‘GNU optimism not delivering growth’ – Five Roses owner warns of higher food prices

The formation of the government of national unity (GNU) created optimism that South Africa’s macroeconomics would improve; however, FMCG company AVI said the coalition has not delivered any growth.

AVI owns beverage companies such as Five Roses, Freshpak, Trinco, Ellis Brown. It also owns I&J (Irvin & Johnson), Spitz, Carvela, Kurt Geiger, and Green Cross.

The parent company released its financial results for the six months ended 31 December 2024 on Monday. It showed growth due to increasing food prices, which it says might continue.

ALSO READ: Repo rate cut too small to help SA consumers who cannot afford food

How AVI delivered growth

The group said, “The country’s macro environment continues to be challenging, with optimism created by the GNU not delivering growth.”

AVI is referring to macroeconomics such as high interest rates, unemployment, and inflation, which have continued to erode disposable incomes, create volatile monthly trading patterns, and limit the group’s ability to increase sales volumes.

Group revenue increased by 1.1% compared to the same period last year.

The revenue growth in its beverage business, Entyce, was underpinned by price increases required to ameliorate significant input cost pressures.

Selling price increases deliver growth

AVI’s frozen foods business, I&J, manufactures and distributes frozen seafood products such as fish fingers, crumbed and battered fish, prawns and shrimp, and calamari.

This division’s revenue grew by 3.9% with the benefit of selling price increases in the fishing business and a weaker exchange rate partially offset by lower fish sales volumes driven by a poorer catch mix and catch performance.

The group’s operating profit increased by 8.9%, and the profit margin improved from 21.5% to 23.2%.

This is due to cost-cutting measures, improved manufacturing efficiency, increased selling prices to recover rising input costs and operational leverage.

ALSO READ: Household food basket: prices drop, but not for core staple foods

Other divisions

AVI owns brands in different categories. In personal care, it owns brands such as Yardley and Lentheric.

This division’s revenue declined, with growth in roll-on and colour cosmetics not sufficient to offset lower demand in the aerosol and fragrance categories.

AVI added that they also experienced challenges in their fashion division with supplier and global supply chain issues impacting sales.

Revenue decreased by 7.3% to R1.08 billion largely due to an 18.3% reduction in footwear volumes.

“December retail sales fell short of a strong prior year base and were impacted by stock shortages in some key brands and styles in the month.”

What the future holds for South Africans

In the group’s outlook, they said the operating environment remains uncertain, with consumer demand constrained.

The risk of load shedding and continued infrastructure failures is expected to add cost and complexity to the business.

“The macroeconomic environment remains increasingly challenging, exacerbated by the changing geopolitical landscape.

“The USA’s position regarding tariffs and municipal infrastructure failures adds cost and complexity.

AVI added that it seems the group’s growth in the next six months will be slow, especially if the operating environment does not improve and further cost-driven price increases become necessary.

“The above outlook statements have not been reviewed or reported on by AVI’s external auditors.”

NOW READ: Food prices remain too high, here’s what could go up further