Swazi newcomers charge to victory in SA's cold warIt has taken Fridge Master just seven years to capture half of the South African market. Now, writes CIARAN RYAN, it plans an aggressive export drive
Huge support has pushed the shares from a listing price of 275c to around 780c.
The original company, Refrigerators Swaziland, was founded in 1990 by Charlie Palmer and several partners to manufacture fridges and freezers under brand names such as Hoover.
Palmer has a long history of manufacturing fridges in Africa - first in the then-Rhodesia, then in Mozambique and later in South Africa and Swaziland. He and Mervyn Shear, operations director at Masterfridge, were partners in the Mozambique factory before they left for South Africa.
A management buy-out in 1993, financed by FirstCorp, left management and staff with 80% of the shares and FirstCorp the balance. A wholly owned South African subsidiary, Fridge Master SA, was established to handle sales and distribution of all Masterfridge products in SA.
Bronwen Phillips, previously head of Hoover products, was put in charge of the South African subsidiary and later appointed managing director.
The management buy-out depleted cash resources and left the owners nursing a debt of R30-million. It was decided to raise about R60-million by listing the company on the JSE, which allowed the company to retire the debt, leaving sufficient in reserve to fund expansion.
Although the listing was poorly supported by the general public, institutions were more than happy to acquire whatever shares they could. About half of the shares are now held by institutions, leaving management and staff with most of the balance.
In a survey on Fridge Master just over two years ago, Business Times reported that the company had captured 40% of the South African fridge market from established players just five years after start-up.
The group now holds a 50% share of the 840 000 units a year SA fridge market, but is not happy to let it rest there.
Phillips says that those content to simply defend market share eventually end up with a smaller piece of the pie. "We want to increase our share of a growing market by continuing to produce an expanded range of quality fridges at a good price and by providing exemplary service to customers.
"To do this we have to strive for ongoing improvements in efficiency and productivity and by making sure that we are always one step ahead of the competition."
Competitors have responded by pricing some of their fridges and coolers 15% to 20% below Masterfridge. While this has slowed market growth in some product lines overall, the swing is towards Fridge Master.
Masterfridge chairman Charlie Palmer says the fridge market in South Africa grew by 15% in 1996, thanks to Eskom's electrification programme, which is connecting 350 000 households each year. The market is expected to continue growing at 15% so long as Eskom keeps plugging in new homes.
Two years ago the group comprised two fridge and two component manufacturing plants in Swaziland producing slightly more than 1 000 units a day - almost all of it for sale in South Africa.
Capital expenditure over the last financial year totalled R48-million, R35-million of which was spent on new plant and equipment and reorganisation of the Swaziland factories, now numbering three fridge and four component plants.
Swaziland's total capacity has been expanded to 2 000 units a day, and this will be increased to 2 500 by June 1998.
In July 1996 the group acquired the remaining 42,5% interest in the Swaziland component factory, CMS. This, and the expansion of its component manufacturing capability, means Masterfridge is now a vertically integrated operation controlling the manufacture of almost all the components it needs. The exceptions are compressors, imported from Matsushita in Japan, Samsung in Korea and Electrolux in Italy, and thermostats, which are imported from Italy.
The economies of scale inherent in capacity expansion, augmented by a continuous focus on productivity, has pushed unit costs to well below that of competitors and beaten off challenges from importers.
A joint venture with Delta Corporation in Zimbabwe gave Masterfridge a 60% share and management control of a factory outside Harare with the capacity to produce domestic fridges, freezers and commercial beverage coolers at the rate of 250 units a day.
This positions the group to launch an aggressive export drive into sub-Saharan Africa. Plant capacity will be expanded in line with market demand.
This month the group will commission - in Mpumalanga - its first South African factory, called Siya Embili ("We are going forward!"), a joint venture with black empowerment partners Malesela Holdings.
Initially, this factory will produce 150 gas/electric fridges a day, rising to a maximum of 300 units a day. This opens up a potentially huge market in non-electrified parts of Africa.
The group is self-sufficient in the design, engineering and manufacture of fridges. It produces 90 different models for sale to major retail chains such as Pick 'n Pay, the JD Group, Ellerines and Beares.
It manufactures under a variety of brand names, such as Hoover on behalf of McCarthy Retail and various independent retailers; Fridge Master (on behalf of various chain stores and independents); AIM (Pick 'n Pay); Sansui MCE (Morkels); Mercury (Hyperama); and Superfrost (Furniture City).
In 1993, house brands accounted for 75% of all Masterfridge-made units sold in SA.
Since then, due to a huge marketing effort, the Fridge Master brand now accounts for more than three-quarters of all sales.
Fridge Master, a relative unknown a few years ago, is now the country's single largest refrigerator brand.
The ability to manufacture such a wide range of fridges, custom-made to retailers' specifications, has been one of its greatest successes.
Another has been its customer support network, now numbering more than 250 agents in South Africa, Zimbabwe and Botswana. An independent customer survey by Markinor in 1995 found that 87% of those who had their refrigerator or freezer serviced by Fridge Master would buy another Fridge Master branded product.
All products carry a five-year rust-free guarantee and Fridge Master offers a 24-hourafter-sales support service within a 50km radius of major cities.
As South African retail chains such as Pepkor and Pick 'n Pay move into Africa, Masterfridge will be able to follow this expansion, although the fact that it is establishing its own distribution channels indicates it is not waiting for anyone to open doors for it.
Exports as a percentage of total sales are expected to rise from 20% to 30% in the current financial year, helped by recent approval on quality standards by Australia and the European Union.
Masterfridge also manufactures leading-edge frost-free fridges on behalf of Samsung, which plans to move 3 000 units a year in SA. A similar agreement is about to be signed with US giant General Electric, which should allow the group to diversify into stove manufacture and imported laundry equipment.