South Africa's Rainbow Chicken posts 12% profit growth

Heavy job losses in South Africa took their toll on Rainbow Chicken in the year to March, but the company delivered a 12% profit growth to ZAR355 million (US$46.8 million) as consumers traded down rather than out of chicken altogether.

The company said its brand differentiation strategy had been effective in delivering acceptable results. The strategy includes a range of chicken products from crumbed steaklets, viennas and polony for wealthier consumers, to frozen chicken pieces for those more hard-up as well as niche products for the food service industry and quick service restaurants,

Rainbow Chicken's financial director Rob Field said that job losses had been felt across the spectrum of products with consumers trading down.

In 2004, added value products contributed 30% to turnover and this had increased to 46% in the past year. In the retail market, these products were now contributing 21% to turnover, up from 4% in 2004.

According to data reports, the overall grocery market grew by 1% in the 12 months to February, but sales in Rainbow's polony and viennas grew by 28% and its crumbed products grew by 74%.

Rainbow Chicken's new plant was at full capacity and would need to be expanded, the company said.

Chief executive Miles Dally said that although realisations were lower than the previous year, which meant that margins had not been restored, the valued added strategy had been effective in delivering an acceptable margin of 7.4%.

The local chicken market is estimated to have declined by 1% to ZAR17.5 billion (US$2.30 billion) as a result of a 2% drop in prices that was partly offset by a 1% growth in volumes.

Besides depressed consumer spending, the pressure on chicken prices was also due to increased local output, a rise in imports and higher feed costs. The company's revenue rose 2.1% to ZAR7 billion (US$922.86 million).