Pierre van Tonder is the CEO of Spur Corporation, a growing multi-brand restaurant franchisor, headquartered in Cape Town, South Africa, which trades as Spur Steak Ranches. Tonder, who was in Nigeria, recently, speaks with Kunle Aderinokun on the nation’s
Welcome to Nigeria. Will this be your first trip to thecountry? No. This is my second visit to the country, although I have been dealing with our principle franchisee for many years.
What is the purpose of your visit to Nigeria?
To finalise our master franchise agreement with our franchisee, as well as several new locations that we are currently investigating.
It is heart warming to see an African organisation like Spur Corporation Limited emerge a global lead erina very competitive industry. Can you give us an overview of Spur and how itallstarted?
Spur opened its first outlet in 1967, when the current chairman, Allen Ambor, started trading the Golden Spur in Newlands, Cape Town. He saw a gap in the market to provide a high quality product at affordable prices, within a relaxed and family-friendly environment. He believed that focus on the customer was paramount. Spur was developed from this ethos. While the brand has evolved over the years, it essentially still embodies the original ideals of the founder. Shortly after opening the first outlet, Allen recognised that in order to realise his dream of growing the brand nationally, he had to adopt a franchising model. This brought with it many risks, in that he wasn’t able to physically be on site at each location to ensure that franchisees protected the values of the brand, and so he started developing the infrastructure necessary to maintain and enforce stringent standards, surrounding himself with the right people for the job. The company was listed on the Johannesburg Stock Exchange in 1986 and underwent a major restructure in 1999. The group started the Panarottis Pizza Pasta brand in 1990 to capitalise on the growing pizza market in South Africa at the time. John Dory’s Fish Grill Sushi was acquired in 2004. The group acquired the Captain DoRegos brand in 2012 in an attempt to cater for a broader section of the population in South Africa. In 2014, the group acquired the upmarket The Hussar Grill steakhouse chain. Most recently, the group acquired a controlling interest in RocoMamas, a burgers, ribs and wings offering that appeals to millennials.
Having operated in the Nigerian environment for several years now, how would you assess the market, vis-à-visy our line of business?
We believe that while there are certain barriers to entry in any new market, there is certainly a need and a desire for our brand in Nigeria.
Although it is highly competitive, we are making inroads in terms of getting our brand equity out into the market place.
Will you rate the return on investment from Nigeria as good?
We believe it will be, but, as in any business, we need to achieve a certain critical mass, in order to benefit from economies of scale and efficiencies within a region. Currently, travel costs are exorbitant into Africa. However, we believe that we need to take a longer-term view and invest now, in order to establish and grow our presence.
What factors under line your specific focus on Nigeria?
With the largest population in Africa and second largest economy, we would be misguided to believe that Nigeria does not represent a real opportunity for us. Critical to our success however, will be to ensure that we can adapt to local customer tastes and demands and deal with certain of the operational challenges that are associated with new territories including, for example, supply chain issues.
What is unique about Spur in the Nigerian market?
Firstly, I think that we are the first family restaurant in the Nigerian market - you will note that our logo states “family restaurant”. This will also reflect in our design, layout and food - an enjoyable family experience at reasonable pricing and good value.
Can you give us an insight into what the Spur Group plans to accomplish in Nigeria in the next five years?
One of our key learnings from entering major territories that we are not fully au fait with, is that it is best to partner local expertise and capital. We have done so in Nigeria, and appointed a master franchisee in the region. Our plan is to grow to at least 20 stores in the next five years.
Competition in your industry is intense. What are the current global trends and how are you staying ahead of the competition?
The world has not really recovered from the economic turmoil of the last decade – while the global economy is recovering, it is at a reasonably slow pace. Political upheaval globally, is unsettling consumers. Economic inequality also seems to be a growing global trend. Unsettled weather and growing world population is putting pressure on food resources, resulting in higher food inflation. We are seeing that in general, the upper end of the market continues to be resilient – the rich are getting richer and have a bigger margin of discretionary spend to cushion short term dips in confidence. The lower end of the market generally is taking more and more strain. The middle class is getting more cautious in their spending, not knowing what the future may bring politically and economically. We will therefore continue to focus on product quality, offering and value – making sure that we can satisfy our customers by providing them with an affordable, excellent quality meal in a welcoming environment that serves as an oasis away from the concerns of everyday life. Locally, we are looking at supply chain opportunities to control costs and quality into our franchising network, to maintain franchisee profitability while still offering value to our customers. We are also focusing on internal back of house efficiencies in an effort to contain costs.
Spur Corporation has largely remained a franc his or, using its‘ intellectual property, experience, skills and support infrastructure to manage franchised restaurant operations ’. Would you describe this business model as successful or there would be some tweaking or shift in the future?
Franchising has been very successful for us. It is where our strength lies. Consequently, franchising is likely to remain our predominant source of income in the long term. In South Africa though, we are considering looking at company-owned stores. We have not always been successful with this course of action in the past, so, should we decide to go this route, we will be extra cautious to ensure that we don’t repeat the mistakes of the past. We are also cautiously looking into the supply chain aspects of our business.
In the six months to December 2016, Spur Corporation recorded growth of 10.2 percent in South Africa and 12.0 percent in international restaurants in total franchised restaurant sales. What factors drove these performances? And how do you explain the variation in the South African performance as against the international leg?
The 12 per cent growth internationally (excluding the United Kingdom) is in ZAR; on a like-for-like exchange rate, the growth internationally (excluding the United Kingdom) was 9.3 per cent. Local restaurant sales benefitted from the rollout of RocoMamas in the current and previous periods. Panarottis, John Dory’s and The Hussar Grill similarly benefitted from new store openings in the current and previous periods (the impact of new business is more pronounced in the smaller brands, compared to Spur), although to a lesser extent than RocoMamas. Growth in South Africa was acceptable but constrained due to lower overall discretionary spend arising from high inflation, sluggish economic growth, and rising unemployment. Our international business benefitted from excellent growth in Mauritius, and good growth in Australasia, following the very successful launch of our first store in New Zealand. This was offset by a disappointing performance in Africa, which grew marginally. The performance in Africa we attribute to political instability, poor economic growth (led by lower commodity pricing), and currency devaluations.
To what extent has the closure of the group’ s operations in the UK and Ireland impacted on your overall bottom-line?
Until very recently, the United Kingdom did not result in any cash flow losses, although accounting losses were incurred due to the very high setup costs and poor exchange rate when we set up certain of the stores in 2007-2009. As soon as we started incurring cash flow losses, we made the difficult decision to withdraw from the United Kingdom. We expect that the closure of the United Kingdom will be earnings enhancing, at least in the short to medium term. Given our history of impairments, the real benefit of closing the United Kingdom is likely to improve shareholder sentiment. Note however, that by far, the majority of our profits have always been generated in South Africa – the impact of the United Kingdom (excluding impairments) on the group’s profits has therefore not been material.
What is your assessment of the Nigerian hospitality industry?
We often hear of its vast potentials and opportunities, but whether it is being strategically developed is another issue.
If one looks at the current market in Nigeria, it is self-evident that there is economic strain due to low commodity prices, however, this also creates an opportunity for us to grow the brand on a prudent basis. As we have seen in the past, when there are tough economic times, there are good transactions to be done that are commercially viable for our franchisee.
The Spur Group has its roots in Africa. How much of African food or menu have you exported to there st of the world?
While Spur is a South African icon, its offering is very “Western” – ribs, burgers, steaks, chicken wings, schnitzels. These products are not unique to Africa. Our USP locally is the package of quality product, value and dining experience – and this is the reason for our success. In other territories, we tweak the menu (but don’t reinvent it entirely) to deal with local specific tastes and preferences. One of our successes in the African continent is that we are highly sensitised to local tastes and preferences and we tweak our menus and offerings accordingly.
What is your assessment of the Nigerian investment climate broadly considering the high cost of doing business in the country?
I don’t think this is unique to Nigeria as building costs and food inflation have escalated worldwide over the past few years. One of the biggest challenges we have, not only in Nigeria, but the rest of Africa, is that the local currency is not used in rental negotiations, but rather based on US Dollar, which again makes it extremely difficult. Having said this, we assist our franchisee with the investment and with his discussions with property owners so that the necessary ROI can be achieved.
Growth is predicted to come from Africa and other emerging markets well into the next decade. Are you optimistic that this projection can still happen?
Theoretically, with one of the fastest growing populations, a young population and massive commodity reserves, it should be. The big unknown is politics. Political shocks are in our view the single biggest risk to the long-term growth trajectory of the continent.