Two companies benefitting from South Africa’s food inflation – but there’s a catch

The rising cost of living has pushed many South Africans to adjust their food expenditure and turn to alternatives like canned pilchards – with companies like Oceana and Premier Fishing benefitting from increased sales.

However, despite higher revenue, high import costs have cut into the companies’ profits, as they sacrificed profit margins for the sake of consumers.

This was revealed in the Competition Commission’s Essential Food Pricing Monitoring Report, released on 6 May 2024.

The report found that while chicken is still South Africa’s favoured protein source, canned pilchards have gained renewed popularity.

This comes as consumers adjust their food expenditure in response to the rising cost of living

and the effects of load-shedding on their ability to store perishable foods. 

The commission said this renewed popularity is reflected in the sales figures of the listed canned pilchard producers, Oceana – which owns the well-known brand Lucky Star – and Premier Fishing.

Lucky Star’s sales volumes grew by 9% across local and export markets, going from 8.8 million cartons in the 2022 financial year to 9.6 million in 2023.

Premier grew its sales of pilchards by 59%, going from 1,174 tonnes in the 2021 financial year to 1,866 tonnes in 2022.

The companies benefitting

The Competition Commission identified the largest vertically integrated players in the canned fish industry as Oceana, Premier Fishing, Pioneer Fishing Group, and the Terrasan Group.

Oceana is the largest vertically integrated canned fish producer, manufactured and marketed through its Lucky Star brand. In addition to canned pilchards, Lucky Star also markets tuna, sardines, and mackerel. 

Its operations are in the Western Cape and include 11 vessels, 3 canneries, and 2 fishmeal facilities.

Premier Fishing is active in commercial fishing, processing, and marketing of several fish values, namely lobster, octopus, squid, cultivated abalone, pilchards, anchovy, hake, and horse mackerel.

Premier’s pilchard operations are in Saldanha Bay on the West Coast, and markets its fish products through a subsidiary, Premfresh Seafood SA.

Import costs cut into margins

The commission said the revenue and profitability figures for Oceana and Premier Fishing show that high import prices may, among other factors, have had an impact on their financial performance. 

From a revenue perspective, both companies have experienced immense growth on the back of price increases combined with selling more volumes. 

This revenue growth pre-dates the inflationary episode that started in 2021 and has since accelerated.

From 2018 to 2020, Premier’s revenue grew by 12%, and Oceana’s grew by 14%. 

From 2020 to 2022, Premier’s revenue grew by 187%, and from 2020 to 2023, Oceana’s revenue grew by 41%.

However, despite this significant revenue growth, both companies have had shrinking operating margins since 2020.

Premier’s operating margin went from 29.2% in 2020 to 8.6% in 2022, and Oceana’s operating margin went from 11.6% in 2020 to 7.6% in 2023.

Both companies have not fully recovered some of their respective costs through higher prices, hence lower overall profitability. 

Absorbing cost increases on the part of producers is likely to have benefited customers on the retail shelf.

Like the producer price, the average retail price for canned fish is not particularly volatile. 

Canned fish has a long shelf life – therefore, stock can be held for extended periods with price changes implemented with longer lags. 

This would be consistent with previous research that has found that asymmetric price transmission – where prices are quick to rise and slow to fall – is lowest for non-perishable foods.

In 2021, the average retail price of canned fish increased by 2.8%, followed by 9.9% in 2022 and 2.3% in 2023. 

Average producer prices increased by 1.1% in 2021, 22,9% in 2022 and 2.6% in 2023.

Consequently, the retail-to-producer spread for canned fish has shrunk over the past three years – the spread averaged 24% in 2021, 22% in 2022 and 18% in 2023. 

This suggests that retailers have also sacrificed margin in the same way that producers did in their treatment of the increase in costs of imports.