Consumer packaged food group Libstar, and the producers of Lancewood dairy products, has said price increases will be unavoidable during the second half of the year as the company faces inflationary cost pressures.
Cornel Lodewyks, who heads Lancewood, said although the group constantly tries to avoid transferring cost pressures to consumers, it is necessary.
"On the inflation, it's a hard topic; it's a reality. It will just increase as we move forward into the second half of the year," Lodewyks told Business Insider South Africa following the release of the company's financial results for the six months to the end of June.
"To transfer our price increases to the consumer, it is not always the ideal thing, it's something that we need to do, but we know how under pressure consumers are", he said.
Its products reliant on the milk industry are most sensitive to price hikes, due to steep input costs in the sector.
"We source milk from farmers; there's hyperinflation. If you look at feed prices, the price of fertiliser, they [milk producers] are under pressure. The smallest price effect on raw milk has quite a big effect on the cost of manufacturing cheese… it's very sensitive…," he said.
In its latest industry report, the South African Milk Producer's Organisation, said the dairy industry currently faces severe pressure and it will continue in the immediate future.
"High input costs, weak consumer demand… in South Africa, will most likely be the position in which the South African dairy industry will have to operate," he said.
While the group's portfolio is less sensitive to commodity fluctuations, such as for flour, the milk price has a high percentage of input costs of some of the product ranges," Charl de Villiers, the company's CFO, and incoming CEO said.
Operating profit from continuing operations grew to R149 million from R122 million in the prior period, while total revenue rose 9.6% to R5.2 billion from R4.7 billion. Volumes sales improved across all categories, rising 6.9% overall, while price increases and changes in sales mix contributed 2.7% to overall sales growth.
"The group continues to experience significant inflationary pressures relating to raw materials, packaging, labour and energy. These are not expected to subside in H2," Libstar said in its report card.
It said it would leverage its systems and procurement expertise as well as its trade relationships to balance cost-push inflation and selling prices.
Its perishables category, which is Libstar's biggest, reported revenue growth of 14.6%, which was driven by strong sales of pre-packed hard cheese from its Lancewood brand.
De Villiers said, from a consumer perspective, there is a shift towards dairy as a protein, citing increased volumes of hard cheese being sold.
The second largest category, groceries, saw revenue growth of 2.2%, while snacks and confectionary rose 11.6%, and the baking and baking aid segment climbed 8.6%.