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Mars Africa, the fast-moving consumer goods company, intends expanding its presence on the continent.

Fast-moving consumer goods company Mars Africa intends expanding its presence on the African continent and has targeted five countries to enter.

Mars Africa, part of the global Mars group, contributed about R1bn in revenue to the group last year, 80% of which is earned in SA.

MD Ian Burton said the company aimed to earn half of its revenue from the continent and would initially focus on entering five countries. Mars Africa would also focus on developing its categories in the local market.

The company focused on three categories – pet care, snack food and main meal foods – and had no intention of diversifying beyond those categories, Burton said.

The family owned group, which turns over $21bn a year, has five brands worth US$1bn – Mars, M&M’s, Snickers, Whiskas and Pedigree.

Mars Africa’s mid-year name change, from Master Foods SA, formed part of its African expansion plan, which was a key part of its growth strategy, he said.

Mars aimed to develop an official distributor before putting someone on the ground in the five priority countries.

It had targeted Kenya, Ghana, Nigeria, Namibia and Botswana and already had a presence in Kenya and Namibia and would have a representative in Ghana soon. Burton said the company would then set up a sales force in those countries before considering additional investment once critical mass was reached.

Master Foods was incorporated in 1997 after Mars launched Uncle Ben’s as a competitor to Tastic rice in 1996. Subsequently, the company bought Royco and Oxo as it moved to localise its food portfolio instead of just importing its other global brands.

Burton said the company aimed to drive consumption of confectionery by making it more available locally.

It also aimed to grow the pet food category, in which it was the market leader, to garner more sales. Burton said pet food was a growth area for the company.

Burton said there was scope to grow the segment as pet food was relatively affordable locally. In addition, South African pets acquired 25% of their calories from pet food, with the remainder coming from scrap food, for example.

Mars Africa, which has factories in Cape Town and Pretoria, employs 250 people directly and 1000 indirectly.

Rising interest rates are stifling one of the JSE’s hottest sectors — but we will only really see the effects of the retail slowdown after the festive season.

Chris Gilmour, an analyst at Absa Asset Management Private Clients, said recent poor results by retailers have not included the impact of the last two interest rate increases — one in October and this week’s.

“It’s going to be deadly. It’s going to kill consumer demand, especially in certain segments of the market.

“What bothers me is that all of the results are showing consumers are not spending at the retailers. Are we going to have a great Christmas? Probably not — but it’s always difficult to say. People at this time of the year tend to think ‘what the hell’ and get their hangover in January.”

Gilmour expects the middle-income bracket will be hardest hit. “And everyone is talking about another interest rate hike in January. Also, the impact of higher oil and food prices is not good at all.”

Credit retailers were under pressure before this week’s interest rate increase, and the hike compounds challenges facing the sector.

Syd Vianello, retail analyst at Nedcor Securities, said retailers are not opening new accounts.

“Customers are stretched to their limits with existing accounts. That means their incremental spend for existing account holders is not much, probably no more than 6%.

“And if you have a dearth of new accounts it’s difficult to raise turnover significantly beyond these levels. The double whammy of another rate hike and a 6.5% increase in the price of fuel will make the next three weeks particularly tough.”

Vianello’s view is that the first week of December is an important barometer of Christmas trading.

“And the weekend wasn’t great. My biggest fear — unlike what we’ve experienced to date — is that we’re facing retrenchments throughout the economy.”

Vianello explained that if furniture retailers, for example, remain lacklustre they will not take delivery of orders next week. Factories will be overloaded with stock and by January might have to reduce production.

The same applies to motor factories. “If they haven’t pushed all the stock out, they will open next year with no orders and will operate on short time. If fewer cars are manufactured, there is reduced head count,” he noted.

“Retrenchments have a ripple effect through the system. The big telltale sign will be next week — if retailers go on sale next week, then you know they are seriously overstocked.”

Shaun le Roux of Alphen Asset Management said in a recent research note that the fallout on credit retailers and related stocks on the JSE has been significant.

From May 7, when many retail stocks peaked, most share prices have lost in excess of 20% of their value. Over the same period, the JSE All Share index was up almost 4%.

The motor vehicle retailers, which enjoyed boom times in recent years, were the first to encounter tough times.

Next to feel the pain was the durable goods sector, and the furniture retailers have experienced a sharp slowdown in credit sales, coupled with deteriorating bad debts.

Le Roux said JD Group, in its August annual results, reported a 26% drop in headline earnings a share on the previous year on the back of negative credit sales growth and a 65% rise in debtor costs.

The Ellerines share price has not dropped as much as the other furniture retailers because African Bank (Abil) stepped in to buy the business.

“The JD Group share price would be even lower if management had not signalled their intent to split their consumer finance and retail businesses, effectively putting up a ‘for sale’ sign,” said Le Roux.

“It is difficult to see the outlook for retailers and other interest rate- sensitive businesses improving in the near term and, in the circumstances of further upside risks to interest rates, share prices are likely to stay under pressure.”