Fear drove Famous Brands CEO to sweat the details
Kevin Hedderwick’s dirt-poor start drove his ambition
A CULTURE of mediocrity and arrogance is preventing South Africa from fulfilling its huge potential, says one of the country’s most successful businessmen, Kevin Hedderwick.
Hedderwick, 63, who in 15 years built a small, family-owned fast-food company that was going nowhere fast into the iconic Famous Brands group, with 27 brands in Africa, the UK and the Middle East, announced this week that he had decided to quit as CEO.
In spite of increasing the company’s value from around R85-million to more than R14-billion in a competitive industry and shrinking economy, he is not a man to shoot his mouth off. His feelings about the country and where he believes it is going wrong only emerge as part of a discussion about his own motivations and philosophy.
Although he has made billions for his shareholders and doubtless a few hundred million for himself, he says it has never been about the money. What, then? Fear, he says. From the day he quit SAB to run a pub in East London he has been driven by a fear of failure. That, and a need to justify his mother’s faith in him. She died when he was 17 and was about the only person who believed in him. Not even his dad did. She told anyone who would listen that her boy was special and he was going to make it.
“All through my life I’ve remembered that,” he says.
And constantly at his back has been the fear of failure.
“That has absolutely driven me. I know what failure is like. I come from the poor side of the street. It’s never been about creating wealth, it’s been about not failing.”
He believes there is not enough fear of failure in South Africa.
“We accept mediocrity. We think that if something’s okay, that’s good enough. It’s not.”
He says that running Famous Brands has been “all-consuming” and concedes that there “have been moments this year when I’ve felt . . .” — knackered?
“Yes, ‘knackered’ is a good word. There have been moments when I’ve felt knackered. Up to my eyeballs in the detail.”
Sweating the detail and “line of sight” is what his management style is about. “I’m absolutely fanatical about making sure I know what’s going on in the business. I like to think I trust the leadership, but I don’t like surprises.”
He has spent more time on the road visiting his franchises than in the office. “If someone said to me we have a problem with our Steers franchise in Plettenberg Bay, I could almost tell you exactly what the shop looked like inside, how the counter was arranged.
“I firmly believe in the ‘management by walking around’ principle.”
With 2 600 franchises now, he no longer has that level of knowledge.
The business was started by the Halamandaris family with a single Steers outlet in 1951. He joined them as chief operating officer in 2001, by which time it had grown to two brands and was at a dead end.
He set about developing a significant manufacturing and logistics business so that the company could have its own supply chain and service every conceivable need of his franchisees. He was heavily criticised for it.
The analysts asked: “Why are you worrying about getting into logistics where the margins are low?”
He was told: “Manufacturing is complicated. Stick to franchising; it’s low risk and there’s not a lot of capital involved.”
Now it is regarded in the industry as best practice.
“We like to think we’ve become the lowest-cost producer because we’ve managed the supply chain environment in its totality,” he says.
As a result, the franchisee’s life is made as easy as possible, and as profitable.
Between 2% and 2.5% of his franchisees fail every year, and each failure is “almost like a death in the family”, he says.
As passionate as Famous Brands is about brands — think of just about any famous fast-food brand (Wimpy, Mugg & Bean, Steers, Debonairs, Milky Lane, Wakaberry) and the chances are it owns it — it never forgets it is selling to someone who’s investing their accumulated capital in a business.
“We’re selling him a business model, not just selling him a brand. He needs to make money out of it.”
It’s a “moral obligation” he never loses sight of.
“Because I’ve been there myself. I know what it’s like to invest your own capital in a business.”
It’s what he did when he left SAB to run that pub. He put everything he had after 10 years at Distell and another 10 at SAB into the Keg and Rose.
Although he’d risen from shelf packer to director at Distell, SAB told him his prospects there were limited because he didn’t have the right academic qualifications.
“If you were going to rise above the cream at SAB you had to have an MBA. I’m sitting there with a boere matric working my butt off and doing what I thought was a great job.”
He received glittering performance assessments but when asked what his aspirations were, was told: “Not possible.” So he left.
Needless to say, he thinks the MBA is overrated. “It’s not an automatic ticket to success.”
He used to insist on interviewing every job applicant himself, no matter what the position, because he wanted to know: will this individual fit into the organisation?
“We have developed a high-performance culture and the first thing I want to know is will this person perform like the rest of us perform?”
So what did running a pub teach him about entrepreneurship? “That it’s bloody hard work.” Having grown up dirt poor (which is why he never went to university) in a low-class neighbourhood and gone to East London Commercial High, “a very simple government school”, one thing he never needed to be taught about, he says, was humility.
“But investing my life’s savings in a pub, scrubbing toilets, receiving stock at the back door, serving customers — it was humbling.”
This is why helping entrepreneurs “unlock their dream gives me the greatest kick”, he says.
After the pub, the biggest gamble he took was acquiring the Wimpy brand for R125-million when his company’s market cap was only around R85-million.
The gamble was not the brand but the cost. He and the owners were determined to do the deal not by issuing more shares but on the basis of debt. He walked the streets with a begging bowl and was shown the door by just about every bank he tried.
“They treated us like the keepers of a corner cafe.”
Finally, Investec extended the money at an eye-watering rate.
Wimpy, his single biggest transaction, “changed the game for us”. His most painful lesson? “Don’t acquire businesses that are in great need of repair. You might think you can overlay a Famous Brands business system on a business that’s not working and make it work, but it just saps your energy, saps your resources. We’ve made a couple of mistakes like that.” Best advice? Once, when he was feeling “a little bit miserable”, Bidvest founder Brian Joffe told him it was admirable that he took it so personally, “but when you’re in a position like you are in, you’ve just got to hope you get more right than wrong”.
He’s never forgotten that, “but I’m still quite hard on myself”.
Famous Brands is in 16 African countries and doing well. What has he learnt about doing business in Africa?
“You need to be patient and polite. South Africans, when we go into Africa, we’ve got a swagger about ourselves.
“When you swagger into Africa in that South African way you’re going to get hurt. Don’t try to overlay your South African attitudes onto people outside South Africa. They don’t like it and they’ll reject you.” Would he run SAA if asked? “Gee, that’s a big, big portfolio. To run it might be a bridge too far for me. But if I was asked if I’d be willing to contribute towards making SAA a jewel in the South African crown, I’d jump at it.”
With one proviso: “If you’re going to ask people to go and fix something then you’ve got to give them accountability, and don’t meddle. Because they’ll deliver. But they won’t deliver if the agenda is all wrong.”
If you were going to rise above the cream at SAB you had to have an MBA. I’m sitting with a boere matric When you swagger into Africa in that South African way, you’re going to get hurt
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