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Tiger Brands: a once proud company on its knees It's the largest food company in SA, with nine brands bringing in R1bn a year, and yet Tiger Brands has taken a thrashing, with its share price 24% lower than a year ago. In this context, CEO Lawrence MacDougall could have done without a looming class action lawsuit for the company's role in the largest outbreak of listeriosis ever. But the case says a great deal about Tiger's culture of accountability and regard for its consumers 05 December 2019 Rob Rose, Penelope Mashego and Siseko Njobeni It was the sort of pointed question no CEO would expect from the usually polite and respectful analyst community. It was November 22, and Lawrence MacDougall, the CEO of Tiger Brands, had just finished giving a 40-minute presentation on why the financial results for the year to September were so dismal. As the floor opened for questions, Anthony Geard from Investec Securities took the microphone: "Lawrence, I only have one question; I think it is the burning issue. It really seems, over the past four years, Tiger has imploded. Do you think that you're the right person to take the company forward?" Tiger's FD, Noel Doyle, who was seated next to MacDougall, stared at his shoes, while MacDougall gamely tried to cobble together some sort of a response. "Whether I'm the right person or not is something the board needs to deliberate. Please feel free to give them a call ... But I'm feeling good: we've got the capability, we've got the wherewithal, our balance sheet is strong, and we're investing behind our brands," he said. But Geard has a point. Since MacDougall entered the CEO suite at Tiger's Bryanston head office on May 10 2016, the share price has tumbled 39%. If you'd invested R10,000 in Tiger Brands that day, it would now be worth R6,066. Had you put that R10,000 into rival food producer AVI instead, it would today be worth R9,524 or R10,770 if invested in the wider JSE all share index. This should never have happened to a company with such a sackful of enviable brands. Walk into any household and chances are you'll find one or other Tiger Brands product on the shelves. As MacDougall put it: "We have nine R1bn brands: so, each of these brands, on their own, exceeds R1bn in turnover." You'll know them: baby food brand Purity, All Gold tomato sauce, Koo tinned food, Crosse & Blackwell mayonnaise, Albany bread, Tastic rice, Golden Cloud wheat flour, Oros orange juice, and Ace mealie meal. And yet, the financials were a mess: revenue inched up 3%, operating profit dived 20% and profit margins withered. Tiger's market share is slipping too. Its slice of the bread market, through Albany, dropped one percentage point to 29%, with similar declines in grains, maize and cereals. Tastic rice's portion shrank from 46% to 43%. What happened? Sure, shoppers are battling to buy groceries in a country with GDP growth of less than 1%, but people must eat. In a fascinating research report last week, brokerage HSBC cites a TymeBank survey that shows 76% of South Africans run out of money before the end of the month. This tallies with the claim by Doret Jooste, head of FNB's money management unit, that "more than half of middle-income consumers spend their income in less than five days after receiving it". In this context, HSBC says "price and value-for-money will be the key drivers of sales growth" in food retail. In other words, shoppers are abandoning premium brands for lower-cost options and Tiger is bearing the brunt. MacDougall pointed out, for example, that 70%-75% of goods in the average shopper's basket are now being sold on promotion. At the same time, the new phenomenon of "private label" products (essentially no-name products sold under a supermarket's brand) has gobbled market share. Private-label goods now account for 15% of the grocery market, and this is rising fast. "Despite some evidence of brand loyalty, we believe Tiger will continue to face intense competition from both peers and private labels in major categories such as bread, rice, pasta and certain groceries," HSBC says. But the problem is deeper; Tiger has lost ground to peers such as AVI, Pioneer Foods and Libstar, which face the same challenges. So, it's not just a wider problem with the market. What went wrong inside Tiger? After his confrontation with MacDougall, Geard published a lacerating research report, entitled "Tiger in Freefall: Enough is Enough". He wrote: "A once proud company is on its knees ... we have no confidence that the company, as currently constituted, can be restored to even a semblance of its former glory." Profit margins in the three biggest divisions have collapsed, he said, and its exports were loss-making in the second half of the past financial year. "We reiterate our 'sell' recommendation," he said. Damon Buss, an equity analyst at Electus Fund Managers, finds neither Tiger Brands' strategy, nor management's ability to execute it, convincing. Tiger's "matrix" operating structure, implemented in 2016/2017, has added complexity, reduced innovation and increased the time it takes to meet changing trends. "This has allowed nimbler, more focused competitors such as AVI, Libstar, Rhodes Food and the retailers' private-label offerings to continue to gain market share. Tiger Brands has become the Edcon of the fast-moving consumer goods sector," says Buss. Perhaps, he suggests, Tiger Brands should sell businesses like rice and pasta where it can add little value. Being compared to Edcon (SA's largest fashion retailer, which floundered under private equity owners) should be a wake-up call. But the other part of the story is a series of events that MacDougall euphemistically referred to as "own goals". In particular, there has been one event that has exposed Tiger's culture of accountability, its attitude towards customers and the way the business is run. For this, it now faces a class action lawsuit with potentially ruinous consequences. But neither MacDougall nor Doyle uttered a word about it in their results presentation listeriosis. The class action is lodged on behalf of those who contracted the deadly ST6 strain of listeria, which was traced to Tiger's Polokwane Enterprise factory where processed meat like polony and viennas are made. The outbreak was the worst ever, anywhere in the world, affecting 1,060 people between January 2017 and July 2018. It led to the deaths of 218 people 93 of them babies younger than 28 days old and nine of them between a month and 14 months old. More than 100 women miscarried. Until now Tiger Brands has taken zero responsibility. Its professional indemnity insurers have hired bulldog lawyers Clyde & Co to raise every technicality in the book. In the context of the human tragedy, it's an astounding act of moral agnosticism. Speaking to the FM from her home in Krugersdorp, Marlize Pienaar breaks down describing how her 76-year-old mother-in-law, Johanna, fell ill in November 2017. In hindsight, she traces it to a hamper Johanna had bought with polony and viennas. "Ouma was never ill, and she was always busy she'd drive the kids around, go to their sports games. But it was on my birthday, November 27, that she began complaining about headaches and nausea." It got steadily worse and, over the next few weeks, Johanna was in and out of the Netcare Krugersdorp hospital. But if anything, she deteriorated. "Around December 13, we rushed her to hospital. She was vomiting, she couldn't eat, she had no energy. My husband, Freddie, had to carry her into hospital. From there it spiralled downhill: she began sleeping the whole time, and she got meningitis," says Marlize. On December 31 she died from what had, by then, been diagnosed as listeriosis. Marlize says the scars haven't healed. "You trust the food you buy. You think it's safe and fine. I wish I could explain to people that listeriosis may sound silly, but if you see that person in that bed, how traumatic it is. In the last few days, her whole body swelled up and I couldn't take my kids to see her because they were traumatised enough." The FM has heard many similar stories in recent weeks. Busisiwe Elsie Maphanga, who lives in Mashishing, swears she'll never touch any ready-to-eat processed meats again after she contracted listeriosis. "I don't ever want to see it again. I hate even seeing it on the shelf. I'll eat it when I'm dead, because I don't know which one is safe and which one isn't," she says. "You can't be saved twice." An unemployed mother of five, who gets a disability grant from the government because she's partially blind, Maphanga says it all started with a bout of nonstop vomiting and diarrhoea. "I wondered what was happening I got cold, then I got hot." After she was admitted to hospital, Maphanga says she "heard the nurses whispering, saying I have listeriosis". Unlike many others, she recovered. But she still suffers from a variety of side-effects including dramatic weight loss. "My skin has darkened, it's scaly like I'm a fish," she says. After speaking to a friend, who had lost his wife to the virus, she went to attorney Richard Spoor in White River. It is Spoor, the volatile, pull-no-punches lawyer who earlier this year won a headline-grabbing settlement from the mining companies over asbestosis, who brought the class action lawsuit against Tiger Brands. REGENT BUSINESS SCHOOL (RBS) - January 2021 21 Promise Mbatha, who lives in Joburg, tells the story of how she was admitted to the Chris Hani Baragwanath hospital in April 2017. "I started having stomach pains at night; when I went to the hospital I was vomiting and I had diarrhoea," says Mbatha. She was pregnant at the time, but her baby wasn't due for another three months. "I was in so much pain, I ended up going into labour, but my baby was not breathing properly so she was sent to the ICU. At 2am, they called me to the ICU, when I got there, the [doctors] told me my baby had passed away." While she was initially told the baby girl had died from natural causes, a team of researchers contacted her six months later to say she had been infected with listeria. For Mbatha, who'd loved eating Enterprise polony and sausages, it was a bitter pill. "What saddens me the most is if I had known, I would not have eaten the products, but now there's nothing I can do," she says. In Secunda, a coal-mining town and the home of Sasol, Zine le Grange was packing when the FM visited, preparing to move to join her husband, Christoff, in Hong Kong, where he's a pilot for Cathay Pacific. She gestures at baby Stephan on her hip: "It was basically just him [who had listeriosis] and that is the weird part about it." Like most babies, he didn't consume the meat; his mother did. Polony was Zine's go-to snack when she was pregnant. On Good Friday last year, a day after a routine check-up, she started having contractions. It took her 30 minutes to get to the hospital and in 45 minutes Stephan was born but he was in severe distress and his heart rate didn't pick up as it should have. Stephan spent 28 days in ICU, where he was diagnosed with listeriosis. "I felt so guilty. It was my fault that he became very ill, he did die for a few minutes, so that was very bad," Le Grange says. Four months later, he was admitted again. Stephan, unlike the 93 other babies, recovered. While Le Grange doesn't expect Tiger Brands to admit guilt, she feels it could have taken a more humane approach. "I'm more angry for other people who lost their babies and that's why I joined [the lawsuit], just to make this case stronger," she says. It's a valid point. Clyde & Co is now pretty much running the show but has shown vanishingly little compassion. In Tiger's 27-page plea in response to the class action, it denies almost everything: that the outbreak was caused by contaminated products from its Polokwane factory, or that "children who were born to mothers who had consumed the contaminated products contracted listeriosis and suffered harm". Yet Daniel le Roux, a partner at Clyde & Co, told the FM on November 6 that he objected to the characterisation of his company as "cold-blooded" and "heartless". "The rights of the insurers are defined in the policy ... They give to the insurers the right of control over any action. "And the insurers here have exercised that right," he says. For example, the lawyers have the right to "vet" any public statements made by Tiger Brands and MacDougall. (And presumably, to gag MacDougall from saying anything the lawyers don't like not exactly helpful to Tiger's efforts to rebuild its reputation.) "It's not a question of being disinterested or cold to the interests of the people who suffered ... There is nothing that [the claimants] have given me as yet that links my product to those people who form part of the members of the class," he says. In fact, says Le Roux, Tiger Brands has implored the state-run National Institute of Communicable Diseases (NICD) to provide the data that links Tiger Brands to the outbreak but the institute refused. "We are dealing with facts ... we had asked the NICD, give us the information on which you based these reports. We said to the department of health, give us the information and they flatly refused." Now, the insurers have sought to subpoena the data from all the NICD labs around the country, because, says Le Roux, "eminent experts" have told him "there may well be another source" of the outbreak. When asked who these "experts" are, he won't say. Le Roux admits that in recent weeks, Tiger Brands has received some information, but argues that "none of [it] goes to the core of giving us the technical information". "That's not true. As per protocol, the samples were taken by the department of health practitioners [and] we sent the results to them," says Juno Thomas, head of the Centre for Enteric Diseases at the NICD. Thomas says in addition "there was a subpoena process and they were provided with all the results". And this was early in the process too, she adds. Le Roux's claim that Tiger's lawyers have simply been kept in the dark is also undercut by the fact that nine NICD researchers published a research paper in the global peer-reviewed journal "Food Pathogens and Disease" in July. The seven-page paper details the exact laboratory activities and the genome sequencing process used to trace the outbreak to the Tiger Brands factory. That factory was first inspected on February 2 2018, and a number of samples were taken. In the end, 374 samples containing the ST6 strain were submitted to the Paris-based Institut Pasteur. Of these, 372 "had no more than four allele differences between each other ... [which] indicated that these 372 ST6 isolates were highly genetically related". In other words, say the authors, this suggests "the source of the listeriosis outbreak in SA was ready-to-eat processed meat products manufactured by Enterprise Foods". Another critical point is that Tiger Brands did its own investigation into the outbreak. And, as the company admitted in a statement: "On April 24 2018, Tiger Brands received independent laboratory tests which confirm the presence of listeria ST6 in samples of finished ready-to-eat processed meat products from its Polokwane Enterprise Foods manufacturing facility." Surely this is enough for the lawyers? Not for Le Roux, it seems. "We have only one side of the coin ... To link what I have with what the NICD says caused the infection, we need both sides," he says. T

https://www.businesslive.co.za/fm/features/cover-story/2019-12-05-tiger-brands-drowning-in-denial/

Required: Undertake a comprehensive SWOT analysis of Tiger Brands.