Famous Brands buys new factory

04-JUL-16

News from Famous Brands this morning, they are buying a tomato paste manufacturer down in the Windy City. That is Port Elizabeth to you and I. The factory was bought in liquidation, Famous Brands also points out that the facility was manufactured for a total cost of around 200 million Rand. There is a shortage of tomato paste in the country, a pretty significant one at that. The country imports between 30 to 35 thousand tons of tomato paste, the company itself is responsible for 1500-2000 tons of that. Michael asked the best question. Sitting here next to me he said, then why did the company go bankrupt? Indeed. Good question, it must have been a pretty nasty experience.

Famous Brands, relatively ungeared, i.e. not much by way of borrowings, plan to fund this through cash resources (Kevin Hedderwick was on TV this morning saying that they paid around R35 million). This will fit really, really nicely into the manufacturing part of the business. Tomato paste is used in the manufacturing of their sauces. As the press release points out, they have 2600 odd restaurants across all the brands, this will fit. Perfectly. This is not their first business down there, the company bought the Coega Cheese Factory in 2013 in PE, changing the name to the Famous Brands Fine Cheese Company (FBFCC). As Kevin Hedderwick (former CEO and now Group Strategic Advisor) reminds us, the production at that facility has grown sharply. It has taken in more than double the amount of milk since they bought it.

The new plant will provide jobs for the community, partnering with local growers of tomatoes. As Hedderwick is quoted as saying: "As soon as possible, we will actively recruit previously disadvantaged farmers in the area for our supplier network. We will also tap into our existing FBFCC farmer base to gauge their interest in this new opportunity." Good work Famous Brands, I would love to know how and why the venture did so poorly before. Expect this to continue to drive manufacturing costs for Famous Brands lower, and that is an excellent thing for all shareholders of the business.

This trend is going to continue. Food preparation and making things easier for consumers is increasingly a big investment theme. The most amazing closed WhatsApp group in the world (called the Vestact Superheroes) was discussing food trends over the weekend, with reference to this piece - Whole Foods Is Getting Killed by Aldi. Is a Millennial Grocery Chain the Fix? The conclusion from Paul was as follows: "That Whole Foods article makes me wants to buy more Starbucks, Amazon, Bidcorp and Famous Brands shares. Why bother to buy groceries? Just buy healthy prepared foods." Got that sportslovers?