It began 20 years ago, carting meat around Lusaka in the back of an ageing Land Rover. Since then, Zambeef has grown into one of the largest companies in Zambia’s booming economy. Now it hopes to replicate its success in west Africa.
The FTSE AIM traded company, whose primary listing is on the Lusaka Stock Exchange, is a curious entity in the modern food industry: a near fully vertically-integrated operation which produces, processes, distributes and retails, all in-house.
Its bovine branding does it something of an injustice. Besides beef, the company is also one of Zambia’s largest producers of chicken, eggs, wheat and edible oils, and sells self-produced goods ranging from sliced bread to yogurts from its 120 retail outlets. Its business model was honed from the difficult circumstances in which Zambeef was formed.
Carl Irwin, co-founder and current director of strategy, returned to his native Zambia in 1992 after making a first career in accountancy in the UK, to help with his family’s heavily-indebted farm. With Francis Grogan, an Irish expat working for his father, he founded Zambeef in 1994.
“I said to Francis ‘give us six months to sort the business out. We’ll turn this around or you’re out of a salary and can go back to Ireland,’” Irwin recalls.
“We started with our backs against the wall. We were two young bachelors, living on the farm together, with no money for distribution, delivering meat in a 1973 Land Rover.”
Today, Zambia is an investment hotspot but in the early 1990s it was a different matter. The one-party state, led by president Kenneth Kaunda from independence in 1964, had collapsed, and a severe structural adjustment was underway.
“It was a very tough time”, Irwin recalls. “We were buying on credit and selling for cash. That’s why we started opening the retail outlets, to generate the cash.”
Their first shop was in central Lusaka – rented from Michael Sata, who became Zambia’s president in 2011 – and more followed as the company tapped middle-class consumer demand for a formal retail sector.
They had an early head-start. The first foreign supermarket in Zambia was the South African chain Shoprite, which arrived in 1995 and established a supply agreement with Zambeef. Today, 19 of Zambeef’s outlets are its own counters inside Shoprite stores.
Expansion into chicken followed from 2000 and, subsequently, into wheat, soya, dairy, pork and palm oil. Zambeef’s purchase of 47,000 hectares of farmland in the Copperbelt in 2011 – funded with the $55m proceeds from the company’s AIM floatation – has upped crop production, in particular of soya. More recently, in February this year, Zambeef sold a 49 per cent stake in its chicken subsidiary for $14m to South Africa’s Rainbow Chicken, one of that country’s largest producers. Zambeef hopes to scale up production with the technical expertise to which the deal gives it access.
With real GDP growth in Zambia between 2005 and 2012 averaging over 6 per cent a year, business has generally been good. Sales in 2012 rose by almost a quarter to $255m – up almost tenfold from $26m a year when Zambeef went public in 2003.
Pre-tax profit in 2012 was $3.1m, down from $10.6m in 2011 – although the 2012 figure includes a provision for a $9.7m tax claim by the Zambia Revenues Authority, which the company is disputing.
What of the future? More international foreign food chains have arrived in Zambia in recent years, including Spar and Pick n Pay, Nando’s and Subway, and competition is certain to increase from rivals with global supply chains.
Irwin says Zambeef will stick to its integrated model, in contrast to western food companies. “This is a completely different part of the world and a different stage of development. We have a transport fleet of 200 trucks. You can’t outsource that in Zambia and get the same quality as when we do it. It’s the same with stock feed.
“What people don’t understand is the importance of securing supply and securing your market. That’s why so many businesses fail in Africa. The Walmarts of this world can come with their big cheque books, but the management expertise we have built up on the ground is our advantage.”
Come they almost certainly will. A recent World Bank report suggested Africa’s food and beverage markets would reach $1tn in value by 2030, from $313bn today. Figures like those have sparked investor interest in listed companies offering exposure to a the long-term rise in African consumer spending.
Such companies tend to be foreign dominated – think Diageo, Nestlé and Unilever. Zambeef fits the bill as an alternative and its London shares have gained almost 40 per cent during the past year, taking its market capitalisation to £128m.
Concerns have been raised by some analysts about the company’s high rates of capital expenditure, raising debt levels and eating into cash. Net debt has tripled over the last three years and is equal to 4.9 times earnings before interest, tax, depreciation and amortisation. With planned strategic investments completed, management says the company will return to positive cash flow and begin bringing debt down in 2013, as it ups edible oil production.
“We believe the world food problem has not gone away. The region we operate in is critically short of protein,” Irwin says.
Zambeef now aims to cash in on west Africa’s burgeoning consumer markets, having established footholds in Ghana and Nigeria. The latter’s 160m population is expected to make it Africa’s largest economy in the coming decade. It was this potential that led Zambeef to make the leap across the continent, rather than staying closer to home by expanding into its southern African neighbours.
“We all know the demand potential of west Africa is enormous. That’s where our focus is now. The challenge is to meet the supply side,” Irwin says.
Restrictions on agricultural imports mean the company has to focus on local sourcing and production. In Nigeria and Ghana it has built cattle feedlots, an abattoir, and several meat processing and facilities. As well as operating five Zambeef shops in Nigeria – under the brand name Master Meats – it has a partnership with Shoprite in Nigeria and Ghana to run in-store counters.
“It’s exciting,” Irwin says. “We are now at the stage in Nigeria where we were in Zambia in the 1990s.”