Johannesburg – Spur Corporation [JSE:SUR]
is pinning its growth prospects on the rollout of smaller format restaurants in rural areas, after a successful trial at two outlets.
"A smaller retail area and a simplified menu allows for a substantial reduction in set-up costs compared to the standard format Spur outlet," the company said on Thursday, following the announcement of its annual results to end-June 2010.
Spur opened the two 300m2 outlets - the average Spur outlet is 450m2 - in Modimolle (Limpopo) and Groblersdal (Mpumalanga) during the past financial year.
Group managing director Pierre van Tonder said the model makes it feasible to operate in smaller towns which have growth potential and where the company has not traded until now.
"What this means for us is we can increase our market share and visibility in parts of the country where we never existed before," said Van Tonder.
He said the performance of the two restaurants launched, which exceeding budgeted revenue by 15%, encouraged the rollout. The group has three small outlets earmarked for opening in Wellington (Western Cape), Bethal (Mpumalanga) and Bredasdorp (Western Cape) in the new financial year, but hopes for more than that.
The venture into rural areas comes shortly after Spur expanded into peri-urban areas, opening Spur Steak Ranches in Soweto, Gugulethu, Hillbrow and Atteridgeville.
Reuben Beelders, an analyst at Gryphon Asset Management, said Spur probably realises it's fairly represented in its traditional market and needs to explore other growth areas. 'Conservative and prudent'
Beelders also noted that more people are migrating from a lower living standard measure (LSM) to a middle LSM than from a middle LSM to higher LSM. He said Spur, as a brand positioned in LSM 6 to 8, probably wanted to grab that opportunity.
Though not strictly comparable in terms of their offerings, Spur has been conservative in its store expansion and/or brand acquisition relative to quick service group Famous Brands, the owners of Wimpy, Steers and Mugg & Bean.
In the last financial year, Spur opened a total of 17 outlets in its local operations, refurbished 27 and relocated seven to better premises. This year it plans to open 21 stores across its three brands.
"They've always been conservative. I guess it's an issue of management," Beelders said. "But I must be honest - as an investor, I quite like that conservative approach."
He said a conservative approach carries minimal risk, and is better than an aggressive rollout of outlets only to close them down a few years down the line.
Van Tonder said Spur continues to look for acquisitions that fit the group's business model, but currently "there's nothing on the table".
He said the group was also "cautious and prudent" in its offshore expansion. During the year under review, Spur opened new restaurants in the UK, Lesotho, Australia, the United Arab Emirates and Botswana. This year it will open outlets in Zambia and Malawi, among others.