Carst and Walker
Bluff Meat

Private equity recognises the power and profit of polony

The food industry may be dominated by giants such as Tiger Brands and Premier Foods, but there is still potential for regional independents to expand into true national businesses – to wit the private equity investment in an under-the-radar polony maker in KZN. Polony has replaced pilchards as the staple protein for SA’s mass market.

RMB Ventures, a private equity firm in the FirstRand stable, had been talking to Bluff Meat Supply since November 2011. It announced it was taking a strategic stake in late March.

Nick Hudson, who has managed the deal, says it was complex, as Bluff was made up of 27 different entities: it was run as a partnership. “The deal will turn Bluff Meat Supply into a well-funded corporation. After our investments it will have the funds to expand in an unencumbered manner.”

Hudson says Bluff Meat Supply is one of the pesky independents that the food giants complain about.

“It can produce polony a lot cheaper than the corporates: it can sell for R10/kg – about half what the corporate brands charge.”

Bluff makes the house brand polonies and cheaper sausages for Pick n Pay, Shoprite and Spar. It also sells to independent butchers using Thompsons and other brands.

Hudson says sales of Bluff’s products have increased by 35%/year over the past three years, which means it needs to expand its processing plant urgently.

“Polony has overtaken pilchards to become the staple source of protein in the mass market, and as the lowest-cost producer in SA, Bluff has the potential to expand from its regional base in KwaZulu Natal to become a dominant national player.”

Bluff Meat Supply also has eight BMS Select butcher shops and six Mndeni Meats butchers around KwaZulu Natal.

“They have flourished at a time when independent butchers are supposed to be an endangered species. As well as personal service, they can come in at a price for, say, rump steak which is 40% cheaper than the supermarket chains.” He says Bluff has strong quality controls, which have prevented contamination by horse or donkey meat.

Hudson says RMB Ventures does not intend to second-guess management on operational issues. “We don’t believe in 100-day plans. Expansion of the retail footprint, for example, will be up to the management. We know that we are good at acquiring and selling companies and structuring the appropriate mix of equity and debt for the company. We can’t pretend to be experts on running a food business.”

Source: Financial Mail

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