Cost leadership is the foundation of our business transformation journey,
and ensuring we produce affordable products for our consumers, and can
improve operating margins.
Improving operating margins through cost leadership
In the context of a particularly challenging economic environment, with a subdued market in which most consumers are trading down, we recognise the need to be cost competitive to ensure sustainable margins.
Informed by an extensive external cost-benchmarking exercise – in which we reviewed our performance against category peers and specific SKUs by category and cost line item – we have identified the following six key levers
aimed at ensuring cost leadership, improving gross and operating profit margins, enhancing returns on invested capital, and improving total shareholder returns:
- Value engineering: We are looking to maximise margins by designing for value and reducing costs across our activities. We are continuing to identify and realise specific opportunities to leverage our ingredients, recipes and product and packaging specifications to optimise value and reduce costs, informed by a clear understanding of our targeted consumer needs.
- Procurement optimisation: We are realising specific opportunities to reduce spend on an identified set of raw material ingredients and packaging through improved sourcing and purchasing of commodities and ongoing renegotiations with suppliers, undertaken as far as possible at a decentralised level.
- SKU-complexity reduction: We are reducing the number of our SKUs – and minimising the associated complexity of our recipes, product processes and packaging – to enhance manufacturing efficiency, reduce procurement and inventory costs, and optimise our sales and marketing spend. This rationalisation process is delivering valuable top-line and bottom-line benefits, with a target of 20% reduction over the next two years.
- Process innovation and automation: We are innovating our processes and investing in targeted automation projects to reduce conversion costs and wastage, including by delivering workforce efficiencies through improved time-in-motion analysis.
- Manufacturing footprint: We are ensuring full and effective utilisation of our assets by driving higher demand/production volume, and, where feasible, optimising sites by enhancing manufacturing synergies between different categories and products.
- Supply chain optimisation: We are continuing to find opportunities to reduce our spend on distribution, logistics and digitisation across our supply chain, including by optimising our warehousing, dispatch and route management activities, and enhancing our digital tools and skills.
Recent examples of costs savings initiatives include:
- Reducing the costs base through our new federated operating model and organisational restructuring (see here)
- Value engineering product and recipe formulations across our portfolio, without compromising quality or taste
- Changing some of our product packaging from glass to recyclable PET, bringing cost savings and added convenience in production, transport and use
- Reducing the number of SKUs across our product portfolios
- Reducing electricity and water usage across prioritised manufacturing operations
- Delivering efficiencies in route optimisation
- Introducing automation projects (for example in Ingrams and Oros)
- Moving to in-house production of certain categories
Optimising our distribution network
In 2024, we launched an ambitious logistics network optimisation programme, the network analysis project aimed to define
the future-fit distribution solution for Tiger Brands with an optimised cost base and improved efficiencies. The assessment
included all warehousing requirements, road freight and route optimisation.
The project also included raw materials and packaging movement which was not previously considered due to data
hygiene challenges. The programme will deliver in excess of R200 million in savings over the next two years.
Through this programme we have implemented a new warehouse management system, which has already delivered
some significant benefits, reducing stock-taking time, improving stock rotation and traceability, and enhancing direct
delivery efficiencies. We have completed the reorganisation of our customer support centre and we have introduced
a pallet weight optimisation initiative at some of our facilities, yielding improvements in transport cost efficiencies.