Durban - National Brands, a subsidiary of JSE-listed AVI, is assessing its portfolio of tea, coffee and biscuit brands, with a view to consolidating and extending its strongest products.
Executive financial director Keith Phillips said yesterday: "The idea is to have fewer, stronger brands. It is very expensive to support brands. The trend now is to develop master brands and then extend that brand into a different category. If you have limited resources for advertising it is more economical to support master brands as you get more bang for your buck."
It costs between R3 million and R5 million to launch a new brand. However, a brand extension can be promoted using the existing budget for the master brand.
National Brands spends R100 million a year on marketing, of which about R50 million is used for radio, print and television advertising.
A successful example of brand extension is how competitor Tiger Brands extended Tiger Oats into Jungle bars and biscuits.
National Brands has already had some success in extending its Five Roses and Freshpak tea into iced tea drinks. It now holds 4 percent of the iced tea market, outstripping rival Nestea, but still far behind market leader Lipton, which has about 80 percent of this market.
"Because we had the tea credentials, our iced tea drinks are well accepted," Phillips explained.
National Brands also manufactures and owns the tea brands Trinco, Teaspoon Tips and Eleven O'Clock. Its coffee brands are Frisco and Koffiehuis, and premium brands House of Coffees and Ciro. Biscuit brands include Bakers, Baumanns and Pyotts. It also owns Willards.
Phillips said recently that amid strong consumer spending, there had been an increase in spending on more aspirant brands. If consumer spending declines, consumers are likely cut down on impulse buys such snacks, switch to cheaper products and buy smaller pack sizes.
National Brands' product portfolio is a result of several regional and national acquisitions over the past 150 years, meaning that currently some brands in certain categories compete with each other.
National Brands is assessing whether to discontinue, for example, one of its coffee brands, in order to market the remaining brand more effectively. However, it then runs the risk of buyers of the discontinued brand opting for a competing product.
Another challenge in rationalising certain brands is that some products are particularly popular in one region, such as Teaspoon Tips in the Eastern Cape.
"National Brands has a full pipeline of brand extensions. There is a lot of activity in the biscuit category," he said.
In the year to June 2005 AVI reported a 9 percent increase in turnover to R4.8 billion and a 16 percent rise in operating profit to R469 million.
National Brands contributed R2.4 billion to group turnover and R301 million to group operating profit.
Yesterday AVI's share price rose 3.15 percent to close at R14.75 on the JSE. The food producers and processors sector rose 0.59 percent.