Publications
Partners
- SA's biggest poultry group, Astral Foods, is looking at piloting canned chicken as an alternative to pilchards.
- The company would look to a third party to manufacture the product for it to test it against canned fish on the supermarket shelves.
- While canned fish sales are on the rise, the group maintains that poultry remains a better value proposition.
- For more financial news, go to the News24 Business front page.
Astral Foods, SA's largest poultry producer, is exploring the option of trialling canned chicken as an alternative to the smaller-format pilchard and sardine products making serious inroads in the local animal protein market.
CEO Chris Schutte emphasised at a media briefing on Monday, though, that it was early days, with the group not planning to erect a manufacturing facility any time soon. Rather, it would look to use a third-party canner to test a chicken product to compete with the 410g packs of canned fish proving so popular in the market.
Speaking after the release of half-year results to end March 2024, Schutte also conceded that the sales of canned fish, especially pilchards, were increasing, while the consumption of chicken was slightly down. But these ocean-based products were not in any way replacing poultry, said Schutte, who maintains that chicken remains the better value proposition.
He says it's important to bear in mind that consumers did not necessarily base their decisions on what to purchase on the price per kilogram, but rather the price per unit.
On this per unit basis, a 410g of pilchards would, of course, be cheaper than, say, a 2kg bag of frozen chicken. But a detailed analysis of the protein gram cost shows the chicken value proposition was a third to 50% better value proposition than fish in the can.
Another factor providing a boost to canned fish sales has been load shedding, as people were afraid to buy frozen goods during the periods of intense power interruptions because of the risk of the product going off.
"So, we've seen a bit of a swing there, but it's definitely not a better value proposition."
Chook in a can
Nonetheless, the option to look at canned chicken as a way to compete was definitely on the group's radar.
Schutte said there are canned chicken products on shelves at the moment, but they were all imported, and it was "not a high-volume game".
He said Astral was exploring what market it could compete in, adding that the group believed it would be better to look at the larger packaging of 410g cans.
"Our marketing and salespeople have looked at spare capacity somewhere in the market, and we are in the process of exploring that. We will not put up a canning plant in the next 12 months, but we will try to contract through somebody else to do it as a trial and see if there's potential - can we swing people from canned fish to canned chicken?"
One factor in its favour is the "sustainability of the two products", with Schutte saying that, in the long run, fishing stocks were being depleted and at much lower levels.
This meant it was not as sustainable as poultry production, he said, adding:
Schutte said Astral was also producing chicken in smaller pack sizes to cater for a consumer under increasing financial pressure.
But he said market surveys, through independent companies, showed that the biggest demand is still for a 5kg bag of chicken pieces at month-end.
"It's just that people buy it, and they split it up afterwards. So, there are some parts of our consumers that look at the value per kilo and would buy a 5kg bag and split between two or three families."
Nevertheless, the company recently introduced 4.2kg bags of frozen chicken portions and also offered options of 3.5kg and 2kg to customers.
Tough environment
As far as its results were concerned, Astral Foods reported interim earnings at the upper end of guidance as it put a devastating bird flu outbreak behind it and benefitted from load shedding improvements and reduced diesel costs.
SA’s largest poultry producer previously guided in April an increase in headline earnings per share of between 435% and 445% for its half-year to end-March, but Monday's results showed it delivering a 441% increase in it as it bounced back from a tough 2023.
Astral recorded its first full-year loss overall in its 23-year history in its 2023 year. The gloomy outlook at the time was supported by the worst bird flu outbreak in SA's history, load shedding, as well as ongoing municipal infrastructure failures, such as water. It still faces a notably tough environment, including pressure on consumers, a probe into the industry, and the ongoing threat of bird flu.
READ | Poultry lobby hits back at govt 'hostility' but will cooperate with probe
Schutte said during the media briefing there was "continuous engagement" with the Department of Agriculture, Land Reform and Rural Development through bodies such as the South African Poultry Association.
He said the department had set out protocols for vaccination and applications had been made, but none had been approved yet.
COO Gary Arnold said two vaccines to combat the H5 strain of bird flu had been approved and would be imported while the process was still under way to register a locally produced vaccine against the H7 strain largely responsible for the devastation caused in South African poultry flocks.
READ | Bird flu crisis: Govt to fast-track vaccines amid fears of chicken, egg shortage
Most of the delay in vaccinations is in the processing of applications and the merits of applications in complying with the guidelines published in 2023, he said.
Arnold said Astral was "quite well advanced" in its applications, but still awaited permits to be issued for vaccination.
"So, it's taken longer than anticipated. We thought the industry may at least be vaccinating by May or early June. That’s not the case, but certainly, it's not off the table yet."
Referring to the oft-quoted words of Queen Elizabeth 2, Small Talk Daily analyst Anthony Clark said 2023 was definitely Astral's annus horribilis, adding that the underlying interim results were pleasing. This was particularly true in terms of the modest recovery in the poultry division, which saw it swing back into profit after a loss and deliver "very thin" margins.
Referring to a market inquiry into the poultry sector launched earlier this year by the Competition Commission, Clark said Astral's results showed that any notion that the poultry sector was "profiteering is ludicrous", adding that, at its best, the industry still delivered paper-thin margins.
According to Clark:
He said key factors for Astral and the entire poultry sector in the second half of 2024 would be input costs, which remain elevated.
Clark also noted the tough consumer environment facing the poultry sector, which had been unable to push through price increases and higher soft commodity pricing to consumers.
It is also uncertain whether load shedding would make a reappearance in SA after the elections, said Clark, which makes him reluctant to issue any recommendation on Astral and the industry generally.
Shares in Astral, valued at about R6.6 billion on the JSE, rose 4% on Monday but have fallen by a similar amount on a one-year basis.
