Manufacturing and distribution
Revenue from the manufacturing and distribution division increased by 2.4% to R186.2 million (2017: R181.8 million). Revenue growth was constrained by lower foot traffic in restaurants due to a challenging economic environment, as well as the need to mitigate the impact of food price inflation on franchisee margins.
The sauce manufacturing facility in Cape Town manufactures more than 450 000 litres of sauce per month, including certain of the group’s unique sauces. We have a committed team that ensures consistent quality and a supply of core ingredients and product lines.
Prices on centrally manufactured items were kept constant for the year, despite increases in input costs. This concession was made to further support franchisee profitability and strengthen the long-term sustainability of the business. This led to margin pressure in the manufacturing division.
The current sauce manufacturing facility is operating beyond its useful life. To take advantage of advances in technology, which enable improved efficiencies, support food safety standards and enhance production capabilities to manufacture sauces that the existing facility does not allow, it has become imperative to invest in a new facility. Investigations are under way and we anticipate commencing with the establishment of a new plant in the new financial year.
The new plant will enable us to produce most of the sauces required for our RocoMamas brand, as well as include the option of producing lines for bulk retail products. The shelf life of products will also be increased which should further improve efficiencies.
We are in the process of rewriting our food safety management system manual to align with ISO 22000 standards. The manual will be completed and reviewed by the time we move to our new facility.
Procurement is centralised and managed for franchisees, which enables the group to negotiate better prices on core items in the basket and ensure security and consistent quality of supply. Supply chain logistics are outsourced to a third party distributor. The group charges franchisees a cost of integration of approximately 3% on the volumes sold through the distributor.
The procurement department manages the relationship between the outsourced distributor, suppliers and franchisees, 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. This data is used to rate suppliers and address issues identified during reviews, and improve stock availability and supplier management. We are investigating ways to increase the basket of products procured.
Volumes shipped through the distributor decreased by 11% to 40 477 tons (2017: 45 382 tons). This decrease was partly due to lower restaurant sales volumes. In addition, the strategic decision to manufacture certain key products in restaurants, which were previously centrally procured, to enhance the “homemade” quality of these products, further reduced distribution volumes. These products include ribs, schnitzels and certain desserts.