South Africa’s Tiger roars again

Tiger Brands has grown immensely over the past 104 years, with its product range going from a simple oatmeal brand to being ubiquitous in almost every South African household. 

From Jungle Oats for breakfast to Black Cat peanut butter on toast, Mrs Ball’s chutney in bobotie, and Peaceful Sleep to keep mosquitoes at bay, Tiger Brands has become Africa’s largest food producer and an industrial giant.

This is despite various companies, many of which are giants in their own right, being unbundled from Tiger over its history. 

The company once had significant stakes in South Africa’s largest chicken producer, Astral Foods, fishing giant Oceana, pharmaceutical manufacturer Adcock Ingram, and SPAR, all of which are listed on the JSE to this day. 

Now, Tiger Brands is undergoing a turnaround under Tjaart Kruger, who previously led its most prominent competitor, Premier Foods. 

After several strategic missteps in expanding into Africa and a homegrown bread-baking headache, the company has refocused on the basics under Kruger. 

Since coming to the helm, the share price has risen by over 100% and Tiger Brands’ efficiency has significantly improved, helping it contend with a stagnant local economy. 

Allan Gray equity analyst Andrew McGregor recently unpacked the company’s turnaround progress and its history in becoming the continent’s largest food producer. 

Founded in 1921 as Tiger Oats, the company first produced a breakfast oatmeal called Jungle Oats in the Western Cape. 

It rapidly expanded, with the company having to open several more mills in the 1930s to keep up with demand.

As with many giants forced to invest in the local economy during Apartheid, Tiger began snapping up local companies to drive its growth. 

In 1988, SPAR became a wholly owned subsidiary of Tiger. Less than a decade later, it snapped up Adcock Ingram and changed its name to Tiger Brands to reflect its pivot away from oats. 

However, a large share of its growth came from a brand that did not exist for much of the company’s history – Albany bread. 

McGregor recalled studying Allan Gray’s copy of Tiger Oats’ 1972 annual report and reading a young Allan Gray’s notes. There was no mention of Tiger’s biggest brand today, as it did not exist yet. 

Tiger Brands snapped up 36 bakeries across South Africa in the 1970s to form Albany Bakeries, which has transformed into the largest bread brand in South Africa. 

The brand struggled for the first two decades of its existence due to industry-wide overcapacity, but over time, it became Tiger’s powerhouse. 

From 2003 to 2013, revenue from milling and baking doubled and profit margins tripled. Milling and baking went from 14% of Tigers’ profit in 2003 to a whopping 45% in 2013.

African nightmare

Tiger Brands began an aggressive expansion programme into Africa in 2008, buying up controlling stakes in several food processing businesses in Nigeria, Kenya, Ethiopia, and Cameroon. 

This included a R1.6 billion purchase of a 65.7% stake in Dangote Flour Mills in 2012, which was the second-largest milling operation in Nigeria. 

At the time, many South African businesses were investing in African expansions, with the continent’s fast-growing economies, particularly Nigeria, being seen as lucrative investment opportunities. 

However, very few of these investments worked out, with companies steadily retreating from the continent in recent years. Tiger Brands is not an exception.

McGregor said that from 2012 to 2018, its cookie began to crumble, with the expansion into Africa failing spectacularly. 

Tiger’s stake in Dangot Flour Mills, bought for R1.6 billion, was sold for a symbolic $1 as the food producer staged a retreat. 

Locally, its powerhouse of Albany came under immense pressure as competition picked up and its margins were compressed. 

Tiger’s grocery business also started losing market share as the company sought to boost its margins by pushing prices through to retailers and consumers. 

In 2017, it all fell apart when an outbreak of listeria was traced back to a Tiger Brands meat processing facility, which was indicative of deeper problems at the company. 

McGregor said it was clear that Tiger had been pushing prices too hard and neglecting plant maintenance. Management also became increasingly complacent, while competition ramped up significantly. 

Between its 2017 and 2023 financial years, the Tiger languished as six of the 12 reported operating segments had double-digit declines in operating profit. 

The profit from its largest segment, bakeries, fell by two-thirds; the groceries business profit nearly halved. 

Group earnings went nowhere, and the share price fell from a high of R470 to a low of R136. It certainly appeared as if the Tiger had been tamed, McGregor said. 

The bounce back 

A significant change was clearly needed at Tiger Brands, and that came in the form of the former CEO of its biggest competitor, with the company luring Tjaart Kruger to lead its turnaround. 

McGregor explained that Kruger was partly to blame for Tiger’s downfall. His leadership of Premier at the time made it a major competitor to Albany and forced the company to compress its margins. 

His appointment as Tiger Brands CEO in 2023 sent the share price up 11% on the day. Tiger had the man. All it needed was a plan.

At this point, value investors began snapping up shares of Tiger Brands in the hope of a successful turnaround to unlock the immense value in the company. 

However, it was unclear whether the Tiger would come roaring back and reclaim its position as South Africa’s premier food producer. 

Kruger, the board, and the management team devised a relatively simple plan to get Tiger back on track and refocus on the fundamentals.

The first step was to simplify the management structure, with Kruger implementing a federated model in place of the existing matrix structure. 

Ultimately, this removed an entire layer of management, significantly simplifying reporting lines and reducing costs. 

Following that, Tiger began to refocus on getting the basics right. McGregor explained that margins are notoriously thin in food processing, making efficiency extremely important. 

This means that maintenance of plants, upgrading of equipment, and basic organisation of the business had to be prioritised to minimise downtime and manage costs. 

The third step is to focus on the winners by identifying which brands and products are doing well and putting capital behind them. 

For Tiger, these are fairly obvious, with its most well-known brands being the most lucrative, such as Albany, Tastic, All Gold, Crosse & Blackwell, Purity, and Doom. 

Many personal care products have been laggards, which struggle to compete with the likes of L’Oréal and Procter & Gamble, but also Beacon’s chocolate business, which trails Nestlé and Cadbury and has struggled to remain profitable.

Kruger’s last step is to fix the culture at Tiger Brands, with a good culture often being indicative of productivity and strategy. 

When employees don’t care about a business, managers face an uphill battle with execution. Conversely, when employees start caring about the business, managers will find that execution becomes much easier, McGregor explained. 

This last step is very difficult to measure, as it is intangible. However, McGregor said a major positive sign is that Tiger Brands is reporting to shareholders that people are beginning to phone the company looking for jobs. 

If the turnaround proceeds as planned, it is very likely that the Tiger has hidden value that is not currently being priced in. 

McGregor said volumes will return, margins will improve, and earnings will be returned to shareholders. This is the simplest recipe for a good investment.