An unusual crisis hit Simbisa Brands earlier this year, and it reflects on the kind of half-year the country’s biggest fast-food company had.
“We had a bit of drama in the last financial year,” reflects Simbisa CEO Basil Dionisio. “There was a shortage of potatoes”.
For any fast-food company, especially one that is super-conscious about its brands and customer loyalty, running out of chips is one of the worst crises there could be. They don’t use just any potatoes – it has to be a special kind.
“We don’t use small potatoes. We use medium to large potatoes that we use to make our chips,” says Dionisio. The shortage frustrated customers addicted to their “chicken and chips”. Simbisa is now working on preventing a repeat of the problem, caused by a shortage of imported potato seed.
“We are fixing that by contracting farmers to grow potatoes for us and helping them with the whole supply chain so that we can get a run of potatoes continuously,” Dionisio says.
For the company, this was more than just about potatoes. Even for a company that controls the market, the shortage drove home one point – despite a volatile environment, with costs rising and sales under pressure, even the biggest companies still need to invest in protecting their brand integrity and customer loyalty.
Store refurbishment
For the year to June, Simbisa opened 52 new outlets in Zimbabwe. This continued a rapid expansion over the past two years, the fastest store growth in the group’s history. “It took us 37 years to have 462 shops (332 in Zimbabwe). In the past two years, we put down 134,” Dionisio says.
But now the company will take its foot off the expansion pedal as it focuses on fixing up what it has. Over the coming year, Simbisa will spend US$3.1 million on making its stores look better. The company will refurbish 27 outlets in Zimbabwe.
“A lot of these counters are in the southern regions of Zimbabwe, old networks that are doing well for us, but we need to give the customer a new environment,” says Dinisio.
The idea is to drive more sales and beat rising costs. In the year to June, operating expenditure was up by 13%, outpacing revenue, which rose 6%. Operating profit fell by 4%. Simbisa is now paying a million US dollars more for power than it did last year; Simbisa’s electricity bill went from US$4.4 million to US$5.42 million in a single year. Running diesel backup generators for up to 18 hours a day drove costs up even further. Potato prices doubled after that crisis between March and May.
The costs are here to stay and Simbisa must adjust and grow sales, says Simbisa FD Baldwin Guchu.
He explains: “The reality is 4-5 years ago, a good chunk of our cost base was in local currency. When you converted that to USD, you got some savings in real terms. That’s gone now. The costs have settled where they are, and it’s up to us to say how much revenue do we need to drive to make that cost base make sense.”
Simbisa saw only a 2% growth in customer counts, showing how tough things are for consumers. The strategy will be to revamp outlets, focus on supply chains to prevent another potato crisis, and increase marketing activities to push each of its brands.
Says Dionisio: “We need to invest in our businesses, keep them refreshed and up to date. That’s something on which we have lagged, and we take responsibility for that. We can’t remain stale”.
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