RCL foods While Rainbow Chickens is a familiar household brand in many South African households, the parent company, RCL, may not be so recognisable. Yet, RCL Foods is a leading African food producer in South Africa with a market capitalization of R16 billion, employing over 21 000 people in operations across South Africa, Swaziland, Namibia, Botswana and Zambia. RCL distributes its branded and private label food products through their route-to-market supply chain specialist, Vector. 

 History

RCL was established in 1891 as a small family-owned flour mill situated in Pretoria. By 1916, RCL built its first animal feed mill and in 1960, Rainbow Chicken started its operation on a humble farm in Hammarsdale with its first processing plant being commissioned soon after. By 1965, their sugar mill operations in Malelane were established. By 1989, Rainbow listed on the JSE and, in 2004, RCL acquired Vector with the strategic intent to control and optimise its outbound supply chain. By 2013, RCL acquired Foodcorp, one of South Africa's largest food producers and then changed its name to RCL Foods. By 2014, RCL acquired RSB Sugar and obtained a 49% share of Senn Foods Logistics, a Botswana-based logistics company. It continued with its expansion into Africa and acquired a 33.5% stake in Ugandan poultry producer, HMH Rainbow, and in 2016, acquired a 50% stake in Matzonox, a waste-to-value operation. 2019 saw a 45% stake in L&A Logistics, a distribution operation based in Zambia. RCL continues to expand its operations and footprint. 24 In line with their passion to provide more food to more people, more often, RCL sets out to acquire several businesses with strong brands, which have enabled them to diversify their offering and significantly enhance their reach. Such efforts result in expanded product ranges which extend from essentials to top-end added-value products. 

 

Business model 

Several significant opportunities exist in South Africa and the rest of Africa for RCL Foods' market share to expand across various food product categories. Their sizeable portfolio of core categories enables them to reach a wide range of consumers and diverse touch points through depth of distribution and strong market penetration. It also contributes to growing their scale and cash flow as a basis for future strategic growth. With the above context in mind, their business model focuses on growing their revenue and profit across both their core and added-value categories. In South Africa, where they already have a wide market presence, they focus on maximising the potential of their core categories (chicken, sugar, grains and animal feed) while accelerating growth in a higher margin, addedvalue categories tailored to customers' requirements (food solutions, speciality products and pies) and their consumers' needs (groceries, baking, beverages and added-value chicken). In the rest of Africa, they focus their efforts on first establishing a strong presence in the four core categories, then on introducing added-value offerings as they build scale in these markets. At the same time, they are looking to expand their markets across South Africa and in the rest of Africa by acquiring new businesses or categories in line with their ambition. Vector is a key enabler in our business model, providing us with a dedicated and highly efficient route-to-market service. As an integrated outbound supply chain business, Vector's sales, logistics and distribution capabilities will play a crucial role in delivering on our business model while boosting efficiencies in line with our ambition. Going forward, it is our intention that Vector will influence 100% of RCL Foods' route-to-market. 

 

What makes RCL different? 

RCL offers a portfolio of leading brands ranging from staples to top-end, added-value offerings. They have an integrated business model that includes their own route-to-market featuring an integrated outbound supply chain and world-class technology and systems. RCL benefits from its significant size and scale, combined with diversification, to counter cyclicality and provide a platform for expansion. They recognise their management team's extensive knowledge and experience in the South African food industry and their strong operational track record of delivering steady, through-the-cycle revenue growth. In addition, their expansion into Africa through several projects in sub-Saharan Africa is aligned with their low risk African expansion strategy. Finally, Remgro Limited is a highly regarded strategic shareholder. 

 

The RCL operating context 

2021 has proven to be a challenging year across the board. RCL faced demanding economic conditions brought about by the Covid-19 pandemic. Unemployment continued to be a challenge and reached an all-time high of 34,4% in the second quarter of 2021. South Africa MNG3701/101/3/2023 25 produces more than enough food to feed its population, yet one in five households has inadequate or severely inadequate access to food as a result of poverty, largely due to unemployment. Rising food prices linked to input cost hikes and exchange rate volatility present challenges to its business outlook. The continued growth in world populations present largescale food producers with opportunities for growth, but the realities of increasing biodiversity loss, deforestation, soil degradation, water scarcity and greenhouse gas emissions remain constant. At the same time, the South African government began to enact certain food regulations to limit exposure to high levels of sugar and salt. Consumer behaviour is always in flux with more focus on value, with price and affordability becoming key factors in consumer decision-making. Online shopping among higher LSM groups continues to rise with an increased preference for foods perceived to be healthier. 

 

Questions

1a Comment on the various methods to analyse the internal environment.

1b Use the information in the case study and conduct an internal environmental analysis. 

2 Explain the strategic importance of analysing the external environment and critically discuss the various methods for external environment analysis. 

3 Using the information in the case study, conduct an analysis of the RCL macro and market environment. 

4 Identify the business level strategy of RCL and comment on its appropriateness based on your findings in questions 1 to 3 above.