourites.