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Tough economic times, including recession, have forced Clover to back down from hiking the prices of its products in order to avoid losing market share.
Clover’s chief executive, Johann Vorster, said this week that the company, best known for its diary and beverage products, had seen its volumes negatively impacted by its selling prices.
“In our quest to protect farmers and the income statement, we increased our selling prices beyond what was acceptable to the consumers given where we stand in the economy,” he said.
However, on June 29, the company decided to not adhere to the annual product price increase that took place every July. The big decision was to halt price increases in the coming year.
Clover increased prices by more than 6% in the previous year from an already high price level. “We couldn’t go more than that. We started to see resistance. We started to see our market share going down,” Vorster said.
Regaining market share will prove to be costly but the company is determined to try and protect it.
The company caught its competitors off-guard with early product promotions in March.
Actions like these appear to have paid off, with the company seeing a general improvement in various market shares.
Clover decided against price increases despite the many complex challenges and major disruptors such as the prolonged drought and rand volatility that resulted in above-inflation input costs, which could not be recovered through revenue increases because consumer sentiment remains subdued.
The company was pushing to get the consumer to pay more to cover inflationary increases, of which R25 million could not be recovered. He noted that there were general inflationary pressures among dairy manufacturers. Stagnant and falling selling prices plus rising input costs are forcing Clover to make difficult decisions to sustain short-term operations while still aligning these decisions with long-term growth objectives.
With the proposed tax on sugary beverages on the horizon, the company is confident in its abilities to minimise the impact. Vorster said: “We are 99% ready for when that sugar tax comes. If the proposed tax stands in its current form, it won’t affect us by more than R40 million.”
He added that the product development team had done a great job in reformalising the product line.
The company recently launched Tropika Slender, a sugar-free version of its bestselling beverage, Tropika.
The product is anticipated to act as a buffer for when the sugar tax kicks in.
