Simon Adams and Brad Wentzel reveal how they learned to be flexible during lockdown

Simon and Brad explained what it took to shut down operations or to operate as an essential service.

On Wednesday, 23 June, Nando’s South Africa CFO Simon Adams and Douglasdale Dairy CFO Brad Wentzel took centre stage at another CFO Community Conversation to talk about the impact of Covid-19 on the FMCG and retail sectors.

After Brad and Simon each introduced themselves to the attendees, they shared how each of their organisations responded to the pandemic.

Can’t milk a cow virtually

Douglasdale Dairy operates out of seven sites across South Africa with the main processing plant being situated in Bryanston, Johannesburg. All of its milk is sourced from farmers in the midlands, mainly the Mooi River area, and is transported to the plant in Bryanston daily, where they process, pack and ship the milk out to its customers, which includes retail channels, offices, hospitality and other businesses.

During the hard lockdown, Douglasdale was deemed an essential service because it provides a basic food product.

“We get all of our milk from our farmers,” Brad explained. “Cows don’t know about Covid-19 and don’t care about it either. They’re still making milk. In the dairy industry, you will contract with a farmer and buy every single drop of milk that comes off that farm.”

Milk was still coming in from all the farmers and the dairy had to pay them for it as agreed on time, which was the right thing to do. “But then, we had to find a place to store all of the milk, which wasn’t being sold at the same pace it was coming in, ,” Brad said, adding that this is difficult in the fresh produce game.

The executive team at Douglasdale had to relook at their balance sheet and cash run rates to figure out what they needed to pay and when they needed to pay it, as well as what they thought was coming in and when it was coming in. “We sat down with our debtors team and broke each customer into which level they were going to be operating at so we could try and plan some kind of cash run rate out of all of it,” Brad explained. “We also had to pay all 550 staff. We couldn’t ask them to come in and pack all the milk and then put them on short pay, and luckily we didn’t have to.”

Douglasdale had to move to a shift-on, shift-off system, where the plant was only half occupied at a time. “It’s not like I can send my guys home to pack milk over Zoom,” Brad said. “My management style needed to change somewhat to be able to deal with that.”

The dairy also had to figure out how to get everyone to the plant during a time when taxis couldn’t run and the roads were dead, while at the same time getting all the paperwork related to working permits sorted out.

He explained that the challenges got easier as South Africa’s lockdown restrictions eased and most of Douglasdale’s customer base opened up again. “But some customers are still not open to this day, which is really tough on them.”

You can’t tell a chicken to stop growing
Nando’s has almost 1,200 restaurants across the world, South Africa being the second biggest market it operates in with close to 300 restaurants. Unlike Douglasdale, Nando’s South Africa was part of the businesses that had to shut down operations completely during the hard lockdown.

Simon explained that the restaurant and retail industry is a very fixed cost business and that it’s difficult to scale down costs quickly. “We don’t have a property model like McDonalds, where they own parts of their estates. We lease all our properties. That’s a fixed cost.”

Like Douglasdale, Nando’s is nearly an entirely fresh supply chain and doesn’t freeze its products. “You can’t tell a chicken to stop growing. It’s an industry in itself and there’s a massive amount of complexity that goes into managing that. To feed that animal, quite literally, you have to have things working around the clock. You can’t just turn it off.”

This became especially apparent to Simon when one of its restaurants in Eastgate mall phoned them after the lockdown was announced to engage around the fact that they had to turn off their gas supply. “It’s not just a tap that you can turn off, it’s shutting down this big ship, and it requires a lot of intentional acts around it,” he said.

This was something no one at Nando’s had ever done before. The gas had just always been on. “We’re geared to open up restaurants and expand, not to close them down,” Simon said.

Learning to be flexible
During the lockdown, Nando’s learned that its partnerships across the supply chain and the business, like the landlords, was important. “We had to engage with all of them extensively around bills and helping each other as we didn’t know what the pandemic was going to look like and because rent is a massive cashflow for us,” Simon said. “We learned that the way in which we engaged with our landlords garnered us a lot of support when we started engaging around the after-effects.

Lockdown also taught Nando’s that it had to be flexible. “Our business model relies on channels: you can either come into our restaurants and eat, get takeout, go through the Drive-Thru or get delivery,” Simon said.

When Nando’s was allowed to open up again, it was only through delivery. “Delivery had always been a fairly small part of the business, making up less than 10 percent of our total sales. Very quickly, it became 100 percent of our total sales,” Simon explained. “So we had to understand very quickly what that did to our profitability, because to run your entire restaurant off delivery means that you are not going to make money. You need to balance all the channels so that other channels can subsidise a very cost-intensive delivery channel.”

Brad learned that sometimes you need to have a rainy day fund. “This means that you have to have something of a lazy balance sheet because you have some cash that isn’t really working for you now, but adds up a month or two to help you through times like this,” he said. “This gives you flexibility when things go bad instead of having to phone up the bank and ask for reviewed terms or more money."

Looking ahead
With the recent third wave, which has been wreaking havoc on South Africa and will continue to do so over the next four to six weeks, Simon urged everyone to brace for the impact. “But we’re using the learnings from the past 15 months to manage that outcome.”

He said that there are opportunities that come out of crises, especially in terms of the business model. “We were forced to look at the business model quite intently for a short period of time in terms of those lockdown days when there was no cash. Through that process, we’ve been able to understand what we actually need and what it is that we don’t.”

Brad agreed with Simon, saying that Douglasdale also had to look at the business with fresh eyes and try to do things differently. “That culture of being leaner must definitely hang around. It’s very easy when times are good to let the belt loose, but when times are tough you have to tie that belt up and try to figure out where you get those savings. Now we can try to keep it a bit tighter.”

One of the things that might change because of the pandemic is Nando’s restaurant coverage. “Will we be placing restaurants in residential areas, where people are working from, or the outlying areas where people have relocated to in search of better lifestyles?” Simon said.

Corporate South Africa has a role to play
Simon said that corporate South Africa has a role to play when it comes to the economy. “It hasn’t been in a good space since the global financial crisis and Covid-19 just accentuated it and made it more real, very quickly.”

However, he added that corporate South Africa can’t retract and reduce its investment into the country in order to preserve profits. “I think we all have a part to play, as difficult as it is to drive investment into the country and ultimately to create jobs. The government can’t do it on their own.”

Brad said that, during lockdown, Douglasdale was quite cognisant of when and how it paid people to make sure it was investing as much back into medium-sized businesses. “That is the engine room of the entire country, and if everyone pays on time, we'll eventually move through this crisis.”

Simon then asked the rest of the audience how they balanced job creation and automation in South Africa. “With this massive amount of pressure for automation, companies are having to relook their employment models, but while it’s a nice theory in the western world, in our country that poses something really challenging.”

Brad said that he’s not going to fire half of his people to hire a bot, because that’s counterintuitive to what the country needs.

Corporate South Africa has a role to play
Simon said that corporate South Africa has a role to play when it comes to the economy. “It hasn’t been in a good space since the global financial crisis and Covid-19 just accentuated it and made it more real, very quickly.”

However, he added that corporate South Africa can’t retract and reduce its investment into the country in order to preserve profits. “I think we all have a part to play, as difficult as it is to drive investment into the country and ultimately to create jobs. The government can’t do it on their own.”

Brad said that, during lockdown, Douglasdale was quite cognisant of when and how it paid people to make sure it was investing as much back into medium-sized businesses. “That is the engine room of the entire country, and if everyone pays on time, we'll eventually move through this crisis.”

Simon then asked the rest of the audience how they balanced job creation and automation in South Africa. “With this massive amount of pressure for automation, companies are having to relook their employment models, but while it’s a nice theory in the western world, in our country that poses something really challenging.”

Brad said that he’s not going to fire half of his people to hire a bot, because that’s counterintuitive to what the country needs.

However, Long4Life CFO Mireille Levenstein explained that, in order to stimulate the manufacturing sector and promote job creation, the utility challenges need to also be addressed. “Power and water have a massive impact on our businesses. We have a beverage business with two large canning facilities and, even though we have generators and back-up, the minute it switches from the grids to the generators, the entire line stops for a while. If we want to be competitive in the international arena to create jobs, we also have to address that.”

Simon agreed, saying that, as a round-the-clock requirement, managing utilities poses some challenges not only in the continuity of a business, but its ability to manage profitability, because it is becoming a significant cost.

Bringing together the topics of the evening, Unilever executive VP of finance Mikateko Tshetshe concluded that the pandemic has really amplified companies’ actions on walking the talk when it comes to putting employees first and taking care of other shareholders.