Famous Brands: Wakaberry founders hit jackpot after just two years

KEVIN HEDDERWICKWith consumers coming under pressure and retail sales starting to look softer, a company like Famous Brands has its work cut out for it to keep sales and earnings up. Famous Brands brands, which include fast food brands like Steers, Debonairs, Milky Lane and Juicy Lucy and more upmarket brands like Tashas, Europa, and Mugg & Bean, are mostly aimed at the mass market – at South Africans with some disposable income and a taste for tasty things. When consumers come under pressure, it usually means cutting out the luxuries, so Famous Brands is vulnerable to a slowdown. However, the company is gearing up to keep earnings up, acquiring frozen yogurt chain Wakaberry and focusing on margins to ensure that it continues to offer consumers a compelling proposition. – FD

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GUGULETHU MFUPHI:  Famous Brands has just acquired a 70 percent stake in Wakaberry Frozen Yoghurt Bar.  This transaction is said to be effective from the 1st of April.  Joining us now for more is Kevin Hedderwick.  He is the Chief Executive of Famous Brands.  Kevin, a very interesting deal that you’ve done here, but perhaps, always in line with what your strategy has been.  How did the talks between yourself and Wakaberry come about?

KEVIN HEDDERWICK:  From a Famous Brands perspective the marketplace knows we’ve always been a business that’s acquisitive by nature.  Essentially, what we do is we’re always looking for ‘best in class’ concepts as well as concepts that are possibly, in this particular case, creating new categories.

GUGULETHU MFUPHI:  Kevin, the frozen yoghurt is very popular in the U.S. and is now also managing to find its feet in South Africa.  The long-term plan you have with Wakaberry under your wing…

KEVIN HEDDERWICK:  At the moment, the network consists of 33 franchise stores across eight provinces and by June, there’ll probably be in the order of about 40.  We’d be very disappointed if, in the next twelve months or so, we don’t have a network that consists of around 50 restaurants.  We think the category though, still has some strong upside potential and we reversed into the Famous Brands network.  I think there’s a lot of reason to be positive about the growth, going forward.

ALEC HOGG:  Kevin, it’s really a bit ‘thumbs up’ to Ken and Michelle Fourie for starting this in 2011.  It was just the other day.  What did you pay for this 70 percent?

KEVIN HEDDERWICK:  We’ve agreed not to disclose that right now Alec, so I’d rather honour that agreement we have with the vendors.  Your point, I think, is that Ken and Michelle have done a marvellous job, joined more recently by David Clark – or, from the outside, by David Clark.  They’ve taken a category they were exposed to in America, brought it to South Africa, and really developed that category amongst the South African consumer.

ALEC HOGG:  Well, I hope we’re going to be able to pick it up in your annual report.

KEVIN HEDDERWICK:  You will be able to.

ALEC HOGG:  You need to disclose these things.  It’s silly not to do it now, but that’s your prerogative.  What I’m getting at here, is when people get lots of money, they tend to become perhaps a little less entrepreneurial.  How do you keep them interested?

KEVIN HEDDERWICK:  I think the fact that they still have 30 percent in the business, which is only two years old and a business that has a partner of the stature of Famous Brands, is certainly going to keep them interested.  They’re entrepreneurial by nature, as you say, and there’s a strong upside for them going forward.  What we’re also looking for, is a degree of continuity, particularly with a franchised network, so that we don’t destabilise the network in the short term.

ALEC HOGG:  A big question of course – and I take this from personal experience of Mugg & Bean, which was always the place, in the past, where you knew you got massive helpings.  Now it’s been corporatized and those helpings aren’t as big as they used to be.  Isn’t that a concern that as you bring in these corporate disciplines, that you might in fact affect the brand?

KEVIN HEDDERWICK:  Well, with regard to the Mugg & Bean, we would obviously differ because I think if there’s one thing that Mugg & Bean still stands for – and it’s played back to us by consumers all the time – is one word…generosity.  I don’t think we’ve done anything purposely to reduce the size of the portions in Mugg & Bean.  In fact, on the contrary, a lot of the playback we get is that the portions are too big.  The nice thing about the Wakaberry brand though, is that the system is quite unique and novel in that you weigh and pay.  You’re helping yourself, so the size of the portion in terms of large or small, is dictated by the consumers themselves.

ALEC HOGG:  So the quality will stay the same.  Thanks for that, Kevin.  I’ll pick up with the manager of that Mugg & Bean next time and tell him what the big boss has to say about it.

KEVIN HEDDERWICK:  Please do.

(As fate would have it, our family went for dinner at the Mugg & Bean in Cresta the evening of this interview. The size of the helpings were, as the CEO claimed, extremely “generous”. So my previous experience (breakfast at M&B Killarney) must have been an aberration. Nice to know things haven’t changed since the legendary Ben Filmalter sold. – AH)

ALEC HOGG:  The move towards frozen yoghurt from ice cream: this is a megatrend around the world, isn’t it?  I guess that must have also attracted your attention.

KEVIN HEDDERWICK:  Yes, we’ve seen it in the United States and Europe.  We’ve looked at those markets and the category has literally exploded.  Certainly, in South Africa, if you look at the frozen yoghurt landscape,  there’s probably of the order of around 80 different stand-alone frozen yoghurt bars and that has developed over a two-year cycle.  That type of growth in terms of a stand-alone new concept is phenomenal by South African standards.

GUGULETHU MFUPHI:  Kevin, just to close off with, a moment ago we spoke to an EY representative, who indicated that in the first quarter of this year, retail sales had slowed down – probably indicative of what might happen for the rest of the year.  How are you hoping to defend yourself, as well as your market share, against the tough consumer environment we’re in?  Could we perhaps see more promotions?

KEVIN HEDDERWICK:  I was listening to the back end of that conversation while I was hanging on to talk to you.  I think there are probably two words that are synonymous right now across the retail landscape, and particularly so where you are talking to the mainstream middle-income South African consumer, and that’s ‘margin pressure’.  I think that we’re having to give that consumer a very good reason to shop with us and unless you do, they won’t find you.

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