Retail chains that engage in backward integration, such as Pick n Pay, which is acquiring Tomis Group with its Western Cape feedlot and abattoir, are a novelty in South Africa and can be advantageous for the red meat industry and the market in general.
Laurie Terblanche, CEO of Tomis, believes such backward integration ventures can bring significant benefits.
Earlier this week, the competition tribunal conditionally approved Pick n Pay’s R340 million purchase of the group and its sheep feedlot, sheep and cattle abattoir, and deboning, meat processing, packaging and composting facilities, all located on a farm about 30km from Wellington.
The conditions relate to capital investments in the facility and equipment, increased procurement spending on wholesale suppliers owned by historically disadvantaged individuals, and a moratorium on layoffs related to the transaction.
Tomis is being sold as a going concern and its businesses are being consolidated into one company with different divisions.
Terblanche says there have been many success stories worldwide of retail chains engaging in backward integration, but it is new locally.
“For Pick n Pay, the advantage is that it can provide quality meat to customers at competitive prices, with an emphasis on safe meat from a factory with best practices in food safety.”
Central packaging and distribution makes sense
According to Terblanche, Tomis’ meat processing and packaging facility is of world-class standard and meets the highest food safety and certification standards.
The factory is designed to supply packaged meat to retail chains through central distribution. Food safety is ensured through continuous good hygiene management, processes and management programmes within the factory.
“In our packaging facility, the use of modern technology in terms of packaging machinery and materials ensures that products produced and packaged have an extended shelf life,” says Terblanche.
“This enables retail chains to limit food wastage and ensures that the products look aesthetically appealing to the consumer.” Tomis uses recyclable packaging materials wherever possible.
Terblanche notes that retail chains are opening smaller, more convenient stores with limited space for butcheries. “It makes sense to use a central packaging facility with a central distribution model.”
Furthermore, South Africa has a significant shortage of well-trained butchers, resulting in products from supermarket butcheries not consistently meeting quality and appearance standards.
“At Tomis, we can transfer valuable knowledge to fill this gap through training and skills programmes.”
How it will affect farmers
“Farmers are the lifeblood of the Tomis business, and the support of farmers is very important to us,” says Terblanche.
“Tomis is known as an honest business that always strives to provide the most competitive price and service to farmers and suppliers. This will not change, and the need for additional livestock will increase thanks to the healthy market access and share that Tomis has.”
Establishing good long-term cooperative relationships with farmers allows Tomis to discuss and plan their production, growth and livestock marketing early.
Retaining existing customers
Tomis will continue to sell sheep and cattle carcasses, as well as meat from the deboning facility, to all its customers.
“The abattoirs and deboning facility will not exclusively supply Pick n Pay. We will focus on processing and packaging exclusive products for Pick n Pay in the packaging facility,” says Terblanche.
Tomis has been exporting meat to the Middle East for some time, and it will remain a focus area. “It is important to follow a balanced approach regarding the risk diversification of meat sales, nationally versus internationally, but to stay informed about international meat price movements. Tomis will always serve this market sector to ensure the best prices for producers.”
