IF YOU think South Africa’s food sector is already overtraded, brace yourself for an even higher density of deep fat fryers per square kilometre in major metropolitan areas.
Two years after speculation started that Burger King was making its way to SA, the US group is finally poised to enter the vibrant domestic sector already dominated by homegrown brands and a number of well-established global chains.
Grand Parade Investments [JSE:GPL]
(GPI) confirmed this month that it had been awarded the master franchise agreement after negotiations over the past 18 months.
Burger King was considering a number of potential partners, and industry insiders had believed that the arrangement would go to Justin Divaris’ luxury car-dominated Daytona Group. He’s refused to comment on the process.
Famous Brands [JSE:FBR]
CEO Kevin Hedderwick is characteristically unperturbed by the entry of a large American competitor.
“None of our market share is for sale,” he says. “We have been in the business for 50 years and have interacted with many competitors both globally and locally.”
Hedderwick has reason to be confident – Famous Brands has been awarded the Leisure Options “best burger” accolade for the past 17 years and best chips for the past 14. However, GPI CEO Hassen Adams believes he might have one up on the local group.
Initially at least, Burger King’s chips will be imported from Belgium where a special coating is applied to them. While importing chips from Belgium is akin to delivering ice cubes to the Arctic Circle and creates an added layer of cost, Adams maintains it will prove to be a key differentiator in a market where there are few obvious gaps to exploit.
Says Greg Solomon, MD of McDonald’s in South Africa: “South Africa is a robust, mature and competitive market for quick service restaurants.”
Hedderwick describes South African consumers as “promiscuous” by nature, and concedes they will gravitate between not only brands but various categories. The biggest risk facing Burger King is differentiation.
“Consumers don’t eat burgers every day, Burger King will face what all existing competitors deal with – fighting for share of wallet.” That and a battle for prime sites on which stores can be opened in the aftermath of the rapid colonisation of the country’s best locations.
SA’s skills shortage means that established players run the risk of losing key staff. Turnover of staff at Famous Brands is in the region of 2% – even lower at senior management level.
Burger King is the first foray for GPI into the quick service restaurant (QSR) sector. Adams was one of the founders of Cape Town Fish Market and has been involved in other sit-down formats.
For the QSR venture, however, GPI has registered a new company called Grand Foods and plans to enter pizza and pasta with the possibility of playing in the surprisingly tough-to-crack chicken space too.
Despite its stellar track record across a range of food categories, Famous Brands is yet to crack chicken. Its attempt to launch US concept Church’s bombed 10 years ago and its latest joint venture with Giramundo founder Boetie van der Merwe has gone worryingly quiet.
The chicken market is dominated by KFC in the deep fried segment, with established players like Chicken Licken and Nando’s also dominant in a market that features a range of privately held but expensive-to-buy local chains.
Adams has been overwhelmed by the public response to the news that GPI is bringing Burger King to this market.
He says after an initial period where the roll-out will be done only through company owned stores to ensure product quality and consistency, the roll-out of stores will be more aggressive than the original plan had envisaged and franchising will be introduced.
It’s a big deal for Cape Town-based GPI, which has made its money in the casino business.
It pits the wits of Hassen Adams against those of Cyril Ramaphosa who last year bought the master franchise of McDonald’s, which, after making a stuttering start to its South African strategy as far back as 1995, is finally gaining some traction in the domestic market and at last count had 168 outlets across the country.
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