Upper Echelon Podcast: Kevin Hedderwick - CEO, Famous Brands
ALEC HOGG: Upper Echelon is brought to you by Deloitte - for innovative thinking and thorough strategic planning turn to Deloitte. Kevin Hedderwick, chief executive of Famous Brands is in our Upper Echelon today and it’s such an interesting story, yours Kevin, hailing from East London, way back. You certainly weren’t born with a silver spoon in your mouth.
KEVIN HEDDERWICK: No not at all. I come from a small seaside resort, a seaside resort those days and ja I am the product of two civil servants.
ALEC HOGG: What got you motivated to do the entrepreneurial stuff that you’ve done over the past 30 or so years?
KEVIN HEDDERWICK: I think I’ve been pretty fortunate to have worked in some wonderful organisations that have prepared me for the job that I do now. I often talk to people and say that what I do now I have been practicing for all my life. I’ve been very blessed to have worked in two magnificent organisations of which one was Distell which is part of the Rembrandt organisation and I was there in the early days and then of course I always talk about SA Breweries being my alma mater, and I suppose probably still is today the finest business school you can go to in South Africa.
ALEC HOGG: Certainly was in the 1980s when you were there.
KEVIN HEDDERWICK: No, it was, even though we used to tease ourselves about SAB was never a monopoly it was a temporary soul supplier which is a big difference. That business certainly … there was a spirit of continuous improvement that was woven in the very fabric of that business all the time.
ALEC HOGG: You probably read Tony Manning’s book called “World Class” where he said at the time of democracy in South Africa, there was only one world class company in South Africa and that was SAB. So it was not surprising, I guess, in your eyes to see how well it has done internationally.
KEVIN HEDDERWICK: It’s a remarkable organisation and if you look at how they have ramped that business up globally and if you go to most of the foreign countries probably all of them are being headed up by South Africans and so I think Graham Mackay had the vision in those days to say that South Africans don’t need to have an inferiority complex about being leaders in big business and that’s why they have been successful. They’ve transplanted that SAB culture into foreign companies and they’ve done well from the beginning.
ALEC HOGG: If there was one thing that you took from your time at SAB...
KEVIN HEDDERWICK: Process … fanatical about process. You would go into a meeting and present to the leadership of SAB and they would very soon see whether you’ve gone through a process or not. The question would be what process have you used. They are a process-driven business and I think that’s probably one of the things if you walk around Famous Brands today … people who have subsequently joined me there from SAB can say we can smell a sniff of SAB here, and that’s true.
ALEC HOGG: What processes did you introduce in Famous Brands or Steers as it then was... because it’s an interesting story which we will get into in a moment... but what processes that you brought across from SAB are still existent.
KEVIN HEDDERWICK: Probably the single most important one that we’ve tried to wash across the entire organisation at Famous Brands these days has been performance management. I think that in SAB there was never a place to hide. In that business, if it moved it got measured, and we’ve done a lot of that work in Famous Brands in terms of making sure that everyone in our organisation is attuned to the macro strategic plan in the business and that’s done by virtue of a performance management mechanism.
ALEC HOGG: Let’s get into your story now. You were involved after SAB with a couple of guys who started a brand called Keg and then went back home to East London to start your own Keg, so have you literally served behind the bar and made sandwiches.
KEVIN HEDDERWICK: I have. In fact my wife and I went back to East London. I’d got to a point in time where I thought I was fed up with the corporate world and I was going to go back home and own this pub and restaurant and park off at the beach.
ALEC HOGG: How old were you at that stage.
KEVIN HEDDERWICK: Probably about 45. Yes I have done that, I’ve cleaned toilets, I’ve scrubbed floors, and I’ve washed dishes. I’ve certainly been around the counter.
ALEC HOGG: How long did you spend doing that?
KEVIN HEDDERWICK: I spent 18 months there and it was then that the two chaps who found the business, Robbie Mitchell and Derek Myers approached me and said, Kevin this Keg business is out of control. We are just two guys who are chefs by nature, you’re a guy from a corporate background, why don’t you join us as a partner and run this business for us, and ja we had the time of our lives. There were four of us. There was myself, Rob, Derek and a financial director. We had offices in Durban and we grew that business to 67 pubs and restaurants for the footprint even in Australia. So we had a lot of fun.
ALEC HOGG: And then Kingco came along. It’s well known by JSE investors as a stock that was between 1c and 2c for most of its life. How did you get sucked into that?
KEVIN HEDDERWICK: Rob and Derek had an intention to want to emigrate. They were going to live in Canada and so they were looking to exit and it’s an ironical story because at the time Allen Ambor from Spur was very interested in our business but from left field came Kingco with a chap by the name of Dennis Finch and Allen’s attitude to acquiring businesses was that he would prefer to give a lot more paper so people like myself, who were staying behind... it was something to work hard for. Robin and Derek of course wanted to get some liquid out of it so they would prefer cash. So the reason we actually ended up in Kingco was because Kingco was prepared to put cash on the table while Allen was talking about paper.
ALEC HOGG: Didn’t take you long to see that that was perhaps not headed for the stars.
KEVIN HEDDERWICK: No it was a business that we worked out two year profit warranties through and a business really that had some wonderful intellectual property in it but just really was a business that was misdirected.
ALEC HOGG: That certainly isn’t the case with the next business that you joined which is Steers, listed on the Stock Market a couple of years, six years before you went across there, had done nothing in those six years. I guess though the Halamandaras family thought they needed somebody, almost like your two chefs, might have done at Keg and you were the man.
KEVIN HEDDERWICK: Not from the outset. From the outset when I met them they effectively asked me to look after the Steers brand and I think the reason being for that is that McDonalds had just arrived in South Africa and had literally almost came guns blazing and I think they were petrified about the impact that McDonalds might have on Steers being the mother brand which it still is today, so I spent the best part of 12 - 18 months working on the Steers brand and during that time we got to know each other very well and it wasn’t long before they asked me to take over the chief operating officer role and when we did that the conversation very quickly turned to what are we going to do to unlock value. You had this family who had been in South Africa for the best part of 40 years; had worked their bums off and had a business with the market capital of about R45m. They were saying to me that this is bizarre because we’ve got friends who own two or three spars who earn more money than we have and we have been working at this for 40 years and so yes, we got together and said if we are going to unlock some value here, we might have to take some risks and it was really a question of, if you are going to unlock value, do we take the staircase or do we take the elevator. Bear in mind though if we take the elevator, once you push go there’s no stopping and to their credit they had a belief in me and collectively we’ve done very well. But I often say I would never have been able to do it without them in the background all the time, they’ve been amazing shareholders and fantastic mentors to me personally.
ALEC HOGG: But you had the processes in place before you hit the elevator button?
KEVIN HEDDERWICK: Yea we spent... my early days - even in the Steers brand which we then washed across the business were two things, it was about process and people and I learned a very harsh lesson – is that I went into that business and tried to put process in but the business had unfortunately not been mature enough to absorb those processes because the people weren’t mature. The people weren’t being developed, so we stuttered a bit but once we matched the people and the process together, we’ve done exceptionally well. Today Famous Brands has some magnificent people working for them.
ALEC HOGG: Including the people who were at Keg which was – is that part of your group now – Keg?
KEVIN HEDDERWICK: Yes, we’ve subsequently about 18 months ago taken back the Keg business, taken back a business that was certainly not without its challenges, it’s problematical, its shrunk to a network of about 27 – 30 pubs now but the good news is that the category hasn’t developed. So what we’re saying is that working for the likes of SAB who have been remarkable to us in giving us insights into that particular part of the market and the consumer, is that we think there's an opportunity for us to reinvent the category again.
ALEC HOGG: I like that in you. There are lots of things as an entrepreneur that is to like in you, but that you go back to – you just mentioned SAB that you have a history with, Keg that you helped to co-start – do you do that with people too? Do you bring people across perhaps who you have worked with in the past?
KEVIN HEDDERWICK: Ja I’m surrounded with some wonderful people. Most of the leadership at some point in time I’ve worked with before. Probably of the leadership team in Famous Brands which is about seven, I’d say four of them have worked with me before, two of them are ex-SAB guys – in fact it’s our HR director, she’s a lady and ex-SAB. Our supply chain executive is an ex-SAB guy and the guy who heads up our development team has actually worked for me – he was a draftsman in Keg many years ago. So I think there's a lot to be said for networking and keeping in touch with some of the people that made an impression on your life in the early times.
ALEC HOGG: The other thing that’s interesting is the way that you’ve dealt with a family-controlled business. Sean Summers and Nick Badminton would love to ask you I’m sure, how you’ve managed to get not only a very successful company, but also a family-controlled company, and to flourish both on the stock market, which again we’ll get to in a moment, but personally.
KEVIN HEDDERWICK: Ja I think that they were smart enough – and I don’t mean it in a derogatory sense – to have almost stood back and think that they were at a point in time where I don’t think that they had the belief that they could take the business to the next level and it wasn’t simply just a question well here’s this Smart Alec from corporate, let's see what he can do. It’s been a process of seeing the whites of my eyes in particular, and there's been a remarkable trust built up between the two of us. Today I’m very privileged – they almost regard me as part of their family and so our relationship is one of absolute trust, we trust each other implicitly and that has grown as we’ve delivered results obviously, and today the bond is phenomenal between myself and this Greek family.
ALEC HOGG: But it must have come with its challenges as well.
KEVIN HEDDERWICK: Yea it was - especially in the early days because when I arrived at Famous Brands, or in those days Steers Holdings, there's a story in itself. There were a lot of people that they had surrounded themselves with and a lot of those people we had to move, shift, and put in different places in the business. Some of them we even said goodbye to and those people had been in it a long time and when those decisions had to be made, they would say, Kevin that’s why you're here. And so it was tough and just even when we started to ramp the business up and we’d outgrown the name of Steers Holdings, it was not an easy sell to get them to change the company’s name Steers Holdings to Famous Brands – still very emotional, very passionate but those guys believe in hard work and honest endeavour and I think they saw that in me. And as we’ve grown the business so the bond has just got stronger and stronger.
ALEC HOGG: Market cap from around R45m, as you said earlier, to R4.6bn – that’s an extraordinary 100-bagger. There are not too many of those that you see on the JSE, but you’ve taken some risks along the road with the acquisition of Wimpy – today a huge success story. At the time what you paid for Wimpy was greater than the market value of the company that you were running?
KEVIN HEDDERWICK: At the time our market cap was about R85m to R90m and we acquired Wimpy at R125m – everybody thought we’d lost our marbles and that we would suffocate on the acquisition. But it was in fact the silver bullet – it was really what transformed the business in its entirety.
ALEC HOGG: How did you know – or did you know inside yourself that this was going to be the one?
KEVIN HEDDERWICK: You looked at the equity of the brand, universal appeal, a network with high average turnover per restaurant, a brand that was a strong South African icon and a brand that at the time was doing very well. One of the lads that are with me today is a chap called Darren Hele – he was the managing director of Wimpy at the time. He’d done a phenomenal job in turning a business around that was also going through a tough time at some point in time and I just thought that with a guy like Darren and with a brand that had so much equity in it, we could only do better. In fact I think we surprised ourselves. When we acquired the Wimpy business the network was of the order of about 285 to 300 restaurants and we’ve built it to over 500 over time and put a footprint down in the UK. So it was certainly the silver bullet that transformed us, but subsequently we’ve also surrounded ourselves with some other amazing products.
ALEC HOGG: It’s been an interesting development from there because up to that point in time it was almost cookie-cutter type of approach – very similar markets that you were serving. And then you went into tashas which we know well here in Melrose Arch downstairs, of course Mugg & Bean, again head-scratching when you did that acquisition. What drove you to believe that those could fit in well to perhaps different types of brands that you had?
KEVIN HEDDERWICK: When we started our journey at Famous Brans, our very first vision we articulated for that business was to be the leading quick service restaurant franchisor in South Africa and that took us four years to achieve. When we’d done that by virtue of businesses like Steers, Debonairs and FishAways, we said to ourselves and again it’s about process, is that how do we rearticulate the landscape so that we don’t just get ourselves locked into what was classically called fast foods in those days. And we said that what we would be about now would not just be quick service restaurants, but also casual dining. And along came Wimpy and that fitted that definition. Then the next thing we looked at was well how do we get a strong presence in the coffee category because South Africa was and still is going through an explosion in terms of coffee consumption. The Mugg & Bean story is interesting – Ben Filmalter I’d known all my life almost in terms of being a customer of mine when I was at the Distillers Corporation because Ben has a long history in the hospitality industry. I’d made contact with Ben probably two years before we did the acquisition, and just kept on being persistent and saying Ben I think we should do a transaction – let's do a transaction. And to my surprise one day out of the blue, he phoned me up and said Kevin we’re ready to do the transaction and it’s you we want to do it with. That was remarkable and as we’ve gone, so we’ve embroidered on the landscape in terms of how we play. So, right now we’ve got all those boxes ticked and 18 months to two years ago we said well, we’ve got to expand that landscape further, and now it’s about leisure. So we’re now in the leisure market but we’ll always say its food service and we’ll always say its franchising... there's a good DNA in our business that we put most things to the test before we go in and acquire them.
ALEC HOGG: You like biographies?
KEVIN HEDDERWICK: Yea I do, I joke sometimes and tell people I have a ‘boere’ matric but let me tell you I read as much as I can. I have a study at home which is probably the size of this room and the shelves are filled with business books and biographies, especially biographies about political leaders, business leaders, sportsmen... yea I’m fanatical about reading them.
ALEC HOGG: Have you read Isaacson’s biography on Steve Jobs?
KEVIN HEDDERWICK: Yes I’ve just finished it.
ALEC HOGG: And your take?
KEVIN HEDDERWICK: He’s a remarkable man – a difficult man but in fact we’ve taken some leaves out of his book more recently. The three things that Jobs can teach businesses like ours are about great marketing, great product development and great design in terms of retail. And if you look at those three take-outs... those three take-outs is what we’ve simply now about three months ago we’ve created a division in Famous Brands which has called itself the Mad Lab... and the Mad Lab really is responsible now for delivering now on those three deliverables and those three deliverables are straight out of Steve Jobs’ book.
ALEC HOGG: Are they going to keep up with Whacky Wednesday and those kinds of innovations?
KEVIN HEDDERWICK: They certainly... the team that is together are there to think long-term so they're not talking about what's going to be the next promotion for Steers, but some of the work we’re doing in terms of - if for example how do we improve our manufacturing capability. We have a business in Baynesfield in KZN which is a juice factory and up to now, and all that factory has produced has been 250ml glass bottles and 5ℓ bag-in-the-box pasteurised juice. I’m saying that’s a business that works on a single shift, five days a week and we’ve got to be able to ratchet those assets up. So we’ve had a very big brainstorm with this Mad Lab team and we’re looking at some exciting other products that we can extract out of that... it’s more long-term stuff than what's the next promotion.
ALEC HOGG: How do you keep yourself enthusiastic and motivated?
KEVIN HEDDERWICK: I love what I do. I get up every morning of my life and I look forward to going to work and I’m surrounded by some amazing people and fantastic brands. I’m in a business which touches the lives of South African consumers every day of our lives. And the other thing that’s really given me a rev more recently – you spoke about tashas. We’ve primarily up to now, whenever we’ve done an acquisition we’ve wanted to own the brand outright. And then you find an entrepreneur like Natasha Sideris and her brother Savva Sideris with two little tashas restaurants – one in Bedfordview, where I live, and I look at the passion and the energy of these two kids... I call them kids, they're almost like my own kids and say what is your dream for this business. They say Kevin all we want to do is grow. And so we go along and we acquire a 51% stake in a little business like tashas, we provide the back of our support to these young entrepreneurs and we unleash them. the results of tashas in particular have been phenomenal. We opened tashas in Hyde Park this morning – its flying from what I hear and we’re about to open store number 10 in Nicolway Bryanston. And if you speak to the two of them and say two years ago would you think you’d have 10 tashas, they would have said never. So it’s very rewarding for me to be able to find young entrepreneurs like those two people, invest in their business and just watch them fly. And we’ve done that with another business called Vovo Telo which is also an artisan bakery business founded by a guy that I found in Port Elizabeth who was a surfer and thought he could get into baking and done a good job of it. So all those kinds of things – they keep me busy.
ALEC HOGG: What makes Natasha and Savva and the surfer from PE different to lots of other wannabe’s?
KEVIN HEDDERWICK: They have an unbelievable passion for their business. They have so much energy. People say to me with regard to both of those entrepreneurs, what is it that you're doing with these people? We’re doing a lot of stuff if you go and cut through the corporate thing about making sure that their numbers all stack, because they're generally very good in terms of the food side of the business, but not great business people. But what we really do with them and I often joke about them, I say what we do is we bottle their energy and we sell it. That’s what we do and my goodness, have they got energy.
ALEC HOGG: Mid-50s now Kevin, you’ve got plenty of energy as well. Are you in the Warren Buffett school – they’ll have to take you away from Famous Brands when you keel over, or are you looking to retire at some point?
KEVIN HEDDERWICK: Retirement doesn’t cross my mind right now, I’m having too much fun and as I said earlier, I love what I do and the marketplace often asks me – Kevin what are your plans, and my plans are really that I’m very fortunate, I feel like I’ve been practicing to do this every day of my life. So I have a great relationship with the shareholders, the family that have 42% equity and I almost feel like I’m there to safeguard their jewels for now, for that matter. But I’m very mindful of the fact that this is not a family business, it’s a public company and we have other shareholders to keep happy and talking about the subject of happy – I’m very happy doing what I’m doing right now.