tomato paste

Famous Brands scores its own tomato paste factory at a bargain

In another step to increasing vertical integration of its supply chain, Famous Brands has bought a bankrupt tomato paste factory in Port Elizabeth’s Coega precinct at a significantly discounted purchase price.

“The practically unused facility, constructed in 2010 at a cost of R200m, was bought out of liquidation at a significantly discounted purchase consideration,” the company said in a statement. “The acquisition will be funded from cash reserves.” Various media reports put the price tag at a bargain R35m for the factory established by Cape Concentrate.

At the time of opening, the ownership of Cape Concentrate was split between the Jonah Capital Group and Post Harvest Environmental Technologies. The Jonah group, belonging to Ghanaian business magnate Sam Jonah, had a 52% stake, while the latter owned 48% of the company. (Read more here)

Years later it went bust, after failing to find substantial customers for the tomato paste produced. Hedderwick says the plant has not been operational for eight months.

Tomato paste is a popular product category with the local industry unable to supply the growing demand. Because of this, Hedderwick says up to 35 000 tons of tomato paste are imported, largely from China, to meet the demand. These demand-supply market dynamics place Famous Brands in a strategic position if it successfully gets Cape Concentrate running.

The DTI has also tried to incentivise investment and in 2012 raised the general rate of duty on tomato pastes, purees and concentrates from 15% to 37%, which is the World Trade Organisation-bound rate.

This move follows a similar acquisition in May of chips factory Lamberts Bay Foods and forms part of the company’s strategy to own its supply chain.

The company owns restaurants Wimpy, Mugg & Bean, Europa as well as fast food outlets Steers, Debonairs Pizza, Fishaways and Milky Lane.

“This acquisition will enhance the group’s capability to manufacture licensed products for our franchise network as well as provide security in respect of a significant menu item and manufacturing ingredient,” said Kevin Hedderwick, former Famous Brands CEO and now group strategic advisor responsible for merger and acquisitions.

“We also plan to expand the customer base for this product beyond our own internal customers, capitalising on the shortage of tomato paste which exists in the South African market,” he said.

Revealing the strategic potential of the business, Hedderwick said: “The local industry is unable to supply growing demand for the product, and some 30-35 000 tonnes of tomato paste are imported by South Africa annually to meet the shortfall.

“Famous Brands itself currently imports in the order of 1 500-2 000 tonnes of tomato paste per year for use primarily in our Sauce and Spice plant, which manufactures sauce products for the Group’s 2 600-strong restaurant network as well as for our retail (trade) customers.

“In terms of supply, we are satisfied that we can expediently establish a local supplier network to provide the required raw material volumes,” he said. “In addition, the plant and premises are in immaculate condition, so we have effectively acquired a turn-key facility – at a small percentage of its true value.

Famous Brands will model the business on its empowerment venture, Famous Brands Fine Cheese Company (FBFCC), formerly Coega Cheese Company.

The new company will comprise a strategic alliance partnership between local farmers, who will grow tomatoes on contract, and Famous Brands, which will be responsible for providing the customer base, as well as managing the production and route-to-market functions, it said.

The partnership will provide 35 jobs in the plant and deliver financial benefit for the farmers, the company said.

“As soon as possible, we will actively recruit previously disadvantaged farmers in the area for our supplier network,” said Hedderwick. “We will also tap into our existing FBFCC farmer base to gauge their interest in this new opportunity.

The operation is expected to be commissioned in early 2017. 

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