SOUTH AFRICA – RCL Foods has significantly reduced its reliance on low-profit frozen chicken by producing smaller birds that can be sold at higher prices to restaurants.
Individually quick frozen (IQF) chicken products, sold to supermarkets, yield thin margins for domestic poultry producers, partly thanks to what the industry sees as “dumped” imports of cheap portions.
Poultry producers make more money selling to fast-food chains, though they can only supply customers like KFC and Nando’s with smaller birds that fit specific weight requirements.
RCL CEO Miles Dally said on Wednesday his company, which produces poultry under its Rainbow Chickens brand, had reduced IQF volumes by about 40% by ensuring its birds were the right size.
IQF now makes up less than 25% of Rainbow’s total volumes of about 5-million birds a week. Mr Dally said RCL was producing lower volumes and smaller chickens, but with higher margins. “We’ve made massive strides” in terms of margins.
Margins in IQF would improve if import tariffs became effective and when the government enforced caps on the amount of brine water that can be injected into frozen chicken, Mr Dally said.
“We took a decision a while ago to cap our injection at a level that we thought was appropriate. We haven’t even felt the benefit of that yet, so we’ve had to try to do other things while we wait for the government to enforce this cap that they’ve agreed to.”
RCL on Wednesday reported headline earnings from continuing operations of R602m for its six months ended December, from R27m previously. Revenue grew 38.8% to R12bn, mainly due to the inclusion of its new sugar and animal feeds business, TSB, and gains from Rainbow.
RCL has also in recent years bought consumer foods business Foodcorp. The group also includes food transport business Vector Logistics. The company restructured itself during its interim period to a “one company” business and shifted away from being a holding company, Mr Dally said.
“We’ve taken the Foodcorp brands, other than milling and baking, and put that with Rainbow under the consumer head of Scott Pitman.
“We’ve then taken the Foodcorp milling (which makes flour for RCL and external customers) and baking (which produces Sunbake breads) and put that under the TSB head John du Plessis and called that sugar and milling,” Mr Dally said.
Vector Logistics remained a standalone business.
The reorganisation meant that there was now only a single head for consumer businesses and another head for asset-based operations.
The head of the consumer business would approach large customers like Shoprite and Pick n Pay “on behalf of all those consumer brands”.
About R40m was shaved off RCL’s earnings by a seven-week strike at Foodcorp during the period and a separate strike at Vector Logistics.
The Foodcorp strike was at RCL’s Bronkhorstspruit facility, where it makes “speciality” products such as biltong and sandwiches for Woolworths.
Mr Dally said RCL was working with Woolworths to put contingency plans in place for any future strikes.
Meanwhile, he said: “We are now going to, with this new structure in place, drive the current brands that we have a lot harder — there wasn’t as much money put behind them as there should have been.” RCL was also looking for opportunities to buy brands and companies.