Going global gives Spur a leg-up
● Franchise restaurant owner Spur Corporation has been able to stave off a weak report card by expanding into international markets, thus not restricting itself to a highly competitive quick-service restaurant industry whose pace of growth in SA paints a bleak picture.
On Thursday, the owner of the RocoMamas and Panarottis brands reported full-year financial results to end-June 2019, showing sales growth of 7.2% across its local and international brands to R7.6bn. Revenue for SA increased 5.7% while internationally it rose 10%.
The casual dining franchisor opened as many as 20 international stores, making its debut in India and Cyprus, where it introduced its RocoMamas brand.
Explaining its increased profitability in SA, Spur said it had undertaken measures such as aggressive spatial reduction of its outlets, rental renegotiations as well as rationalising menu offerings in some of its brands. Its South African operations contribute over 95% of total group revenue.
Speaking to Business Times, Spur Corporation CEO Pierre van Tonder said the move to reorganise space was the company’s attempt at reducing overhead costs.
“In Africa we started rolling out smaller outlets because of overheads increasing, menu content being too large and, therefore, we repeated that exercise in SA as well in terms of making smaller units.”
He said outlets inside shopping centres were most affected as a result of landlords passing on municipal costs to their tenants.
According to data compiled by market research company Euromonitor, in terms of growth, consumer food services are expected to remain constant at 8.2% and chained consumer services and limited-service restaurants are expected to slow to 7.6%, from 7.8% and 8.1% respectively.
Consumer food services include cafés/bars and full-service restaurants; limited-service restaurants include self-service cafeterias and street stalls/kiosks, while chained consumer services are defined as brands that have 10 or more outlets.
Spur is not the only fast-food service provider that is feeling pressure.
Famous Brands, which owns Debonairs and Steers, in a trading update released this week, cited low consumer confidence and intense competition and margin pressure in its South African and UK markets. In SA, likefor-like sales at its leading brands rose 4%, while at signature brands, like-for-like sales rose 1.4% for the six months to end-August.
Taste Holdings, which has the master licence franchise in SA for global brands Starbucks and Domino’s Pizza, reported a group operating loss of R261m in the year to endFebruary.
Christele Chokossa, a senior research analyst at Euromonitor, said SA’s slow economic performance was weighing on the demand for fast food, prompting food service businesses to reconsider and halt expansion plans. This is the reason “some players opted for divestments while low-end takeaway providers closed down underperforming stores”, she said.
A surprise recovery by RocoMamas, with restaurant sales growing 7.5%, provided a fillip for Spur Corporation. The brand, which is lauded for its trendy look and food customisation qualities, had started to lose momentum. In the six months’ results to end-December 2018, sales decreased 6.7%.
The star performer for Spur Corporation was its Hussar Grill premium steakhouse, which is popular among higher-income earners. The niche brand, with a network of 22 restaurants, increased sales by 13.4% in the reporting period. The most recent outlets to be opened are in Lusaka in Zambia and the city centre of Khobar in Saudi Arabia.
“We’ve always said that it’s a very specific target market with regards to its locations. We are very cautious of Hussar and where we place them,” Van Tonder said.
As the company gradually finds its footing again at home, operations Down Under continue to suffer in a market that has a GDP growth of 1.5%, high rentals and subdued consumer spend.
Spur has shut down three stores in Australia and plans to close its Silver Spur restaurant in Sydney, whose lease comes to an end next year.
Citing challenges in that market, Spur has re-evaluated its growth prospects, saying it will halt new investments in Australia.
“We will not be investing in Australia and New Zealand any more. For us it’s a case of controlling our costs and winding it down a bit and supporting our existing franchisees that are out there,” Van Tonder said.
The group has had to grant payment rest to some of its Australian franchisees in order to help their cash flow.
In Africa we started rolling out smaller outlets because of overheads