Famous Brands Ltd.

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Famous Brands Ltd.

P.O. Box 2884
Halfway House, 1685
South Africa
Telephone: (27 011) 315 3000
Fax: (27 011) 315 0059
Web site: http://www.famousbrands.co.za

Public Company
Incorporated: 1969 as Steers Holdings Ltd.
Employees: 5,540
Sales: ZAR $669.2 million ($96 million) (2006)
Stock Exchanges: Johannesburg
Ticker Symbol: FBR
NAIC: 722211 Limited-Service Restaurants

South Africa’s Famous Brands Ltd. (formerly known as Steers Holding Ltd.) is the parent company for the Steers hamburger franchise as well as several other fast-food concerns. Wimpy, another Famous Brands burger chain, offers several formats, including a retro diner called Wimpy Roadhouse; Wimpy Play World, aimed at children; Halaal, catering to Muslims; and a foodservice operation in Engen gas stations. In addition, Famous Brands works with Royal Dutch Shell plc, operating Whistle Stop fast-food restaurants (offering breakfast, lunch, and dinner as well as late-night snacks) at three-dozen Shell gas stations in South Africa and Botswana. The Famous Brands concept Debonairs Pizza is one of Africa’s leading pizza franchises, offering pizza as well as submarine sandwiches and wraps. The FishAways franchise offers fish and chips and a variety of seafood dishes. Famous Brands is also involved in the coffee bar business with a pair of brands: Brazilian Coffee Shops and House of Coffees.

The company’s Food Services division not only provides products to the franchised operations but also manufactures items for retail sale through supermarkets, including Steers’ sauces and spices and a variety of whole foods, snacks, and condiments under the Pouyoukas Foods label. In addition, the division houses Famous Brands’ fruit juice subsidiary, Trufruit (Pty) Ltd, and its ice cream unit, Baltimore Foods (Pty) Ltd. The Corporate Services division handles all of the subsidiaries’ financial, human resources, legal, information technology, and facilities management needs. Famous Brands is a public company, listed on the Johannesburg Stock Exchange, and it continues to be run by the family of its founder.

MID-20TH CENTURY ORIGINS

Famous Brands was founded by George Halamandres, born in South Africa to second-generation Greek immigrants. As a young adult in the 1950s he spent five years in the United States, where he became enamored with American restaurant concepts. Upon his return to South Africa in the early 1960s he launched a chain of Milky Lane ice cream parlors, soon followed by the country’s first steakhouse, the Rosebank Golden Spur. Subsequent steakhouses took the names Seven Steers and Black Steer. Halamandres relied on recipes he picked up in the United States, at a time when it was not uncommon to simply pay a visit to a chef to request a recipe. In 1969, Halamandres incorporated his concern as Steer Holdings.

In 1970 Halamandres turned his attention to fast food, opening his first hamburger restaurant, called Steers, in Jeppe, South Africa. Soon he had help in growing the business through franchising. In addition to his sons, George, Jr., and John Halamandres, he took on a pair of Greek nephews, Panayiotis and Theofanis Halamandaris, their names spelled differently because of an immigration officer’s clerical error when the father of George Halamandres originally came to South Africa. By the mid-1970s they had grown the Steers chain to about 35 units and had spread beyond South Africa to Rhodesia. They also eventually opened three restaurants in Israel under the Burger Ranch banner.

The chain’s strong growth was stunted, however, when George, Jr., died, an event that had a profound effect on his father. The business suffered, as a number of franchising licenses expired and were not renewed. In the late 1970s the remaining franchised units were sold to the franchisees, leaving the parent company with a Johannesburg distribution center and several company-owned units.

Even before George, Sr., died in 1984, the second generation of the family was taking steps to revive Steers. A third Halamandaris brother, Perikles, was involved, with the three of them running Steers franchises while John Halamandres operated the central kitchen. In 1983 they developed a new franchising effort and a year later placed a single small advertisement in a South African newspaper to recruit new franchisees. The response was overwhelming, some 200 telephone calls in mere hours, and soon new Steers stores were opening in the Johannesburg suburbs of Benoni, Black-heath, and Edenvale. Others followed at a steady clip, and by the end of the 1980s the brand expanded beyond South Africa to Swaziland. In addition, in 1985 Steers began selling products through supermarkets.

TAKEN PUBLIC: 1994

In 1993 Steers moved into Botswana, and in 1995 the first unit in Zimbabwe opened. In between, in 1994, Steers Holdings was taken public and gained a listing on the Johannesburg Stock Exchange. Despite strong growth and twice being named Franchisor of the Year as well as Brandbuilder of the Year by the Franchise Association of Southern Africa, Steers faced a serious challenge when in November 1995 McDonald’s opened its first restaurant in South Africa. More units followed at a furious clip, with 30 restaurants opening in less than two years.

Steers responded to the challenge of McDonald’s by diversifying. It acquired the 26-unit Longhorn steak-house chain in South Africa in late 1995. Some of the units were closed and others converted to the Steers concept, leaving nine Longhorn steakhouses catering to the upper market. With Steers appealing to the middle market, the company in 1996 launched a new concept to attract the lower portion of the market, the Mighty Pie chain, which sold meat pies that relied on Steers sauces and spices. In short order a dozen units were in operation, but Mighty Pie was not a concept that would ultimately prove successful. The Steers owners also became franchisees of Blockbuster Video, building up a chain of around 45 stores, but this enterprise was never folded into Steers Holdings.

Steers enjoyed better success with the 1997 acquisition of the 23-unit Debonairs Pizza chain. That enterprise had been founded in 1991 by a pair of college students, Craig McKenzie and Andrew Harvey. Like George Halamandres, McKenzie was influenced by a visit to the United States. He became inspired to bring the pizza delivery concept to South Africa, where takeout was limited and delivery nonexistent. He joined forces with Harvey, who possessed the computer knowledge to set up a delivery system. The pizzas were initially made after hours in the bakery section of a supermarket owned by the McKenzie family. They were delivered by young men wearing bow ties, in keeping with the “debonair” image the partners wanted to convey. The young men expanded the Debonairs chain over the next few years, then sold it to Steers to take the business to the next level. Neither McKenzie or Harvey stayed on for long, however, both being uninterested in working in a corporate environment.

COMPANY PERSPECTIVES

The success of the Group is founded on years of expertise in providing top quality products and attractive franchised concepts.

Steers held its own against McDonald’s, whose hamburgers did not especially appeal to the taste buds of South Africans, who preferred flame-grilled meat. Steers also actively took steps to reinvent its brand to better compete against the multinational giant. Management studied fast-food trends in the United States, England, Canada, and Australia and then redeveloped the Steers menu, placing more emphasis on combination meals and specials. The chain’s traditional Western decor was also replaced by a more contemporary look. In addition, Steers emulated McDonald’s by adding a drive-through format. Steers also developed two other franchise concepts: Steers Fast Land and Steers Canteen, which could be operated with the structure of a corporate or industrial cafeteria. Scaled-down Steers outlets were also developed to be run out of gas stations, and agreements were reached with Shell, Engen, BP, and Total.

Steers continued to expand and diversify in the second half of the 1990s. Steers restaurants opened in Kenya and Mauritius in 1996, and two years later units were added in Zambia, Tanzania, and Ivory Coast. Also in 1999 Steers became involved in seafood, the fast-food restaurant concept FishAways, a joint venture with the Ocean Basket chain of full-service seafood restaurants. The alliance was short-lived, however, as Steers bought out its partner in 2001. As a result of steady growth, Steers’ revenues exceeded ZAR 125 million in fiscal 1998 and totaled nearly ZAR 185.5 million in the final year of the decade. The number of branded outlets topped 300 as the century came to a close.

Sales increased to ZAR 237.8 million in fiscal 2000, but business trailed off in the following year when the company was presented with its most challenging economic conditions since becoming a publicly listed company. Although revenues fell to ZAR 235.5 million in fiscal 2001, Steers was able to maintain operating profits, which only dipped from ZAR 25.1 million to slightly less than ZAR 25 million.

To spur further growth, Steers looked to a new category: chicken. In late 2001 the company forged a deal with the U.S.-based fast-food chicken chain, Church’s Chicken, owned by Atlanta’s AFC Enterprises, the second largest chicken franchising company in the world with sales of $2.4 billion a year. Steers began to open units in South Africa in the spring of 2002 and also held the rights to Church’s in 18 other African nations. It faced stiff competition from KFC and other well established major players, such as Nando’s, Chicken Licken, Mochadados, and smaller competitors such as Pick-A-Chick and Chickenland. Several years earlier the third largest American chicken chain, Chick-Fil-A had made a much ballyhooed bid to enter the South African market but enjoyed limited success. Indeed, Steers quickly grew wary of the chicken segment, which did not perform as well as the company had hoped. Following a November 2003 review, Steers elected to terminate its agreement with Church’s business and focus its resources on other opportunities.

COFFEE ASSETS ADDED: 2003

One of those ventures was Pouyoukas Foods. In 2003 Steers paid ZAR 1.6 million to acquire the remaining 25 percent stake in the maker of sauces and garnishes that it had first invested in five years before. Also in 2003 Steers became involved in the fast-growing coffee sector by acquiring Creative Coffee Franchise Systems, which held the rights to such brands as House of Coffees, Illy Boutiques, and Brazilian Coffee Shops. At the time, the category was far from saturated in South Africa. Starbucks had not yet entered the market, and only one U.S. franchiser, Tribeca, had any outlets in the country.

In June 2003 Steers suffered a fire that destroyed a warehouse and inflicted smoke damage on the administrative building. Fortunately, because it occurred early in the day there were no injuries. The fire destroyed the company’s computer system, but a disaster recovery plan had been installed and Steers was able to quickly set up alternative information technology equipment at a different location. Coupled with temporary warehousing arrangements, Steers was able to service its more than 500 franchised units with few complications.

KEY DATES

1969:: Business is incorporated.
1970:: The first Steers fast-food restaurant opens.
1983:: New franchising concept launched.
1994:: Steers Holdings is listed on Johannesburg Stock Exchange.
1997:: Debonairs Pizza is acquired.
2003:: Pleasure Foods is acquired.
2004:: Steers Holdings becomes Famous Brands.

Steers reached a critical juncture in its history in 2003, faced with the decision of either growing much larger or selling out to someone bigger. It opted for the former course and in late 2003 acquired Pleasure Foods (Pty) Ltd., paying ZAR 150.6 million in what was the largest deal ever in South Africa’s fast-food industry. Steers picked up 373 Wimpy restaurants and 36 Whistle Stop outlets. As a result, Steers’ portfolio included nearly 1,000 units in South Africa, Swaziland, Botswana, Zimbabwe, Kenya, Mozambique, Egypt, Zambia, Tanzania, Ivory Coast, and Mauritius, making it Africa’s largest fast-food group. Revenues now increased to ZAR 292 million in fiscal 2003, and the following year when the new brands made a further contribution sales swelled to ZAR 363 million. Operating profit increased from ZAR 24 million to ZAR 41 million.

To better reflect the company’s new position, and to differentiate Steers Holding from the Steer’s brand, the Famous Brands name was adopted in 2004. While digesting the Pleasure Foods acquisition, Famous Brands focused on internal growth in fiscal 2004. In 2005 it was ready to resume making strategic acquisitions. In May 2005 Famous Brands acquired Trufruit (Pty) Ltd., a South African manufacturer of fresh and pasteurized premium fruit juices. The goal was to leverage the Famous Brand stable of franchise operations to increase Trufruit sales, as well as use Famous Brand’s clout to sell Trufruit products to other foodservice channels. In that same month Famous Brands also acquired Baltimore Foods, a South African maker of soft serve ice cream and a Wimpy supplier.

Revenues improved to ZAR 464.7 million in fiscal 2005 and operating profit more than doubled to ZAR 93.2 million. The surge continued in fiscal 2006, when sales approached ZAR 670 million and operating profit exceeded ZAR 109 million. With a well-rounded collection of fast-food concepts in hand, a seasoned management team on board, and a strong footprint in Africa there was every reason to believe that even greater success lay ahead for Famous Brands.

Ed Dinger