UPDATE 2-S.Africa's Libstar sees retail sales surpass pre-COVID-19 level; food service to be muted

* Food service businesses at 85% of pre-COVID-19 levels

* Grocery sales up on at-home consumption, stockpiling

* Private label product demand grows

* FY operating profit down on COVID-related expenses (Adds financial details, company comments)

JOHANNESBURG, March 17 (Reuters) - Retail product revenue of South Africa’s Libstar Holdings Ltd, one of the country’s biggest packaged-food companies, has surpassed pre-COVID-19 levels but the company’s food service business will continue to stay shy of 2019 numbers, it said on Wednesday.

Libstar owns brands such as Denny mushrooms and Lancewood dairy and sells products ranging from perishables to groceries, confectionaries and baking under its retail division.

The company has been one of the beneficiaries of increased at-home consumption and stockpiling due to government-imposed lockdowns as consumers stocked up on pasta, baking products, meal ingredients and private label products.

This bumped up its retail sales, which contributed close to two-thirds of its revenue in 2020.

Chief Executive Andries van Rensburg said while retail demand had normalised in the fourth quarter, it was still stronger than before the pandemic. But because of this shift, the company’s food service division had lost out, he told analysts in a presentation on full-year results.

Food service revenue, its second-biggest sales contributor which includes selling dairy, meat and chicken, slumped 23.8% in the year ended Dec. 31.

Those sales, which contributed 14% to overall revenue, have recovered lately but will not match 2019 numbers in the current year, Libstar said.

“If we look at the numbers ... we’re probably tracking between 80-85% of pre-COVID levels,” said Tim Judge, group supply chain executive. “It’s fair to assume that level will remain for the rest of the year.”

The company, however, has also benefited from customers opting for private labels - a grocer’s own brand - as falling disposable income forces customers to seek less expensive and lesser known brands.

“The role of private label has definitely changed significantly if you have to compare it to a couple of years ago and will continue to change,” said category and customer executive Wendy van Zyl.

Total group revenue for the year grew 4% to 10.3 billion rand, but operating profit fell 13.1%, hit by expenses of 65 million rand related to the COVID-19 pandemic. ($1 = 14.8525 rand) (Reporting by Nqobile Dludla in Johannesburg Editing by Promit Mukherjee and Matthew Lewis)