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INTEGRATED REPORT 2017

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Manufacturing and distribution

Total revenue from manufacturing and distribution increased by 0.6% to R181.8 million (2016: R180.8 million). Revenue growth was constrained by lower foot traffic in restaurants due to the challenging economic climate and the incident in a Spur in Johannesburg. Input costs were impacted by the drought, as well as the effect of the weaker rand on imported products. The group again absorbed some of the impact of food price inflation to protect franchisee margins by keeping price increases on centrally manufactured items to a minimum. We also reduced the cost of integration commission income earned on certain centrally procured lines. These concessions were made to further support franchisee profitability and strengthen the long-term sustainability of the business.

Manufacturing

The central kitchen in Cape Town manufactures more than 369 000 litres of sauce per month, comprising certain of the group’s unique sauces. A proportion of the continued significant increases in raw material costs and packaging were not passed on to franchisees, resulting in reduced margins in the manufacturing division. We are investigating the feasibility of relocating the central kitchen facility to the Baker Street facilities currently used by the décor manufacturing facility to improve efficiencies, support food safety standards and enhance production capabilities to manufacture sauces that the existing facility is incapable of manufacturing.

The group continues to investigate vertical integration opportunities that can ensure consistent quality and supply of core ingredients and product lines.

Distribution

Spur Corporation manages procurement on behalf of franchisees to exploit economies of scale to secure improved prices on core items in the basket, as well as ensure security and consistent quality of supply. A third-party logistics partner coordinates transactions between suppliers, the group’s manufacturing facilities and franchisees, for which service franchisees pay a cost of integration of no more than 3% on the volumes sold through the distributor.

The group’s procurement department manages the relationship between the outsourced distributor, suppliers and franchisees. It also audits suppliers, and facilitates third-party food safety audits on suppliers and the outsourced distributor.

Inbound suppliers are monitored on a number of key performance statistics that are used to rate suppliers, address issues identified during reviews, and improve stock availability and supplier management.

Volumes shipped through the distributor declined by 0.9% to 45 382 tonnes (2016: 45 800 tonnes) although total cost of integration revenue increased due to price increases on goods supplied from external suppliers.