SOUTH AFRICA – Famous Brands, the owner of eateries such as Tashas and Mugg & Bean, will open up to 139 outlets by February next year as it seeks further market share gains in the thriving food service sector.

Although South African consumers have less disposable income due to debt and rising costs, there is a move to convenience and value over the cost and effort of preparing food at home. The growth of the restaurant industry, including quick-service restaurants, is benefiting from this change.

Famous Brands group CE Kevin Hedderwick said there was no sign of a decline in people eating out.

People wanted to “indulge and spoil themselves a bit because it’s tough”, he said. The rise of double-income families was also fuelling this growth. What people could buy at a restaurant compared to what it would cost to cook was also important, he said.

The firm, which has a market capitalisation of more than R13bn, on Thursday reported a 27% rise in revenue to R1.9bn.

Operating profit was up just 14% to R347m — largely due to the substandard integration of new supply chain projects into its business. The operating margin declined to 17.4%, primarily as a function of margin erosion in its logistics business.

Famous Brands does not just sell fast food — it makes the ingredients and transports them to outlets through backward integration through its manufacturing and logistics businesses.

“The final phase of (our) Fit-4-Purpose initiative, aimed at bringing the business closer to its franchisees and consumers, incurred further costs.

“This investment has now been concluded and the resulting structure will play a significant role in building capacity and capability for the group’s ongoing growth,” the company said. The group’s net borrowings of R45m represent a low net debt equity of 3% from 2% in the previous period.

Sales including new restaurants grew 9.1% and same store sales increased 5.2%.

“Despite sustained economic and household financial pressure, the food services industry registered above-inflation value growth during the reporting period, reflecting that eating out has become part of the fabric of the social lives of the majority of middle-income and high-income consumers in SA,” the company also said.

In the rest of Africa division, which trades in 16 countries, sales grew by 22.6%. This territory now contributes 9.5% of total franchise system-wide sales. Competition in the sector has heated up with rivals such as Spur Corporation also extending it footprint aggressively.

Smaller rival Taste Holding last week announced plans for a rights issue to raise R226m to fund the expansion of the recently acquired Starbucks coffee chain licence for SA and to grow the footprint of Arthur Kaplan jewellery.

October 23, 2015;