Famous Brands posts strong performance despite tough operating environment

SOUTH AFRICA – South African restaurant franchisor, Famous Brands has reported a 50% revenue growth to R3 billion (US$198m) in the half year period ended August 2021, despite the impact of lockdown and violent looting in July.

A steady recovery is on the horizon for the owner of Steers, Debonairs and Wimpy brands, as the company reports a 140% surge in profit, bolstered by an increase in take-away and delivery sales.

The JSE-listed company, reported headline earning per share (Heps) of 97 cents for the current period compared to a 240 cents loss reported in the previous comparable period, while operating profit increased to R222 million (US$14.6m) (+302%).

Despite the improvement in profit, the group is still far from returning to pre-Covid-19 levels where it reported Heps of 159 cents for the comparable period.

In addition to South Africa, Famous Brands also has operations in the rest of Africa, Middle East and the UK.

In the local market, Covid-19 restrictions that included limitations and bans on alcohol trade impacted the group.

The unrest that took place in KwaZulu-Natal and Gauteng in July, resulted in 109 stores being damaged, while 99 restaurants were declared none-operational.

The company also saw damages at its logistics facility in Westmead, KwaZulu-Natal. However, it managed to open 55 stores by the end of August.

The Steers owner said it has since provided franchisees with royalty relief, assistance with insurance claims and bridging finance.

Adoption of take away services and food delivery to stay afloat

In response to the COVID-19 restrictions, Famous Brands noted that its restaurants were forced to adapt quickly and changed the way consumers experience dining.

“Some of these shifts include the adoption of contactless technology, a rise in takeaway and delivery sales, a preference for outdoor dining, adjusted staffing levels, and menu rationalisation.

“Trading activity remains muted due to Covid-19 restrictions related to sit-down dining, travel, seated capacity, trading times and alcohol sales.

“Research indicates that fear of contracting Covid-19 is a first or second barrier to consumers eating at a sit-down restaurant. This has led to a dramatic rise in takeaway and delivery channels,” it said.

Famous Brands noted that consumers remain under financial pressure in most markets, and many can no longer eat out or increasingly seek value purchases.

It added that as consumers work from home, they tend to cut back on the frequency of eating at casual dining restaurants.

In light of this, home delivery played a vital role in the group’s success in the past six months, with 14% year-on-year turnover growth across own and third-party aggregators.

Famous Brands added that it plans to make on-going investments in technology and internal capabilities to streamline last mile home delivery.

“The group has improved its own delivery offering by optimising delivery zones, reducing drive distances, stimulating volume and track preparation and drive times.

“Delivery through third-party aggregators will continue to grow, slowing our own delivery growth to some degree while also representing growth through accessing a new customer base. We continue to invest in our own delivery capacity to remain competitive within high-density delivery nodes,” it stated.

Less weary of the fourth wave

Famous Brands said that its focus for the remainder of the year would be on creating further operational efficiencies, prioritising core long-term operations, improving franchise partners’ investment returns, and managing cash flows.

Despite the weak economy, the group said it is optimistic that sales will recover further as vaccine programmes roll out and economic conditions improve.

“The possibility of a fourth wave in several markets could lead to more stringent Covid-19 restrictions. The timing of this fourth wave is also critical; an earlier fourth wave in November would have a lesser revenue impact than a wave during the December and January holiday period.

“We anticipate higher food inflation in the second half of the year, mainly driven by dry goods, perishables and packaging. Expected currency weakness in the period ahead will further intensify margin pressure for manufacturing,” it noted.

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