SOUTH AFRICA – Fast-food service franchisor Famous Brands has acquired a 51% stake in Mexican-concept restaurant Salsa Mexican Grill, marking its second swoop in the sector in a month.

Salsa Mexican Grill has one store in Fourways in Johannesburg, with plans to open two others in Parkhurst and Bedfordview this year.

The Salsa Mexican Grill concept was brought to the country from the US by businessmen George Nicolopoulos and Symeon Yiallouris.

Four weeks ago, Famous Brands purchased KwaZulu-Natal-based Italian-concept restaurant Lupa Osteria. Famous Brands CEO Darren Hele said the acquisitions fitted in with “our strategy in terms of our bouquet of brands”.

“The casual dining market is more premium by nature, it’s smaller in terms of size and reach. This is adding to and complementing our business, rather being a shift in focus. Our business primarily remains those mass-market brands,” he said.

Anthony Clark, a small and mid-cap analyst at Vunani Securities, said: “They (Famous Brands) are rapidly moving into the sit-down market because that market is more resilient and the price points that they charge enable them to pass on any food price inflation.”

“They are seeing that their low-end market is becoming saturated and, if they want growth, they have to move towards casual dining, where there is more scope to grow,” Clark said.

But as South African consumers face pressures on disposable income, this is going to be a headache for fast-food retailers that depend on consumer discretionary income.

According to Orin Tambo, a senior analyst at Intellidex, Famous Brands shares are on a price:earnings (p:e) ratio of 24, “which is roughly in line with the all share sporting a p:e of 22, but a premium when compared to its closest competitor, Spurs Corporation, on a p:e of 16”.

“While the risk of cannibalism is there, we think it’s minimal … we see the expansion of the casual-dining portfolio as complementary to the quick service,” Tambo said.

Hele echoed Tambo’s view, saying “If the people side and the process side is right, we believe we can manage that. We don’t have big overlaps, we manage these businesses on the correct basis and in terms of control.”

As far as the economic environment is concerned, Hele said that because these relatively “low-risk” acquisitions, “the economic environment will purely determine the ability and speed that we can grow”.

The group’s share price gained 2.09% to close at R112.30 on Monday, with Hele insisting that “We are acquisitive — our history has proven we are not going to rest on our laurels”.

Famous Brands has adopted a joint-venture model with its latest acquisitions.

May 16, 2016;