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Collapse of Ellies points to much larger issue in SA’s world of business development

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Jon Cherry is a business strategist and publisher whose focus is innovation and building better brands.

Instead of investing in the development of their brand, or actually bothering too much with marketing at all, Ellies products just sat on a random shelf somewhere in the vast expanse of a Builders Warehouse.

Last week was a sad one for the South African economy.

A business that had been in operation since 1979, one that many pension funds were invested in, that employed 310 people at one time and paid tax, was put into liquidation.

Ellies Holdings was a big player in the consumer and commercial electronics category. They imported things like LED lights. Had great ambitions to take advantage of the ongoing energy crisis through the supply of things like generators, inverters and solar panels, and even manufactured some of their products locally.

Their most lucrative commercial venture was selling DSTV satellite decoder sets; that old thing with colourful lights that used to sit on top of your old Blaupunkt TV. For decades they sold millions of them together with satellite dishes, cabling, plug sockets and all the other paraphernalia that goes hand-in-glove with legacy television technology systems.

Twelve years ago, you couldn’t find a financial talking head on one of those DSTV money channels that didn’t give the JSE-listed company a theatrical thumbs up when asked if the shares were a screaming buy.

Back in May 2013, Ellies Holdings was priced at well over R9 a share. The assumption was almost unquestionable that as South Africans became more prosperous and Multichoice grew its offering into the rest of Africa, the demand for satellite television would be exponential.

Last Friday it was trading at one measly cent after the business rescue programme that was meant to save it was announced to have failed.

There is an old saying that was used quite a lot during the pandemic lockdowns that perhaps has some relevance here: “don’t let a good disaster go to waste”.

What on earth happened to Ellies Holdings? What mistakes were made along the way, and what can we learn from its implosion?

Taking a step back and scanning the success factors that propelled this business over the decades, it’s clear that its management were very good dealmakers. It was a shrewd deal with Multichoice that enabled Ellies to make a fortune by supplying DSTV-related equipment to the market and later they signed an agreement with government to exclusively supply set-top boxes as a part of its protracted migration to digital terrestrial television (DTT).

Champagne popped in celebration of securing great deals can however become dangerously addictive — and cloud one’s judgement when momentum in the marketplace inevitably changes direction.

Winds of change

Looking back to January 2007 — nine days before Steve Jobs introduced the world to the first iPhone — Netflix introduced a video-on-demand service. Together with the increasingly plummeting price of high-speed internet connectivity, the nature of video entertainment delivery was already changing way back then.

As viable alternatives became increasingly mainstream, once-loyal DSTV subscribers started complaining on talk radio stations that they were “sick and tired of paying R700 a month to watch yet another rerun of ‘Come Dine with Me’”. Netflix was cheaper, you could binge-watch Game of Thrones whenever you wanted and frequent bouts of rolling blackouts also didn’t exactly create ideal conditions to justify paying the high monthly fees for access.

DSTV subscriber growth rates slowed as these complementary forces of change were coalescing into a perfect spindle of radical transformation that should have set the radar screen on the desks of financial analysts ablaze.

Digital satellite television was no longer the only future, a new video entertainment future was busy dawning on the horizon.

What did hold promise back then was the State’s increasing inability to reliably supply electricity, which Ellies saw as an opportunity to make yet another great deal. This time with Eskom. Labelled as an inspired move in 2012, “Project Power Save” saw Ellies initiate a countrywide campaign on behalf of Eskom to replace old, incandescent light bulbs with efficient LEDs in millions of homes… for free.

The initiative saved us all a lot of electricity and Ellies was lauded as a corporate hero. Apart from somewhat improving the chances that DSTV viewers would continue to pay for a service that they could now power, it was clear that there was rising commercial opportunity in the electricity crisis.

Read more in Daily Maverick: How to reduce your electricity usage by at least 30% without sacrifice

But that insight was apparent to everyone else as well, and Ellies sadly completely blew their chance to capitalise on the great head start that they’d engineered.

Competition flooded into the renewable and alternative energy category. Players differentiated themselves on price and product features and a fight to the bottom of the segment ensued.

Instead of investing in the development of their brand, or actually bothering too much with marketing at all, Ellies products just sat on a random shelf somewhere in the vast expanse of a Builders Warehouse — hoping to be picked by bewildered customers ahead of hundreds of other similar imported products being sold at better prices.

Unbelievably the business ran out of stock of some of their more popular items and repeatedly turned to a thickening playbook of excuses as to why they continued to face hardship.

There was a glimmer of hope that yet another deal, this time to buy an alternative energy business called Buntu Power, would save them. But it didn’t. The JSE has lost yet another counter and our economy has lost a job-generating business that we can ill afford to be without.

Lack of development

In so many ways Ellies Holdings did nothing wrong; they made great deals and had useful products. But the business completely overlooked the one thing that would have saved them in favour of what they were more comfortable with. Deal-making often unlocks sales volumes, but without a commitment to increasing margin value through brand development, a business will be very busy with being busy, but will also be busy putting themselves into a huge hole.

Drawing inspiration directly from Steve Jobs, in 2015 Elon Musk publicly debuted the Tesla Powerwall to a live studio audience. The design of the battery housing was beautiful. It was baptised with a memorable name. It was promoted aggressively by Musk himself, and today — selling at over R160,000 a unit — many consider it the world’s most desired inverter brand.

Tesla’s Powerwall is the group’s highest margin business, contributing over $500-million in profit per quarter. The Powerwall story is an impressive case study in how to differentiate a commodity product in a crowded marketplace to unlock predictable consumer demand and profitability.

It’s a crying shame that a business offering solutions to a power problem, from a country that is a world leader in understanding the lack of power, couldn’t deliver on the economic opportunity that was available to it.

Everything was lined up, but the missing component was a commitment to the marketing function. Surely if jobs and economic growth in this country is our intention, then our businesses need to get far better at creating value.

This is ultimately the crux of the issue that needs to be solved. DM

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Comments - Please in order to comment.

  • Jane Crankshaw says:

    Its hard for Biz SA to create better value when hamstrung by outmoded legislation and unfair competition. Our BRICS membership and BEE requirements don’t help either! There is nothing to inspire new entrepreneurs……ruinous and rigged tenders given to fly by nights and an education system that does not inspire innovation and creativity have all done their bit to hasten our demise!

  • Brian Cotter says:

    This reads like the start of a marketing case study which will be in the text books next to Coca Cola and Pepsi.

  • John Patson says:

    Creating value through marketing alone is very difficult and fickle.
    Powerwall has (had) great marketing, but it also works and is made by the seller.
    When you have your stuff made in China you lose most of that equation.
    Make value through things you make yourself and can touch, is old fashioned but it usually works.

  • Funny Za says:

    Innovation in the smarthome industry as well is what left them behind, Phillips saw that smart home bulbs and plugs etc(as in my opinion their surge plugs are some of the best in the business). If Ellies could’ve done that here as a homegrown company and marketed to the rest of the world, possibly striking deals with Google & Apple (Now we have the matter standard which ensures cross platform compatibility), it might’ve been different as the smart home industry has been making great strides in affordable products, that combined with renewables, especially in the solar roof tile industry (looking at Tesla’s implementation), could’ve made them a gobal force to be reckoned with.

    • chellie ZA says:

      What Goes Around Comes Around
      The business world is a delicate dance, and karma often joins the party. Companies ultimately harvest what they sow, be it the rewards of innovation or the repercussions of shady practices or the consequences of questionable actions..
      Ellies, once a giant in consumer electronics, reached a turning point. Their navigation of the patent landscape prioritised themselves over local South African innovators, many with dreams they poured their hearts into.
      Integrity is paramount. When a company loses sight of it, the truth becomes a bitter pill. Case in point: Ellies’ surge protectors, a successful product range. However, the mastermind behind this “innovation” was Jason Roper, inventor of the groundbreaking Wonderplug and the entire surge protection range.
      Africa Surge partnered with Ellies, hoping for mutual growth. But greed overpowered vision. This isn’t an isolated case. Ellies, along with other companies stand accused of silencing inventors like Roper and Rick Hamilton Brown’s(Inverters) through plagiarism.
      Often, we overlook the origins of everyday products, like the TV Arm and the universal remote. Who conceived these ideas? Who holds the patents? As consumers, we purchase these items without considering the effort, passion, and hard work that went into their creation. I’m no exception—I’ve made purchases without a second thought about their origins.

      • chellie ZA says:

        Now, in an era of heightened awareness, we must ask these crucial questions. The trust we once had in people seems to have faded; it’s now every person for themselves. But what if we start seeking truth beyond social media and news? Who is delving into the Multichoice debacle involving Ellies, what is the whole story.
        Justice matters for those innovators whose ideas were exploited, leading to the downfall of their businesses.
        Let’s be curious, informed, and compassionate—our collective actions can shape a better world.

        Justice matters for those innovators whose ideas were exploited, leading to the downfall of their businesses.
        Let’s be curious, informed, and compassionate—our collective actions can shape a better world.

  • Iam Fedup says:

    Brilliant analysis. As a marketing academic and consultant to many blue chip companies, this article serves as a warning to many other companies. None is so blind as those who will not see.

  • Oliver Hilton says:

    Lots of dodgy dealings around liquidation of Ellies Holdings. And unanswered questions. I saw many things this week first hand that made me just shake my head.

  • Mohsin Wadee says:

    The Ellies group is no more. Ellies Electrical is still going.

  • Jan De Ruyter says:

    Interesting to note that their inventory went up from 195 198 to 213 646 in 2022. That is a whopping 18 mil! Inventory was listed as priority 3 on page 55, yet Ellies’ management failed to grasp the fundamental principles of good inventory management.

    Their inventory turnover was only 3.82, leading to incurring massive storage cost. I guess there was a whole department recording the efficiency of every machine and worker in the factory. It would have been cheaper for them to do nothing.

    Now, sadly, those people lost their jobs.

    This happens when management focuses on efficiency and individual productivity rather than getting stuff through the factory and out the door.

  • Richard Robinson says:

    South Africa’s Kodak and Swiss watch moment?

  • Rael Chai says:

    The set top box deal was also a huge failure. They invested hundreds of millions in a government venture that never took off. Agree that their marketing left lots to be desired – I think their philosophy was kinda ‘make the product and the consumer will buy’ but there is too much competition and were not able to distinguish their products.

  • Richard Blake says:

    Walk in to any large retail store and go to the electrical isle. What you will find is hundreds of cheap Chinese rubbish products. This is the consequence of putting a communist clown like minister Patel in charge of trade. Consumers and businesses are also to blame for not supporting SA brands.

  • Mmatu MZAIDUME says:

    Management got complacent. Just like the fellows at Dstv.

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