For many businesses, Covid was a curse, but on the positive side, companies that have shaped their businesses around new customer behaviour, are paving the way for the future. KZN INVEST caught up with Keval Mehta to find out more about a recent investment.
Everyone says the smart money is in e-commerce and the figures bandied about for the growth of this market are dazzling. Eye-watering sums are being made by firms harnessing new customer behaviour brought on by Covid lockdown. People have become accustomed to shopping online and everything from providing online payment gateways to product delivery mechanisms are an opportunity for a slice of the action.
The announcement that two privately owned Durban firms – both headquartered in KZN – had partnered in a 70/30 deal to buy franchised courier company, Fastway Couriers South Africa, garnered a few headlines.
Engineering News said City Logistics and equity group Clearwater Capital’s acquisition would create one of the largest turnkey logistics providers to the fashion, retail and e-commerce sectors. The Fastway purchase seems like a savvy move.
City Logistics already boasts 30 years in the business, has 14 depots countrywide and supports a fleet of over 1 000 vehicles, travelling more than 170 000km a day. The company has built its reputation servicing Mr Price and other key retailers.
Fastway, which operates in New Zealand, Australia, Ireland and South Africa, has over 1 700 franchises, 300 of them in South Africa serviced by a fleet of 500 vehicles moving millions of parcels a year. Each franchise represents a business owner that’s been created through this model – something impactful in a country desperate for entrepreneurship.
Fastway looks set to bolster the existing City Logistics offering to its present retail customer base, but extending this into the small and medium-sized enterprise market might be where the big play is.
There are varying estimates as to the size of the e-commerce market. One report frequently quoted says it is worth R80-billion a year, and South Africa ranks number 41 in the world. Another, referenced by Rand Merchant Bank, says the value of e-commerce transactions in the country is expected to surge to R225-billion by 2025.
RMB said lockdown massively accelerated the increase and its data showed more than 5 000 SA retailers with online turnover of more than R100 000 a year.
Clearwater Capital executive director Keval Mehta said the Fastway investment followed years of brainstorming within the group that controls a R1-billion portfolio in South Africa.
“South Africa has been a fairly slow adopter of e-commerce but we’ll catch up. It is a bit like the take up in cellphones. It was slow to start, then the business exploded.
“We began by exploring different areas within e-commerce for prospective investment. But we understood that efficient last mile fulfilment nationally would be a key enabler for mass e-commerce adoption. Today fashion and consumer staples drive the vast majority of e-commerce volumes, and given our relationship with City Logistics and their deep retail distribution insights, they were a natural partner for us to invest into the sector with.
“Over time we looked at a few businesses in the space and we learnt a lot about the different models for fulfilment. It was clear that scaling in logistics with a group of owner-drivers had immense potential. Fastway was on our radar so once we heard the business was for sale, we knew their operating model scaled well.
“Fastway was basically started in South Africa with one man and a bakkie and has grown into a company with a national footprint.”
Mehta said the City Logistics/Clearwater Capital investment would add value especially to small enterprises, some working out of their garage, sending out a few parcels a day.
“We can offer our network and deep logistics insights to customers of all sizes.
“The tailwinds are good, the e-commerce sector has seen exceptional growth in the last few years, but it is still quite young in its evolution in South Africa. Using data to provide deeper insights for customers and franchisees will continue to enable them to make more informed decisions to optimise their logistics solutions.
“We want to create capacity for growth. The logistics environment is dynamic and has a variety of players, each trying to find a niche in that space. We have a deeply collaborative approach. Fastway is a network of micro-entrepreneurs who need support. We want to strengthen that and help optimise processes. This is a competitive and dynamic market but if you think smart there is opportunity.”
About Keval MehtaKeval Mehta, 42, has worked for his family’s investment firm for six years. He previously ran the operations at Uniprint, a firm started by his great-grandfather. Keval – who has an undergraduate degree in printing and an MBA from UCT – was mainly involved in manufacturing. He also worked for Absa capital private equity. “Our role as private equity investors is to support. Financial and banking skills are important but these don’t always give you a sense of the guts of a business. “One of our investments is in a family business where the operators are very passionate and successful. They wanted to buy another machine to increase capacity, but this would have involved more premises and a host of considerations. We had multiple conversations that required granular detail about the business, and eventually opted to run two shifts at the same plant. It was a step-by-step process around empowering staff and considering all their requirements from everything operational to how they would get home safely. The cost benefit analysis involved understanding pain points, potential gains and mitigating risk.” About Clearwater CapitalThe firm was started by Keval’s father Harish, and his siblings, Bharat, Yatish and Aasha in 2004 to diversify their interests. It is a mid-market fund with a host of investments and boasts an internal rate of return of 26% to date. About 25% of the firm’s investments are in KZN. Clearwater is invested in six companies that span industrial supplies, auto components, agricultural inputs, waste management, telecommunications and medical. Keval says the diversity is absorbing and demands a lot of investigation. Clearwater has been interested in the South African agricultural sector due to its farming being world-class and the fact that northern hemisphere countries source a lot of their fruit from SA. “We’re not in primary agriculture, but we’re interested in the value chain. Our investments in agriculture focus on processing and supply chain. We recently looked at a fascinating business where a growth area was in cutting and drying mangoes and exporting them to high-end European retailers.” Another, totally different example of the firm’s investment is in Helios. Clearwater Capital and its co-investor, Mangro Holdings, has a 34% stake in the company which is a subsidiary of a London-listed telecom tower infrastructure company. In South Africa Helios owns or manages over 350 cellphone towers, more than 10% of the country’s capacity. Keval says with the roll-out of 5G the country will need 10 times the number of towers we have now. “We’re very excited about the business. It is being driven by societal change and the demand for connectivity.” |