Famous Brands cuts funding to its loss-making UK fast food business

SOUTH AFRICAFamous Brands, South African restaurant franchisor will cut funding to its long-time struggling British fast food operation, Gourmet Burger Kitchen, due to deterioration in sales caused by the coronavirus pandemic.

The SA owner of Mugg & Bean, Steers and Wimpy bought GBK for more than R2.3bn (US$122.6m) in 2016 as part of its strategy to reduce its dependence on South African consumers, who were under pressure, over the past few years.

However, the plan proved costly as the burger chain took strain as a result of economic struggles abroad post-Brexit.

Famous Brands said its decision not to provide financial assistance to GBK comes after the UK and Irish governments forced all restaurants to close for an indefinite time to reduce the spread of Covid-19.

“The board’s decision to withhold further financial support for GBK may result in an impairment of the full value of Famous Brands’ investment in GBK,” the company said.

The decision to stop supporting its UK business was well-received by markets, with Famous Brands shares gaining as much as 8%.

Famous Brands has twice written off money it spent on GBK. In 2018 it wrote off R874m (US$46.6m) and announced a R373m (US$19.8m) impairment and has since closed more than 20 loss-making GBK restaurants.

According to the companies financials for the year ended February 2020, System-wide sales for GBK in sterling declined by 13.9%, attributable to the closure of restaurants as part of the CVA process, while like-for-like sales increased by 3.7% compared to the previous year.

Famous Brands could look forward to good business once the national lockdown in South Africa ends, as it has a number of well-known brands that consumers would flock to once their doors opened again.

In South Africa the franchisor reported a 6.4% rise in system wide sales across all restaurants in its full year financial results, while like-for-like sales grew by 2.9%.

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