FRUIT & BEVERAGES: Squeeze In The Juice Sector
Recent Western Cape Business News
THE performance from Ceres Beverages Company, the softdrink and juice subsidiary of Pioneer Food Group, went horribly (and unexpectedly) flat in the six months to end March 2012.
And it looks like pumping up prices may be the only way to restore profitability – perhaps a bit of a gamble since local consumers are already clearly under strain.
Ceres managed to increase interim revenue to R1.55 billion (last year R1.4 billion) on the back of better volumes, but operating profits were down almost 30% to R86 million.
Ceres is best known for its fruit drink ranges (which include Liqui-Fruit as well as cordials), soft-drinks (Pepsi and Miranda) as well as Lipton Ice tea.
Pioneer Foods MD Andre Hanekom noted the good volume growth and satisfactory results achieved in all product categories in the first quarter of the reporting period was almost reversed during the second quarter. He said volumes declined in the ready-to-drink categories due to consumers migrating to cheaper products, particularly to the concentrate mixture category.
Hanekom said the decline in volumes as well as the significant increases in the cost of fruit concentrates as well as fuel and energy had a negative impact on the overall profitability of Ceres.
There were some bright spots, though. Hanekom noted volumes in the Pepsi range of products continued to grow in a very competitive pricing environment.
Volumes in the fruit concentrate mixture category also showed good growth with Hanekom reporting consumers supporting these products as more affordable alternatives to the ready-to-drink products. But although Ceres implemented a successful turnaround strategy in the fruit concentrate mixture brands, he said the category remained fiercely competitive.
What might help Ceres in the latter stages of second half is the commissioning of its new Wadeville plant in Gauteng.
Hanekom said the Wadeville project, which diversifies production away from Ceres’ Western Cape core, was progressing well and the plant should be fully operational by the end of the financial year.
He explained that benefits from improved service levels and distribution savings by producing closer to the inland market were expected to outweigh the start-up costs of the plant.
Overall, it is a rather bleak picture for Ceres with the beverages category worldwide under pressure.
Hanekom conceded the profitability of Ceres would be influenced by the ability to recover the high input costs from the consumer, not only per specific product category, but also against other beverages.
Double-digit price increases had recently been implemented in certain categories in the marketplace to recover the increased input costs.
Interestingly, it is this difficult juncture for the beverages segment that saw diary group Clover bolstering its beverage range with the acquisition of the Real Juice Company (RJC) from brands conglomerate AVI in a R60 million deal.
RJC manufactures a range of 100% fruit juices and nectars from a production plant in Stikland, Cape Town. RJC’s main markets are in the Western Cape, Eastern Cape and Northern Cape, and the company will add bulk to Clover’s existing ‘juice’ brands – which include Tropika, Clover Nectar, Super M, Capri Sun, Krush and Manhattan Ice Tea. With RJC’s brands Clover will become a significant player in the ‘fresh’ or ‘short-life’ fruit juices.
RJC formed part of AVI’s ‘Entyce’ brand portfolio, but it’s clear the brands conglomerate no longer regard returns from the juice segment as mouth-watering and strategically valuable.
In the year to end April 2012 RJC produced turnover of R151 million and operating profits of almost R6 million. At face value it does not seem Clover are over-paying for RJC, but just how much profit the dairy company can squeeze from a larger brand portfolio over the long term will be critical.
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