Over the past five years, the group has achieved compound annual growth of 32,3% in share value and it plans to double in size by 2013.
Every day, millions of South Africans grab a bite to eat at one of their favourite quick service restaurants. Chances are it belongs to Famous Brands. Notwithstanding the domination of this industry sector, the group’s vision is to double the size of its business by 2013. To that end, Famous Brands is focused on growth and the development of best-in-class franchised leisure brands. That growth is supported by a business model which maximises stakeholder value.
The Birth of a Brand
The story behind Famous Brands is one of true entrepreneurial nerve. Founder George Halamandaris and his family came to South Africa from Greece in the late 1950s with practically nothing. But he was a hard worker and determined to achieve success.
George figured that Johannesburg needed an American style steakhouse and so he opened the first Steers restaurant in the 60s. It was a huge success, and George was joined by his son and nephews in the 1970s. More restaurants were opened and the concept of franchising was introduced to the South African market for the very first time.
Steers expanded rapidly to become one of South Africa’s most well-known fast food chains. In March 1994, the company listed under the name Steers Holdings (including Debonairs and Fishaways) on the Johannesburg Stock Exchange. There were 162 Steers restaurants. On 1 January 1995 the company’s share price closed at 92c. But four years later, the family realised that the true value of the business had yet to be unlocked. In 1999 the share price was about 85c and the market cap almost R70 million. They were disappointed that they had worked hard at it for 37 years, and collectively were worth only R35 to R40 million. Not too shabby, you might think. But the family had grander plans.
Hard though it was to acknowledge, they realised that to achieve their vision, they needed to bring someone on board to change the company’s fortunes. In 1999 they employed experienced franchisor and marketing expert Kevin Hedderwick. He came on board and set in motion a turnaround that is now legendary.
Hedderwick set the group on an aggressive growth path. After a series of acquisitions that began with Wimpy, it became clear that a new name was needed. “The Steers name was no longer representative of the business. What we were doing was buying brands and making them well-known. Hence, the new name, Famous Brands, was chosen in 2004. We chose it because it was in line with what we wanted to do – our philosophy has always been that we will acquire a business which is best in its class or that we can make best in its class.”
Listed on the JSE, Famous Brands is today Africa’s biggest quick service and casual dining restaurant franchisor and also has representation in the United Kingdom. The global footprint of the group stands at more than 2 000 franchised restaurants spread across South Africa, 16 African countries and the United Kingdom. Its brand portfolio includes South Africa’s most popular quick service outlets. The group also manufactures and supplies its franchisees with a wide range of meat, sauce, bakery, ice-cream, fruit juice and mineral water products.
The group’s mainstream franchising division houses brands which have wide consumer appeal and are wholly owned trademarks. The model of brand stewardship, or competition between brands, is firmly entrenched through standalone strategic structures. Famous Brands’ mainstream brands include: Steers, Wimpy, Debonairs Pizza, FishAways, M&B, Keg, O’Hagan’s and Milky Lane.
The group also has a division which oversees developing brands. In 2010 Famous Brands acquired the trademarks and franchise agreements of Black Steer, including restaurants which had either closed, or which the group is converting to an appropriate Famous Brands brand.
Black Steer is now the group’s first ever foray into the mass entry-level market. This custom built offering is designed to appeal to the appetites of the LSM 3 to 6 market. Menu items include pap and vleis, boerewors, Russian sausages, chicken and burgers. Price points are low and the portions are generous.“The Black Steer vehicle was available for use,” says Hedderwick. “The imagery of the black steer is extremely powerful and its association with flame grilled red meat is obvious. We have adopted the best elements of the original branding and revitalised them for this purpose.”
Theatre of Food
The group’s niche brand trademarks are held through joint venture partnerships in which Famous Brands has a controlling interest. They include Tasha’s, a boutique café concept, and Vovo Telo, an artisan bakery that serves breakfast and lunch.
Leveraging Human Capital
Hedderwick says that growth and development of Famous Brands’ staff is essential to delivery on the group’s vision to double the size of its business in two years. “Our people are regarded as key assets and providing them with opportunity adds meaning and value to their lives.
Of key importance to the future of this business is the building of human resource capacity and talent growth. Human capital sourcing and retention are a priority.” He says talent growth (performance and potential) is measured through human capital reviews conducted twice a year. A range of human resource best practices ensure that a strong culture of performance management exists across the entire business. As the group aligns its selection processes with best practice, internal recruitment and promotion is a natural part of its growth culture where employees are positioned to align their capabilities with the business plan.
“External recruitment takes the form of an efficient, rigorous and cost-effective process when it is necessary to add to our skills base. Future leaders are developed within the business through a leadership ‘Challenge Programme’ and candidates are supported by both skills and recognition interventions.
“We are proud of our job creation efforts,” says Hedderwick. “Our aggressive expansion saw an increase of 446 in total staff complement from 837 in 2007 to 1 283 at the 2011 year end, during a time of unequalled economic turmoil that commenced with the 2008 global credit crunch. This excludes the indirect job creation through the additional franchise outlets that have been opened over the same period.”
Employee morale and staff satisfaction are measured annually through a ‘Weather Check’ survey which serves as an indicator of overall organisational health. The results translate into departmental action plans and the effectiveness of these plans is monitored by using this tool as the ‘people barometer’ of the business.
“We have a very high performance culture here and that’s the way it has to be,” says Hedderwick. “It’s driven by the fact that we put in tools that make us a performance management driven organisation.”
Here’s an example of what he means. “Every year in October we do a complete unpack of the business from a strategic planning point of view and we robustly examine every area of our operations. Even though we are such a big group today, we get right down into the detail and then we put it all back together again.”
That gives the group a strategy plan for the business into the future. That plan is shared with all the different business units and they make sure that they develop their own plan that aligns with the macro strategy. “Everybody in this organisation, right down to the receptionist, has a scorecard and it’s part of the performance management system. The critical question we ask is this: does that scorecard, right down to the bottom level align itself with where we want to take the business in the long term?”
Added to that, every four months there is an executive officer review. The heads of the business units present to Hedderwick and his expert management team. “We ask them if they are on track. If not, why not? That means it’s not just a plan that you pull out and dust off once a year. It’s a living thing that’s underpinned by scorecards. That’s the glue that holds us together – everybody buys into the same vision for the organisation.”
The Famous Brands Franchisee
Hedderwick stresses that the different brands in the group have distinct requirements. “Many people have asked me how it is possible to build a multi-branded portfolio when most others have failed because it’s impossible to be all things to all people. We believe strongly in brand stewardship. It doesn’t matter what brand we acquire, from the day that that business belongs to us it has a champion who looks after it and we put strategic structures in place to make sure that that person eats, sleeps and drinks that brand.
When these guys look for franchisees, they know that the person who owns a Wimpy is very different from the one who owns a Keg.”
To illustrate, Hedderwick points to Steers, where the experience for the consumer consists of ten minutes at the counter. The interaction is brief and only a few words are exchanged. At Tashas, it’s another story. Customers have greater expendable income and they generally sit down to a lengthy breakfast or lunch. In this case the franchisee has to be someone who engages in conversation with people and asks them how they liked the coffee or the salad.
Systems and Processes
He also notes that adherence to the system is non-negotiable. “We measure our franchisees to death. Every one of our brands has an operations campaign every year where we identify what will be measured, and then we measure those elements four to five times a year.”
The group also does mystery customer evaluations every month for every restaurant. There’s simply no chance of buying a franchise and being left alone. “We say if you’re coming into this business, this is the system and we’re going to measure you accordingly,” says Hedderwick. “Naturally, we also identify outstanding performance. Last year the top 30 Steers franchisees and their partners went on a Baltic cruise and were also recognised at an annual national conference.”
Hedderwick says it’s essential to stick to the recipe in franchising because the type of experience that you have at a Steers in Kimberley must be the same at Eastgate and Gateway. That’s the way franchising works.
“When we sell a franchise, our assumption is that the rental is X, the number of customers is Y, and the turnover is Z. We can estimate the nett profit the franchisee should achieve. There’s a lot of science that sits behind every single brand and the numbers are proven. Bottom line – you have to work hard and follow the rules. You can’t be successful if you play golf every week.” L
2011 financial highlights
- Revenue: up 11% to R1 878 million
- Operating profit: up 16% to R358 million
- Headline earnings per share: up 17% to 242 cents
- Cash generated by operations: up 13% to R397 million
- Return on equity: 36%
- Dividends per share: up 36% to 155 cents
Top Ten Status in Top 100 Companies Survey
- Famous Brands was awarded 10th position in the Top 100 Companies survey for 2011. This annual survey acknowledges listed companies that have earned the most for their shareholders. The share price performance of every company listed on the JSE is calculated on the basis of R10 000 invested over five years.
- Famous Brands has achieved compound annual growth in share value of 32,32% over five years, meaning that an investment of R10 000 five years ago would be worth R40 556 today.
- From a single Steers store in the 1960s, the Group now comprises 18 brands in its portfolio, including Steers, Debonairs Pizza, Wimpy and Mugg & Bean, and its network exceeds 2 000 restaurants. A further 120 new restaurants were opened across South Africa and Africa in the first quarter of 2012.
- “Famous Brands’ pay-off line is ‘You’re in good company’,” says Hedderwick. “This slogan sums up our overall proposition: we represent a sound investment for shareholders and franchisees alike and our wide bouquet of brands touches a multitude of lives across the consumer spectrum.”
- 2011. Acquisition of the trademarks and franchise agreements of Milky Lane and Juicy Lucy.
- 2010. Acquisition of the trademarks and franchise agreements of KEG, McGinty’s, O’Hagan’s, Black Steer. Acquisition of a controlling stake in Giramundo, a flame-grilled peri-peri chicken offering; Vovo Telo, an artisan bakery and café business. Launch of black economic empowerment owner-driver initiative.
- 2009. Acquisition of the South African and African business of Mugg & Bean, the brand leader in the fast-casual coffee-themed category. Acquisition of a further 20% of Wimpy UK and settlement of foreign debt.
- 2008. Acquisition of a 51% interest in the Tashas brand, a boutique daytime café concept. Acquisition of Cape Franchising master licence and business.
- 2007. Acquisition of a 75% interest in Wimpy UK.
- 2006. Acquisition of Bimbo’s franchise agreements at selected Engen garage sites and successful conversion to Steers.
- 2005. Acquisition of TruFruit (Proprietary) Limited, a manufacturer and distributor of fruit juices. Acquisition of Baltimore Foods (Proprietary) Limited, a manufacturer and distributor of ice-cream products.
- 2004. The holding company changes its name from Steers Holdings Limited to Famous Brands Limited, to reflect more accurately the diversity of the Group’s brand portfolio.
- 2003. Acquisition of Pleasure Foods (Proprietary) Limited, comprising the Wimpy and Whistle Stop brands. Acquisition of the franchise agreements of House of Coffees and Brazilian brands.
- 2000. Launched as a joint venture in 1999, FishAways brand is acquired as a wholly owned group subsidiary.