Famous Brands is reaping rewards | Fin24
 
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Famous Brands is reaping rewards

May 31 2015 15:05

This week, Famous Brands reported a 14% increase in revenue in its South African market to R615 million in the year ended March 28.

In the same period, it opened 213 new restaurants across its brand portfolio, which is home to some of South Africa’s favourites, including Wimpy, Debonairs Pizza, Steers and Tashas.

If the financial reports of companies are anything to go by, it may seem that even in the midst of weak economic growth, South Africans cannot resist a burger or pizza.

However, the fast-food companies may start to feel the pain soon.

Growth indicators released this week by Stats SA showed a growth of 1.3% in the first quarter of 2015 – much lower than expected by the market – and the quarterly labour force survey showed the unemployment rate increased to 26.4% in the first quarter of 2015 from 24.3% in the last quarter of 2014 – the highest in 12 years.

And the economic outlook does not look good. “Labour market conditions are unlikely to improve significantly in the months ahead,” said Nicky Weimar, an economist at Nedbank.

“Local growth prospects remain subdued and fragile. The weak growth picture, together with other factors, such as high input costs and unstable electricity supply, will hurt business sentiment and make firms wary of expanding capacity significantly.

“Job creation by the public sector will be muted by the government’s pledge to reduce the budget deficit and contain the nation’s debt burden by, among other things, controlling growth in public sector employment and wage increases,” she said.

Famous Brands has already been affected by the weak economic conditions and reported a decline in its operating margin – the profit percentage the company receives from each sale – from 60.4% to 59.4%.

“[This reflects] softer performances reported by Wimpy and Steers given constrained discretionary spending in the mainstream and middle income market,” the company said.

In its forecast, the company said it expected future growth over the next six months to be muted as disposable income growth remains conservative.

However, Famous Brands is still bullish, and plans to open up 202 new restaurants in the country by the end of this year.

However, the group intends to expand its presence in the evening dining environment, which affords it more strong growth, suggesting a slowing down in its fast food expansion locally.

Domino’s Pizza, which was touted as the brand most likely to knock Debonairs off its perch, has also shown promising results with some of its products, despite the gloomy economic outlook.

Taste Holdings, which houses the Domino’s brand as well as brands such as Scooters Pizza and The Fish&Chip Co, also released its results this week and revenue in its food segment increased 10% to about R398 million, although it was brought down by some of its brands, particularly The Fish & Chip Co, which did not perform well.

“Sluggish economic growth and growing consumer debt have led to a period of consolidation in the South African franchise industry. Weaker franchises are failing, while accurately targeted and well-managed brands are performing.

One of those well-performing brands is Domino’s Pizza, which has 23 stores – and more are on the way.

Carlo Gonzaga, CEO of Taste Holdings, said the group has a target of 62 outlets by August 31.

This will be done through a combination of new stores as well converting franchisee stores to trade under the Domino’s Pizza brand.

“The first converted franchisee stores will trade under the Domino’s Pizza brand by the end of this month,” said Gonzaga.

“Sales continue to exceed original expectations, with converted stores, [of which there are only three so far] achieving sales more than 50% higher than they were achieving prior to conversion.

“Per-store average Domino’s Pizza sales are currently more than 60% higher than average Scooters Pizza sales.”

The company also has plans to expand to the rest of Africa as a condition of its 30-year licence.

Another international brand making its way to our shores soon is the American doughnut brand Krispy Kreme. The company plans to open 31 shops in South Africa over the next five years, and will mark the company’s first venture into Africa.

This will provide South Africans with more to feast on. However, on the back of sluggish economic growth, it remains to be seen how well a brand like Krispy Kreme will fare.

famous brands  |  retail
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