Kevin Hedderwick is my favourite kind of CEO. Modest, hard-working, disciplined and for most of his career, operating under the radar. He believes in finding the right processes and driving their efficient implementation. Once that’s in place, pumping fresh capital into an already successful and proven model. This focused approach has rocketed Famous Brands from a nondescript business that owned a single brand (Steers) into a R10bn machine that dominates its home market in South Africa. Today’s announcement that Hedderwick has secured a 49% stake in Nigeria’s biggest fast food operation is likely to prove transformative for Famous Brands. The well named Mr Bigg’s has been operating for 25 years and has 165 outlets. The deal doubles the Famous Brands non-SA African footprint and as you’ll hear from my interview with Hedderwick today, provides the platform from which to launch Debonairs pizzas, Steers burgers and Wimpy breakfasts into the continent’s most populous nation. This is an overnight success story that has taken decades to develop. And a stock to put into your bottom drawer and forget about. Hedderwick won’t disappoint. – AH
To watch my interview with Kevin Hedderwick on CNBC Africa’s Power Lunch click here.
ALEC HOGG: Famous Brands has doubled its footprint into the rest of Africa with the acquisition of just under half of a Nigerian brand called Mr Bigg’s. Chatting to us about this is the company’s Chief Executive, Kevin Hedderwick. Good to see you, Kevin. Mr Bigg’s – what a great name – been around for a long time.
KEVIN HEDDERWICK: Yes, a 25-yr old brand and the leading brand in Nigeria in terms of fast foods.
ALEC HOGG: And you’ve been in Nigeria for a few years already, so no doubt competed [with them].
KEVIN HEDDERWICK: We’ve been there for 11 years, yes, through a master license arrangement and subsequently a franchise agreement, but very slow in terms of growth although we have had some acceleration in the last two years. But of course, this transaction just catapults us to another league altogether.
ALEC HOGG: What’s a master franchise agreement?
KEVIN HEDDERWICK: Master franchise agreement; we source somewhat in-country and they do what we do in South Africa and we share the revenue stream.
ALEC HOGG: Looking through your information that you have on your cents report you’ve only got seven restaurants. Is that seven outlets in total in Nigeria?
KEVIN HEDDERWICK: Eight.
ALEC HOGG: Let me just sort out your website. No, I think it’s your PR people. But if there’s eight current famous brand restaurants, what brands are they?
KEVIN HEDDERWICK: Debonairs, Steers, fishaways and we’ve just recently added Mugg & Bean.
ALEC HOGG: So it’s tiny relative to other parts of the country.
KEVIN HEDDERWICK: Very small – really fragmented, and we’re in the process of trial and error. I do think that if we had our lives all over again it would probably really just be Steers and Debonairs and maybe Mugg & Bean – ja.
ALEC HOGG: While you were there, though, it no doubt gave you a window into what’s happening in the country.
KEVIN HEDDERWICK: Yes. We’ve been there and we’ve taken a hard look at the country, but everybody has. Nigeria’s on everybody’s radar screen. I met Larry Ettah, the CEO of UAC some years ago and we’ve stayed in contact with one another, so this transaction has been the best part of 18 months in the making. During that time we’ve spent a lot of time looking at the market, looking at the business and similarly they too have come and had a hard look at South Africa and what they think we can add to that business.
ALEC HOGG: Tell us about Mr Biggs.
KEVIN HEDDERWICK: It’s an interesting brand. As I’ve said it’s been around [for] 25 years. It is 167 restaurants strong, so by far and away the greatest outside of Southern Africa in terms of numbers of restaurants. It has a very diverse menu. It serves chicken. It serves burgers. It sells a lot of pies. It also is a nice business in the sense that it aligns with what we think our core competencies are. It has a Supply Chain component in manufacturing as well, so we think that if you look at that business it certainly is a smaller version of what we think we’ve been able to do in South Africa in terms of building capabilities, manufacturing, logistics and branding.
ALEC HOGG: Kevin, we’ve spoken a lot over the years about the way that you approach businesses. It’s not necessary that you eat a lot of burgers but that in fact you get the processes right. Have you had a chance to look at the processes there?
KEVIN HEDDERWICK: Yeah, we have. I think that’s what excites us about it. I think that what the UAC people have developed over time is that they’ve got some good real estate. They’ve got a brand that’s highly-recognisable. We think that in a total sense it’s a fantastic asset, but what we think they’re short of – and I think that’s what Larry would agree – is that they need some good people and processes and we think that we can overlay that over that business and make it a much better business than it is right now.
ALEC HOGG: It seems very diverse though; from pies to chicken to burgers. Would you trim down the menu?
KEVIN HEDDERWICK: I think what we’ve got to do is get a far more intimate understanding of the consumer that frequents the Mr Biggs outlet and we haven’t done any of that necessarily, yet. But I think it would be naïve of us to rush in there and think we can change the menu. I think what we’ve got to do first and foremost is improve the experience and that’s probably the experience when you’re interfacing with the customer and also the quality of the product. But I think what we won’t be doing is charging in there and wanting to ‘Famous Brands’ the business overnight. We’ve got to take Mr Biggs and make it a better business.
ALEC HOGG: Have you eaten there?
KEVIN HEDDERWICK: I have – ja.
ALEC HOGG: And?
KEVIN HEDDERWICK: It’s been interesting. The product’s very different from South Africa. I tasted the pie, the burgers and the chicken. It serves the bottom end of the Nigerian market where there are a lot of people around, so certainly we think there’s an opportunity to improve the quality of the offering.
ALEC HOGG: You say it catapults you or transforms your Nigerian operation. Does it give you a base now to launch more Steers, Wimpy’s or other brands?
KEVIN HEDDERWICK: There’s no question. I think that what we will do in Nigeria is that we’ll use the connection with UAC as the beachhead now to take some of our other brands and ramp them up. I think that there’s no substitute for having the right type of partner in place in a place like Nigeria, and obviously in Lagos. So we will certainly want to vend Steers and Debonairs and particularly Debonairs into this venture and we think that the opportunity to ramp a business like Debonairs up in particularly through that beachhead is going to be substantial.
ALEC HOGG: So it’s a joint venture. 49% owned by yourselves and 51% owned by UAC. In that joint venture at the moment: just Mr Biggs.
KEVIN HEDDERWICK: Just Mr Biggs. But what we want to do is put into that business our Famous Brands as well. So brand repertoire for the new company will include Steers, Debonairs and any other brands we might want to take there over time.
ALEC HOGG: How many of the Mr Biggs outlets will be owned by the joint venture? I.e. how many are franchised?
KEVIN HEDDERWICK: I think that’s part of the reason the transaction took a bit longer than we would like because when we first made contact with them they had a strong presence of company-owned stores and I think as you know from a Famous Brands perspective, our view is that we’re not company-owned store people. We like to manage franchise businesses. So they have, over the last 18 months, converted that entire network into franchise so it is now a pure franchise model, similar to what we have in South Africa.
ALEC HOGG: So 18 months ago you planted seeds which have germinated.
KEVIN HEDDERWICK: Ja. It’s been a long journey.
ALEC HOGG: You haven’t disclosed a financial or a consideration for this transaction. Why?
KEVIN HEDDERWICK: I think both parties have agreed not to do it but it will come out in our annual report when it does come out, but it’s just by mutual agreement.
ALEC HOGG: But how significant is it?
KEVIN HEDDERWICK: Look, in terms of store numbers it’s significant. The contribution of turnover to our Africa business right now is about 8%. We think that if you take this business and you vend it in it will probably get up to about 13/14%,
ALEC HOGG: Where do you want to take that to?
KEVIN HEDDERWICK: Look, we’ve got high hopes. We’re ambitious about Africa. I think we have been for a long time. We’ve been there for 15 years. Everybody’s scrambling to get into Africa right now but we said six months ago before we signed on the dotted line; ‘Mr Biggs what we want to do in Africa is to double the size of our footprint in three years, which will take us to 400 restaurants’. Having done this, we’ve got 350 now so we still haven’t taken away the view that we want to double our size in Africa. So in the next two years I’d be very disappointed if ‘famous brands’ doesn’t have a network outside of South Africa, of 500 restaurants.
ALEC HOGG: The interesting thing is though, the focus that you have in other parts of the continent outside of South Africa…Namibia – clearly it’s a border (30 stores), Botswana (28), Kenya (13) and everything else is in single figures, so there’s a lot of upside.
KEVIN HEDDERWICK: Yes there is. And I think we sort of re-strategized our position with regard to Africa. In the early days you got seduced by the numbers so our strategy for Africa now really is based on two words: deep and narrow. We don’t want to go to all the counties in Africa. We’ve identified the countries we want to be in and we want to go in there in a very narrow sense. In other words, with brands; Debonairs, Steers, Wimpy and Mugg & Bean. That’s going to be at the forefront of it and not be seduced like we have done in the past – putting a Milky Lane into DRC. It’s just become very expensive to service.
ALEC HOGG: Kevin Hedderwick, Chief Executive of Famous Brands; big story there – transformative transaction. When we look back in ten years’ time I have no doubt that that’s the way we will be interpreting this. That was Kevin Hedderwick, Chief Executive of Famous Brands.
