South Africa: SAB launches distribution network empowerment project

South African Breweries (SAB) announced on November 18 a new project that will franchise future distribution centres to BEE candidates, according to Mining Weekly news agency. The company’s distribution capacity is acknowledged as one of the major strategic contributors to the company’s success.

The announcement was made at the first of two of these newly-franchised distribution centres in Westonaria, Gauteng. The R20-million centre, West-onaria Beer Distributors, has been funded almost entirely by SAB. It will be coowned and man- aged by a former SAB employee, David Mooi, who has employed 44 people to run the operation. Its projected turnover is more than R200-million a year.

Mooi was handpicked as the first franchisee after having spent 15 years working in SAB’s sales and distribution network and been promoted nine times during this time.

The second franchisee is Simphiwe Chiliza, whose franchised distribution centre is located in Madadeni, in Kwazulu-Natal. This centre will turn over more than R100-million a year and employ 18 people with the potential of another four. Chiliza joined SAB in 1990 as a trainee. The main objective of this initiative, dubbed ‘Project HoneyBEE’, is to achieve significant empowerment in both ownership and skills transfer.

Wealth creation is the central focus and mentoring a critical component, and SAB will provide all the necessary training.

This franchise project is central to SAB’s broad-based empowerment strategy. It is complemented by SAB’s Owner-Driver project, launched in 1987, which already sees 58% of SAB volumes being delivered by owner-drivers. A total of 248 owner-drivers currently operate at 39 depots countrywide. They are all independent black-owned and -operated businesses contracted by SAB. Over R2,4-billion has been invested to date in the Owner-Driver programme.

Given SAB’s strategic strength in distribution, Project HoneyBEE will be implemented as a business-format franchise to achieve streamlined standards. SAB MD Tony van Kralingen says that SAB’s distribution and marketing laid at the heart of the success of the company. The company has 53 distribution centres of which 41 are SAB- owned, ten are independently owned, of which 50% are black-owned, and two are new franchise operations. SAB, its distributors and owner-drivers currently sell directly to some 23 000 licensed liquor traders. “Given the growth in volumes recorded by the company and the certainty achieved by the passing of the new Liquor Act, we took the decision to expand our distribution facilities and enable sustainable empowerment at the same time,” says Van Kralingen.

“Implementing empowerment at this level means that new opportunities are being created where the competitive edge of SAB is at its strongest.

“We believe this project is ideally timed given projected growth in provincial licensing, which will ultimately achieve normalisation in the liquor retail sector. “SAB anno-unced in July that it would train 5 000 taverners to run their bus-inesses more sustainably. “The ultimate objective is to franchise distribution centres to fulfil SAB’s required distribution footprint. “The continued growth of the market implies that the growth of the distribution and franchise network is likely to be substantial.” A minimum R400 000 upfront investment on the part of the franchisee, depending on the size of the operation, guarantees an immediate effective 25% share of the business.

SAB funds the remainder of the investment in buildings, trucks, forklifts, computer systems and stock by way of an initial 75% share of the ordinary share capital, preference shares and loans. The company retains owner- ship in the initial stages but the intention is that the company’s stake will be diluted over time through a series of share-buy- backs until such time as the franchisee owns 95% of the company.

The centres earn their revenue from a fee paid by SAB for the warehousing and distribution of the company’s products. Given that the value of a typic-al franchise will exceed R5-million, each one will be a substantial business with the potential to create wealth for the franchisee. “Subject to the granting of licences by the National Liquor Authority, SAB has four other distribution centres planned over the next 18 months,” explains Van Kralingen. “One is an existing company-owned distributor and the others are new sites.

“Excluding the two new franchised distribution centres, five independent black-owned distributors currently account for some 2,9% of SAB’s beer volumes. “Our aim is to increase this to almost 10% over the next five years through a chain of some 17 franchised or independent black-owned distributors.” According to Mooi, Project HonyBEE is a trailblazing development.

“It’s going to take a lot of hard work but I am mindful of the need to maintain the highest standards possible and, at the same time, enhance the com- pany’s reputation.” Chiliza adds that when he originally joined SAB, it was a “dream come true” to join one of the most successful companies in South Africa. “I never thought that this opportunity would avail itself, but with SAB being the ‘business school’ it is, the sky is the limit,” concludes Chiliza.

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