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Clover ices new projects to head off sugar tax

Mar 05 2017 06:00
Justin Brown

Johannesburg - Clover has put on hold most of its new projects to focus on mitigating the multimillion-rand effect of the impending sugar-sweetened beverage tax.

“A lot of resources were dedicated to new projects ... I froze all those projects and I put people to work on sugar tax-reduction projects. I didn’t stop everything, but I put many of the projects on hold,” Marcelo Palmeiro, Clover’s executive for corporate and brand development, said during an interview on Friday.

In response to the proposed sugar tax, which was first announced in the budget speech in February last year, as well as consumer trends, Clover this week launched its first sugar-free beverage, Tropika Slenda.

READ: Sugar tax will cost jobs - Cosatu 

Palmeiro said that the proposed sugar tax would affect at least 10 of the company’s beverage brands, including Tropika, Danao, Manhattan Ice Tea, Frankie’s, Nestea, soya milk shakes, smart drinks and flavoured water.

He said that Clover was looking to bring out many different products to reduce the impact of sugar tax on the company.

The research and development involved with making the new products, as well as associated packaging and marketing, plus changes to production processes at the company’s factories, could cost Clover millions, he said.

He said the sugar tax wasn’t likely to have any effect on jobs at Clover at this stage.

Clover chief financial officer Elton Bosch said this week that the company was looking to reduce the effect of sugar tax by introducing zero-sugar drinks, cutting the sucrose content in its drinks and reformulating its beverage products or launching product variations.

The reformulation of a beverage involves adjusting the drink by the removal or reduction of its sugar content. The change to sugar content of a beverage alters its flavour and body, which is the feel of the drink in a consumer’s mouth, Palmeiro said. “Reformulation involves a rethink of a drink’s design,” he added.

READ: Tax relief: first 4 teaspoons of sugar free 

In his budget speech last month, Finance Minister Pravin Gordhan announced that the implementation date for the new sugar tax would be delayed from April 1 until later this year, when Parliament had approved the new legislation and it is signed into law.

A proposed sugar tax is to be levied at 2.1c per gram of sugar, excluding VAT, on sugar-sweetened beverages to which caloric sweeteners have been added. The previous proposal was for a sugar tax of 2.29c per gram of sugar.

Gordhan also said the sugar tax would be charged only when the sugar content exceeds four grams per 100ml of a beverage.

Bosch said that the initial level of the proposed sugar tax would have reduced Clover’s turnover by 3.5% to 4%.

In the six months to December, Clover had revenue of R5.1 billion, so the initial sugar tax proposal could have cut the company’s revenue by as much as R200 million during that half-year.

Bosch said that – given the latest levels of the sugar tax, plus Clover’s plans to mitigate the tax – the worst-case scenario now was for the tax to reduce Clover’s revenue by 1%.

READ: Clover shares dive on profit warning 

“The budget speech has provided massive relief. We do believe that our new formulations [of products], as well as the launch of sugar-free products, will dramatically reduce Clover’s exposure to the sugar tax and that’s without putting through any price increases,” Bosch said.

It would take Clover at least 12 months to adjust its beverage products to the sugar tax, Bosch said.

Nevashnee Naicker, a Tiger Brands spokesperson, said the group was still in the engagement process related to the sugar tax and hadn’t planned any changes to its beverage products.

“Tiger is committed to reducing its sugar in its beverages in line with the proposed tax. However, it is important to remember that reformulation takes a long time,” Naicker said.

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clover  |  budget 2017  |  sugar tax
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