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Crumbs … Pioneer about to toss its cookies?

| Supplier news

Bellville-based consumer brands giant Pioneer Foods Group is looking very serious about cutting out operations that are not going to fatten up its operating margins.

CBN has already documented Pioneer’s plans to relinquish its unprofitable arrangement – via subsidiary Ceres Beverages Company – to bottle iconic soft-drink Pepsi. Earlier Pioneer walked away from its commodity businesses – unbundling the poultry, eggs and animal feeds businesses into Quantum Foods.

These critical corporate changes are courtesy new CEO Phil Roux, who seems very serious about focussing Pioneer on its power brands like Spekko, Weet-Bix, White Star, Safari, Pro-Nutro, Sasko and Liqui-Fruit. This strategy has already paid off with Pioneer’s operating margin looking a lot plumper at 9,5% at the end of 2014 compared with a much leaner 7.1% in 2013.

The latest rumbling from Bellville are that Pioneer could look to offloading its Moir’s biscuit operations. Pioneer are really up against it in the biscuit market with the category champion AVI completely dominating the supermarket shelves.

Pioneer moved into the biscuit segment in 2004 with the acquisition of Kwality Biscuits. The company then re-branded rebranded a range of biscuits to build on the legacy of the well known Moirs name - including Tea Lovers, Marie, Lemon Creams and Munch a Lot.

In the last financial year to end September 2014 Pioneer directors reported that biscuits achieved targeted volume growth, but unfortunately at crumbling margins.

A presentation at Pioneer’s recent AGM showed that rice, biscuits, baking aids and pasta were the categories where the company lost market shares during the first three months of its new financial year.

It is unlikely Pioneer’s biscuit business will fetch a huge price, but that’s the way the cookie crumbles if your brands are not market leaders. Still the savings in management team could be invaluable in the years ahead as Pioneer hones its new business model.

If management can continue to win market share with its more profitable brands in a tough market then Pioneer could be well positioned when consumer spending picks up again. A trading statement for the three months to end December 2014 showed that select categories showed an uptick in consumer demand.

Roux disclosed that Pioneer managed to increase market share in most categories it competes in. Group revenue for the three months was up 7%. Roux said the volume growth realised in major categories was pleasing, with the exception of the wheat and rice categories.

Most encouraging was that bread volume was up 13% and revenue up 19%. Other strong gains were registered by breakfast cereals (21% up in volume and revenue) and local fruit juices (up 8% in volume and 13% on the revenue line.)

Roux said the bottom line was that the company expected to report improved operating profit and headline earnings performance for the six months ending March 2015.

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