16 Jul Biscuit maker stops the bleed
In recent months, Prima Bake, a biscuit manufacturer in Potchefstroom, has had to work hard to lift itself from what was potentially a crippling position.
With its eye on increased productivity, the company had embarked on an aggressive recruitment drive in May this year. But demand for its products did not keep up and soon the company found itself having more expenses than anticipated. Its director, Shanwaaz Khan, had to find a way to “stop the bleeding” to make the business profitable again. The company had taken on more people, thinking it would create more products, he explains. But the plan backfired. “It was an exercise to see if we could build on that momentum. In those four months we incurred an extra R300 000 [costs] per month because of labour.”
Additionally, the winter electricity bill was as much as R450 000. These expenses forced Khan to take a step back and revise the company’s business strategy. He needed to find a way of returning to profitability and driving production from that point onwards.
In July, he began tweaking the finer details. The company streamlined its input costs and adjusted its efficiencies. It looked at adding less golden syrup and fats to the product; and instead of making six flavours of the same biscuit, it thought to cut production to three of the more popular flavours. “We realised this business was about micromanagement, which can make an impact in our business,” says Khan.
It has also meant that Prima Bake will have to cut staff numbers. It employs about 200 workers at present, who produce 600 tons of biscuits a month. But Khan points out that 120 factory workers can produce the same amount of product, which will subsequently increase the company’s profitability.
Cutting jobs, he says, will benefit the company and the community in the long run. It will increase profitability and in turn open up the company to new opportunities in the future which could lead to it increasing staff numbers again. By keeping 200 workers, Prima Bake will certainly flounder and risk shutting down. “We would rather save those 120 jobs because if we do not then there will be no jobs [at all].”
In addition, the company will look at cutting expenses on the line that produces high-end cream biscuits called Tops Dreamy Creams. The product is both expensive to produce and requires a larger workforce. The company, he adds, will look at reducing the product line while increasing its bulk dry biscuit run, which needs less labour and fewer ingredients to produce.
It runs two lines at present, which produce its monthly 600 tons, though it has the capacity to operate four lines, which could produce more than 2 000 tons a month. This means that the company is able to take on more people. However, to start employing more people, Khan says, he must first satisfy the needs of the company and make it profitable.
Though Prima Bake’s performance in recent months has been dismal, its troubles can be traced further back, to the very beginning of the company’s life. In 2005, Khan and a British company partnered to produce healthy, high-end baked savoury snacks that catered for schools and the health conscious. At the time, only National Brands and Kraft were producing such products in South Africa.
Khan budgeted less for start-up than was needed; he initially thought it would cost between R15-million and R20-million to begin operations. But by the time it was up and running in 2010, it had cost R50-million.
Those involved in the business, including Khan, also lacked the expertise to run a biscuit factory. Furthermore, the partnership with British company turned sour. “We did not know much about biscuit manufacturing. But we thought that we had made this investment of R50-million so we need to do something with it. We thought we could start with something that is easier to get into the market with, like our normal lemon creams and Marie biscuits.”
The business model favoured low margins and high volume production. As a result, Prima Bake started supplying wholesalers, informal traders and supermarkets and kept away from chain stores. But the model was not what Khan intended. “My vision for this company was to diversify to niche products and get away from these tight margins.”
Adding to these woes was the global recession. The factory started operating at the “worst possible time”. One of the worst effects of the recession was that Prima Bake’s customers paid the group later than expected, which meant it was unable to pay its suppliers on time.
David McGluwa, the Industrial Development Corporation manager of the North West regional office, agrees that Prima Bake’s problems are directly linked to the global economic downturn. However, he remains optimistic that business will soon be on the up. “The economy works in cycles, and it is going to turn. So you must have that patience and endurance and move through it.”
The IDC’s relationship with Prima Bake started when the factory was already running. It had contributed R5.5-million, which went towards construction costs as well as buying machinery and delivery vehicles. McGluwa says the IDC is encouraged by Prima Bake’s entry into an industry that is dominated by larger biscuit manufacturers. The corporation, he adds, is putting its efforts into guiding Prima Bake. “We will take them through the process and hopefully one day we can look back and say: ‘We have walked the road with you and this is where you are.’”
Positive signs of recovery
Prima Bake may take a few years to recover from the hiccup, but easing its path is that the company has developed brands that are becoming increasingly recognisable. Khan explains that the first few years involved hard selling. The company had to go out there and beg clients to buy its product. But after just three years, Prima Bake has created a large enough public image around the country for customers to ask for more. “We might not be everywhere and in every store but we are in pockets. People have taken to our product and that is the heartening thing about our business. It just says we have done something right.”
The company increased its average income from R4-million a month in 2012 to R6-million in 2013. “Sometimes we beat ourselves up and say: ‘We’re not getting anywhere.’ But we forget to pat ourselves on the back and say: ‘You’ve still achieved something’. It may not be as profitable as we would like it to be, but we are still a fully functional business.”
Khan believes the challenges he has faced in recent months will make Prima Bake a stronger company that will strive to continue putting food on the tables of its workers and their extended families. “That in itself is a reward and I believe it is something that God has given me to do. I have to stick it out for the next few months as it will make us a better organisation.”