A huge pricing gap has opened up between different pap brands at your local supermarket.
A cursory survey of current prices at Makro shows that there is now an almost R50 difference between different brands for a 12.5kg maize meal bag.
Massmart’s own brand First Value maize meal brand is on offer at R51.95, while White Star costs almost double: R99.95.
This has hurt the latter’s producer Pioneer Foods, which on Monday in its annual results confirmed that sales came under pressure due to increased competition in the sector.
White Star is currently trading at an unsustainable margin above other brands, and its price differential should narrow to only 10% above other brands in time, Felix Lombard, chief financial officer of Pioneer Foods, says. Inflationary pressures should increase prices in the category.
Pioneer is the maize meal market leader in South Africa, followed by Premier Foods (Iwisa) and Tiger Brands (Ace).
But the large companies have seen aggressive competition from smaller local producers as a number of maize farmers and cooperatives invested in the technology to start producing their own maize meal, says Lombard. They have established their own brands and market their product in their immediate areas, particularly in Mpumalanga and North West. White Star is one of the only national brands around, he adds.
But it's not only the small guys who are eating the big pap producers' lunch: apart from Massmart's own brand, the RCL Foods brand Tafelberg Super Maize meal is one of the cheapest on the market. RCL Foods owns Rainbow, Nola and Ouma rusks.
Maize meal prices have seen a massive fall in recent months. The price of white maize has dropped from around R5,000/tonne at the start of 2006, to around R2,400 currently. Pioneer’s own maize meal prices are 22% lower than a year ago.
For the consumer, the price of a kilogram of maize meal has fallen by more than 25% in the year to May 2018, according to the Pietermaritzburg Agency for Community Social Action (Pacsa), which publishes a Food Price Barometer.
Lombard says that consumers have switched from bread to pap thanks to the lower maize meal prices. Bread sales have been under pressure, but Pioneer itself has seen record bread sales in the past three months as it has expanded its distribution network.
The group has added a number of sale points in spaza shops, says Lombard. Some 40% of bread is sold via traditional retailers in South Africa, while spaza shops sell the rest. Selling through spaza shops is more profitable for Pioneer, says Lombard.
Bread prices have increased by 2% in the year to May.
An early version of this article stated that White Star prices will be lowered. The company clarified that was not its intention.
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