Cape Town – While South African companies suffer in an almost 0% growth environment its biggest fast-food restaurant chain is battling to contain its excitement for the future of its business.
“I have to sometimes disguise or veil my enthusiasm,” Kevin Hedderwick, former Famous Brands CEO and now group strategic advisor responsible for merger and acquisitions, told Fin24 in an interview this week.
Famous Brands [JSE:FBR] has seen 15 years of consecutive growth and reported a further 16% rise in profits for the year ended February 29.
And the good times keep on rolling. Hedderwick said the numbers coming between March and July have been “quite staggering”.
“What it would suggest is that Famous Brands is gaining market share in a really tough economic environment,” he said.
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The secret sauce to Famous Brands’ growth recipe lies in the group’s strategy in building capability and capacity in manufacturing, said Hedderwick.
As part of this strategy, Famous Brands acquired a chip-making factory and a tomato paste factory this year to ensure it could own its supply chain.
He said there were two things he hoped to achieve through the acquisitions:
1. To secure product on behalf of our franchisees
“From a tomato paste perspective, we import the product from China,” he said. “We are now going to be able to manufacture locally at a price that is significantly lower, which is in the best interest of our franchise partners.”
2. The opportunity to engage with local black farmers
“The other thing… is the opportunity to engage with local black farmers in the Eastern Cape to grow and deliver tomatoes to this plant,” he said. “They will have a guaranteed source of income for the crops that they take off the land every year.”
Hedderwick said Famous Brands’ merger and acquisition strategy developed over time.
“In the early days, Famous Brands had this business model, which was a little bit of logistics and a scattering of manufacturing,” he said. “As we built capability in the front end of the business, … the penny began to drop about … building scale in logistics and manufacturing.
“(I wanted to) take the business from being a typical franchise business to one which we talk about today being a fully integrated food services company,” he said.
“The nice thing about the model of course is that as you’re building scale and acquiring brands at the front end of the business, you’re able to deliver more products and manufacture more products.
“It’s like a virtuous cycle,” he said. “When all three silos of the business are performing well, I would like to suggest it’s quite a powerful model.”
Where did the inspiration come from?
Asked if he had outside help, Hedderwick was quite certain: “We’ve never employed a consultant to drive any of this growth whatsoever. It really is me sitting with the team, delivering (and) developing a strategic blueprint for the business, (and then) being signed off by the board.”
“That’s me just networking with people and looking for sometimes the obvious,” he said. “But we’ve gotten bolder as we’ve gotten bigger, I suppose.
“If you asked us five years ago, would we have a cheese manufacturing plant, a coffee plant, a chips plant and now a tomato paste plant, we probably would have said ‘no’.
“It’s about making sure that when you do go after those kinds of assets, you have the capacity and capability to do that.”
“At the end of the day, if you look through the mist, what does Famous Brands really do? We sell a business system to entrepreneurs who are able to make a better return on their investment than putting their money in the bank.
“So, this integrated model is designed to make sure that … we are lowest cost producer … to protect the franchisees’ business model.
“(The aim is to) make sure that those partners are making money at the front end, while you’re chipping away at making sure you’re lowest cost producer at the back end.”
Why Hedderwick didn't go disappear into the yonder
After 16 years in the role as group CEO, Hedderwick handed over the baton to his protégé Darren Hele.
“I decided that I wanted to take a step back from the day-to-day operational running of the business,” said Hedderwick.
Rather than just disappearing into the yonder, the family and board did not believe he should step away completely. They also didn’t want the growth momentum to get lost.
Asked why he remains so positive in an economy that the International Monetary Fund this week said will grow by 0.1% in 2016, Hedderwick conceded that “there’s a lot that’s going in South Africa right now that we don’t necessarily like”.
However, he said that the food service space is “still a very good place to trade”.
“The food service space is a great space, but that doesn’t mean you have an automatic entry to compete,” he warned.
“You’ve got to make sure your brands are relevant, are contemporary, they offer value and … you obviously have service. If you get those things right, then I always say that the consumer will find you.”
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