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Bidfood |
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Bidfood serves the hospitality,
leisure and catering markets with a comprehensive
range of food products and consumables. The division
also manufactures and distributes premixes, food
ingredients, spices, seasonings and other products
to the bakery, poultry, meat and food-processing
industries and is represented in all important
urban areas and tourist centres across southern
Africa. |
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Revenue
reaches R3,7 billion, up 12,7% |
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Operating
profit of R299,8 million |
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Caterplus
and Combined Foods division
consolidated to form Bidfood |
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Bidbake
and Crown National relocate
to world-class, purpose-built
premises |
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Significant
inroads into independent foodservice
market |
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BidBro’s
Cash and Carry concept launched;
national roll-out imminent |
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Colin
Kretzmann
Chief
executive |
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Introduction |
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Bidfood entrenched its position as an industry
leader differentiated by high quality and market
innovation. The relocation of Crown National and
Bidbake to state-of-the-art manufacturing and
distribution facilities at Longmeadow east of
Johannesburg has underlined the division’s
quality profile.
Bidbake’s new Longmeadow manufacturing plant
is very close to being HACCP compliant. An increasing
number of major accounts insist on HACCP standards.
Our adherence to strict quality standards is a
key factor as we strive to expand our customer-base
and improve our share of the market.
Strong demand for high-quality local and imported
brands in the speciality foods sector created
marketing opportunities for Patleys, which registered
pleasing growth. Significant inroads were also
made into the independent segment of the foodservice
market.
Revenue increased by 12,7% to R3,7 billion. Improvements
were largely the result of organic growth.
Trading conditions were challenging and judicious
margin management was demanded in a largely low-inflation
climate. However, no jobs were shed and modest
jobs growth was achieved in some business units.
Bidfood has a workforce of 4 060.
Trading profit declined 5,2% to R299,8 million. |
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Crown
National and Bidbake
the new premises for Crown National and Bidbake’s
distribution and marketing services |
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Macro-economic
factors |
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The trading environment was
characterised by positive business sentiment,
continued economic growth, stable interest rates
and buoyant consumer confidence. The stronger
rand showed great resilience, undermining the
perception that South Africa remained a “cheap”
tourist destination and reducing the international
visitor’s spending power after converting
to rand. Exchange rate factors ensured continued
competition from other foreign tourist destinations.
General expense inflation remained well controlled;
with food inflation at historically low levels,
offset by exceptionally high distribution costs. |
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D
& R Lowe
supplies the catering
industry |
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BidBro’s
new cash and carry concept |
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M&M
Quality Choice
is a leading supplier of
groceries and allied products
to the catering, hospitality and
foodservice industry in Gauteng |
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| Industry-related
issues |
Relatively high
wage settlement, low food inflation
and high fuel costs have had a negative
impact on the foodservice wholesaling
industry. The impact of the fuel price
increase is material for a distribution-based
business. Wages, rentals and transport
costs significantly outstrip the general
level of food inflation while the
low inflationary environment strengthens
resistance to price rises across Bidfood’s
customer-base. Internal inflation
has to be absorbed rather than passed
on, creating constant pressure on
margins. Prices have been driven lower
on many product lines.
Rising house prices, low interest
rates and increased access to credit
have added to the “feel-good
factor” at consumer level, but
the knock-on effect is not as positive
in the restaurant sector as one might
imagine. No significant increase in
out-of-home eating has taken place.
Fear of street crime may be a factor.
In contrast, we see a strong trend
towards in-home eating and home entertainment.
As a consequence, strong growth is
evident in convenience foods. Stronger
sales of “special occasion”
food items and paper products are
also apparent. Prolonged rand strength
and stable pricing of imported foods
have fostered the appetite for some
international products, a positive
factor that helped to drive Patleys’
strong performance. |
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In the baking industry, the
large plant bakeries have established qualitative
superiority over small in-store bakeries, which
now focus increasingly on confectionery items.
Bidfood has strengthened its relationship with
major bakeries by developing an advanced range
of cream yeast dispensers and batch control procedures.
This initiative was undertaken in collaboration
with the product providers and yields considerable
operational efficiencies. Unfortunately, the yeast
industry has been forced to reduce margins to
combat the threat of yeast imports. |
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Business risks |
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Public health issues and other
health risks can affect food consumption patterns.
An outbreak of Newcastle poultry disease caused
a drop in chicken sales. The prospect of widespread
outbreaks of avian flu caused disquiet internationally,
but has had no effect in the South African market.
These risks are managed through diversification.
Bidfood has a strong position across all food
groups.
Relatively low barriers to entry permit opportunistic
competition from non-traditional quarters. A new
direct importer may achieve short-term price advantage
in a specific line. An energetic response is necessary
and has been implemented. Strong relationships
with international suppliers are also helpful
when pricing flexibility is necessary.
The business is affected by exchange rate risk,
but an extensive range of local and international
products provides a measure of balance. A strong
rand can also affect tourist patterns as it turns
South Africa into a relatively expensive long-haul
destination for high-spending visitors from North
America and Europe. Overall tourist numbers may
appear to be unaffected, but recent tourist growth
tends to come from visitors from Africa on shopping
trips. Their spending is not usually focused on
hotels and restaurants and consequently is not
beneficial for our market.
This risk is managed to some extent at national
policy level as tourism industry planners focus
increasingly on leveraging the spend per visitor.
The growth of sports tourism is materialising
and some success is being achieved in putting
South Africa on the map as an international convention
destination.
As a major industry player, we experience the
general business risk of intense competition from
smaller, niche-focused operators. However, our
national distribution capability and broad footprint
make us the natural partner of major international
and national brands. We increasingly operate as
the strategic partner of our customers –
further defence against competitive attack. |
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Sensitivity analysis |
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The critical risk factor affecting
all aspects of the business is food safety, particularly
in the context of food tampering. Public concerns
about the safety of food would affect consumption
patterns and have material impact on Bidfood activities.
In general terms, public confidence can be maintained
by stringent quality controls and appropriate
packaging solutions, but criminal acts of sabotage
to deliberately contaminate the food supply can
be extremely difficult to combat. |
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Structures and
growth |
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Caterplus and Combined Foods
have been consolidated into a single division,
Bidfood. The change of name and formal integration
recognised the operational reality as close cooperation
across business units has been a factor for some
time. The new structure involved no disruption.
Revenue gains are largely a function of organic
growth. A small acquisition was concluded involving
a Johannesburg-based manufacturer of toothpicks,
Steri Pic. |
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Crown
National
new distribution facility in Longmeadow, Johannesburg |
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Black economic
empowerment |
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Bidvest’s commitment
to BEE has helped to further strengthen our position
with major clients who increasingly demand that
their suppliers have a credible BEE profile.
Operational units within Bidfood are in the process
of obtaining individual BEE ratings. Progress
is being made across the broad-based BEE scorecard.
Our BEE targets are consistently being measured. |
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New investments |
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The pace of new capital investment
slackened following the commissioning of the Crown
National production facilities in Cape Town and
the construction of the Longmeadow premises for
Bidbake and the Crown Foods Group.
A recapitalisation programme was launched at Lufil
Packaging to enhance manufacturing capacity in
response to strong demand for its range of paper
products.
This will lead to some growth in jobs at this
KwaZulu-Natal operation. |
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Innovations |
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Crown Foods and Bidbake have
collaborated to launch BidBro’s, an innovative
cash-and-carry concept. The first outlet has opened
at Longmeadow, Johannesburg. BidBros carries a
range of bakery ingredients, spices, herbs and
premixes. Initial market response has been positive,
setting the scene for national roll-out of a BidBro’s
cash-and-carry chain.
The purchase of Steri Pic creates a platform for
further penetration of the fast-food sector. Its
flow-wrap technology can be used to supply fast-food
outlets with a single package containing individually
wrapped toothpicks, condiments, vinegar and serviettes.
The handy wrap solution will enable franchises
to keep better control of the consumption of these
items.
To widen the offering of Hotel Amenities Suppliers,
new opportunities are being explored to bring
a broader range of accessories to the hospitality
market.
Vulcan, our catering equipment manufacturing business,
closed the only significant gap in its product
offering by forming an alliance with Desmon, one
of Italy ’s leading suppliers of refrigeration
technology. This will enable Vulcan to enter the
market for up-market refrigeration equipment.
Bidfood responded rapidly to public concerns around
butchery hygiene and official investigations into
the cleanliness of some butchery equipment. The
division is investigating an opportunity to create
an equipment cleaning solution targeted specifically
at the equipment items mentioned in official reports. |
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Challenges |
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Bidfood has a decentralised
structure. We are, therefore, challenged to deliver
a consistently high standard of service across
the organisation. Sustained investment in the
training of our people is essential in all operations.
In 2006, the training investment topped R4,7 million;
4 340 training days were logged.
The in-house First for Service Quality Management
Programme is proving highly effective at sustaining
service quality and motivating higher levels of
performance. Quality people have become a source
of competitive advantage for Bidfood.
Retaining skilled people is an on-going challenge.
It has always been Bidfood policy to develop people
from within. We have now embarked on a programme
to identify and fast-track staff members with
high potential.
Social investment is an opportunity to strengthen
the bond with the communities and industries we
serve. Contributions to the Bidvest community
upliftment effort at Group level are increasingly
complemented by local initiatives, notably the
pilot programme in Cape Town to contribute to
the training of chefs from disadvantaged communities.
Bidfood sponsors a trainee at a chef training
school. Further investment in this project is
envisaged.
The environmental challenge is focused mainly
on waste discharge from Bidfood’s yeast-making
operations. Our Johannesburg-based yeast-manufacturing
joint venture, YeastPro makes use of state-of-the-art
effluent disposal systems. At the NCP yeast factory
in Durban, waste management is accorded high priority.
Close liaison is maintained with city authorities
whose recent reports confirm that initiatives
to dilute toxicity levels are proving successful.
Our current control is acceptable to local authorities,
but work will be continued to achieve improved
standards of waste management.
There has been no slackening in the effort to
provide HIV/Aids support to our people. Education
and awareness training is on-going. Free condoms
are distributed and voluntary counselling provided. |
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The future |
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Some weakening of the rand
has become evident while there is a general expectation
that interest rates may move higher in the coming
months. At the same time, the impact of several
fuel price rises will add to inflationary pressures.
The core challenge for management is to embrace
the discipline of trading in a largely low-inflation
environment.
Crown National (at Montague Gardens, Cape Town)
and Bidbake (at Longmeadow, Johannesburg) have
world-class production facilities that are the
envy of their industries. Modern manufacturing
capabilities create continuing opportunities for
new efficiency gains. These will be vigorously
pursued.
The marketing landscape is being changed by the
rapid emergence of a new middle class. These upwardly
progressive families have an appetite for new
experiences. Demand can be expected to grow for
a wider range of foods. As the distributor and
marketer of one of the widest food ranges in South
Africa we are well positioned to draw benefit
from these trends. The continued emergence of
South Africa as a major events and sporting destination
is evidenced by the fact that the 2010 World Cup
Soccer Tournament will be coming to our country.
These developments are positive for Caterplus.
Margin pressures will continue, but all opportunities
for further growth will be exploited to the full. |
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CATERPLUS CATERING
SUPPLIES |
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Performance was disappointing
in a challenging year. However, the strategy of
seeking new opportunities in the independent catering
sector has begun to gather momentum. Caterplus
will seek wider penetration of this segment of
the market. |
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CATERPLUS FROZEN
FOODS |
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Frozen Foods’ operations
achieved profit growth with a pleasing growth
in the second half. The business unit has entered
into strategic product development and marketing
alliances with certain suppliers. The full benefit
of these arrangements will soon become more evident.
Most significant was the improved market share
as evidenced by top-line growth. |
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SPECIALITY FOODS |
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The speciality foods business
had a successful year. It is well positioned to
derive advantage from a growing consumer appetite
for imported lines and quality food brands and
the growth of home entertainment. |
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CATERING EQUIPMENT |
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Volumes and trading profit
fell in a challenging year for equipment manufacturing
operations as a result of the conclusion of a
major contract to supply feeding schemes in Botswana.
Expansion of the range to include refrigeration
equipment will strengthen Vulcan’s product
offering. |
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PAPER PRODUCTS |
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Sales declined year-on-year
as a distribution contract for a major fast food
chain came to an end. These activities were non-core
and had been entered into to derive opportunistic
advantage from Lufil’s distribution capabilities.
Conclusion of the contract enables Lufil to focus
on core competence. Strong demand for Lufil’s
paper products sets the scene for further growth.
Growth in paper products is strong and the entry
into serviettes is proving very profitable. |
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Bidbake
manufactures and distributes
a wide range of pre-mixed,
convenience products and
ingredients and bakery
consumables |
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| HOSPITALITY
ACCESSORIES |
| Good growth in
revenue was achieved. At year-end,
Hotel Amenities Supplies won a major
contract to supply a leading hotel
group. Opportunities are being explored
to expand its product offering to
the independent hotel sector. Steri
Pic’s acquisition creates new
marketing opportunities in the fast-food
sector. A good level of profit growth
was recorded. |
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| BIDBAKE |
| The business experienced
a disappointing year, though pre-mix
volumes are showing encouraging growth.
Import competition in the dry-yeast
field drove prices down. A major brewing
industry customer was unfortunately
lost to an imported product. The yeast
business is now very price-competitive
and margins remain under extreme pressure.
Bidbake aims to improve its share
of the bakery ingredient market in
the short term. |
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CROWN FOODS GROUP |
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The group experienced several
setbacks. The move to the new Longmeadow offices
and distribution facility proved disruptive at
operational level. In addition, severe margin
pressure was experienced on some lines. The import
of soya products by some competitors at very advantageous
prices disrupted the market. This issue was addressed
by our foreign suppliers of soya products and
the business is once again competitive in this
area.
An outbreak of poultry disease caused additional
difficulties.
The net effect was a marginal decline in profits. |
