Supply chain

Our integrated Supply Chain comprises the Manufacturing, Logistics and Retail operations that support our Brands pillar in SA and selected African countries. The primary function of our Supply Chain is to provide a competitive advantage to franchise partners through efficient supply, product innovation and margin management. These businesses are managed and measured independently.

Most of our manufacturing plants are wholly owned, but we also operate certain partially owned subsidiaries. The Retail business sells condiments (sauces, dressings, spices), frozen meat products, coffee (ground and beans), frozen chips and other value-added products.

Manufacturing

Trading conditions

Over the year, South Africa has seen significant food inflation, peaking at 6.9%. Our basket price pressures were mainly from beef, green coffee beans, milk and whey powders, oil and spices. The stronger Rand has helped soften some significant increases in commodity prices.

COVID-19 continues to disrupt supply chains with a global shortage of vessels and containers, resulting in higher shipping costs, higher costs of imported goods and longer shipping timelines.

Extreme food safety precautions had to be taken, more than in pre-pandemic times. Safety protocols would dictate a potential plant shutdown in the event of COVID-19 high-risk safety breaches.

While the Eastern Cape is still experiencing a drought, better summer rains have improved dam levels and support good agricultural production. Water scarcity and electricity availability require operational focus to drive consumption efficiencies and contribute to cleaner operations.

Hygiene, health and safety standards and COVID-19 protocols were rolled out across all operations. We focus on a leader-led safety culture across the Supply Chain. Asset care practices apply across the value chain and ensure sufficient maintenance capex. The focus of asset care is on safety and environmental impact factors.

Performance and focus areas

Manufacturing turnover increased by 31% to R2.8 billion (2021: R2.1 billion) driven by increased demand from the front end of the value chain. Operating profit was up 65% on the prior year. All plants turnovers were up on the previous year thanks to good volumes and some inflationary increases. Production volumes are up by between 8% and 38%, depending on the product line. Products with higher Quick Service Restaurant exposure continue to perform better than those with high Casual Dining Restaurant exposure. Demand from Retail sales continued to grow.

In April 2021, Famous Brands sold its shareholding in the Famous Brands Great Bakery Company. At the end of January 2022, the Gauteng Bakery operation based at Midrand was closed. All employees were offered alternative employment within the Group while 11 employees opted for retrenchment.

In 2022, Famous Brands began the National Occupational Safety Association of SA (NOSA) audit system, and no plant was rated below three stars. Our sauce plant, coffee plant, Turn ‘n Tender central kitchen, TruBev and Midrand meat plant all achieved four stars in 2022. We aim to achieve a four star rating or better for all sites in 2023.

Famous Brands monitors customer complaints across all plants and saw a reduction of customer complaints, with the notable exception of the Famous Brands Cheese Company, which was affected by product recalls and had a poor year in terms of its performance metrics. These included two proactive, plant-initiated product recalls due to the quality of the batches involved not meeting our agreed brand and quality standards. A batch of our cheese slices was recalled, before it was dispatched to customers, due to a potential contamination detected by our laboratory, that later passed all quality checks. Several mozzarella batches produced in September and October 2021, were recalled due to poor in-store store product performance, The stock was returned from both customers and our depots to the plant and replaced at no cost to customers. Additional pre-dispatch quality checks were added to prevent this happening again.

In addition, Manufacturing focussed on the following key initiatives for 2022:

• An ESG roadmap was developed.
• New and improved products were developed.
• Famous Brands Coffee Company moved to a new, more efficient site.
• A two-year wage negotiation aligned with a consumer price index (CPI)-based approach was concluded.
• Major hazardous installation gaps were resolved at the Midrand Head Office and Midrand Meat Plant.
• Implemented a new bacon production system to manage pork costs. Lamberts Bay Foods migrated to the Group’s finance system, Sage X3, eliminating the need for month-end merging of numbers for consolidation and simplifying training and system requirements.
• Person machine interface, an additional module of our main maintenance management system, was introduced and implemented at the Famous Brands Ice Cream Plant. This allows for hour by hour tracking of throughput and quality control for the plant.

Capex increased to R57 million (2021: R20 million), including deferred projects from 2021.

Food safety risk was managed well, and no plant stoppages occurred during the year. 100% food safety accreditation at all manufacturing facilities was achieved.

Logistics

Performance and focus areas

The performance of Logistics improved due to the easing of COVID-19 restrictions, although this was slowed down by the COVID-19 third and fourth wave and July’s civil unrest. July’s taxi strike in the Western Cape also slowed the recovery in that province. Logistics turnover increased by 35% to R4 billion (2021: R3 billion). The operating margin increased to 1.5% (2021: -0.4%), while national case volumes grew by 53.5%.

July’s unrest in Gauteng and KwaZulu-Natal significantly impacted the Logistics business. Revenue losses to the KwaZulu-Natal logistics division amounted to approximately R62 million. The KwaZulu-Natal Distribution Centre was damaged and closed for three weeks before it became fully operational. Our business continuity plan ensured we delivered stock to franchisees through cross-docking and the use of other depots. This proved to be a good stress test for our business continuity plan.

Famous Brands extended the lease of the Crown Mines Distribution Centre until 2024 while the depot’s relocation project is in process. We reviewed the layout of the Eastern Cape Province Distribution Centre to increase capacity and efficiency and extended the lease to 2024 while we discuss commercial rates for possible future expansion. The new KwaZulu-Natal Distribution Centre was approved, and we are finalising the lease and development agreements.

The fleet mix review per depot was completed with the reallocation in progress. We upgraded various systems to unlock operational efficiencies and gain greater visibility of key metrics. This included upgrading the drivers’ tracking system with dashcams and other tools to improve driver behaviour and safety.

We implemented an AARTO management system to align with the new AARTO Act that went live in July 2021. The implementation process included a review of all policies and procedures associated with the act.

Thanks to a renewed and continuous management focus on safety, all depots achieved a four-star NOSA rating for safety.

Capital expenditure of R3 million (2021: R4 million) was incurred.

Retail

Performance and focus areas

The Retail business continued with its strong performance with a 47% increase in sales to R222 million (2021: R151 million). This is in line with the trend towards increased home consumption. We launched 16 new product lines, including dressings, sauces, private label and own-brand coffee blends and a new type of meat patty. While the introduction of new products was slow in the first half of 2022 due to retailers looking to limit in-store promotions due to COVID-19, new product introductions have picked up.

Group associates

Famous Brands holds strategic stakes in the following entities: UAC Restaurants Limited in Nigeria and Sauce Advertising, DHQ and FoodConnect in SA.

Shareholding owned by the Group

49%

This business comprises the Mr Bigg’s and Debonairs Pizza brands in Nigeria, as well as a central kitchen (bakery and manufacturing) and distribution component.

Shareholding owned by the Group

37%

Sauce Advertising assists the Group by providing enhanced marketing capabilities and leveraging marketing spend to improve the business’s competence in the digital market.

Shareholding owned by the Group

49%

FoodConnect is a sales and distribution business in the food and beverage sector. It owns the rights to the Group’s Baltimore ice cream brand and distributes the product to third parties. This provides Famous Brands with a strategic route-to-market. As a Level 2 BBBEE contributor, FoodConnect supports the Group’s transformation agenda.

Shareholding owned by the Group

49%

In March 2021, Famous Brands Design Studio (Pty) Ltd, a non-core asset trading as DHQ transitioned to an associate company. DHQ provides restaurant planning and design services to the Group and third-party clients. Famous Brands now holds 49% (formerly 60%) after the creation of the DHQ employees’ share trust. Famous Brands donated the shares to the trust.