Spur has a lot on its plate with economic crunch and squeeze
Spur Corporation has released a miserable set of results for the year-ended June 30 2017. Against a backdrop of a languishing economy with escalating food inflation, a highly competitive market place with very aggressive pricing promotions and an unfortunate social media incident, Spur’s comparable headline earnings per share from continuing operations fell 8.3%.
But CEO Pierre van Tonder isn’t capitulating: “We’re 50 years old this year and we’re up for a fight.”
He is a great natural leader, but he will need all his skills to turn these results around.
Chief financial officer Ronel van Dijk views these results as a tale of a good first nine months, followed by a very poor last three months. In the first of these periods, most of the Spur brands, with the notable exception of Captain DoRegos, performed well.
But in the last three months, the group was battered by the perfect storm. During that period, in the immediate aftermath of the destructive cabinet reshuffle that led to Pravin Gordhan’s firing and the simultaneous ratings downgrade, restaurant sales in SA contracted by between 15% and 25%, depending on type.
Spur’s “Monday Night Burger” campaign was meant to lift sales on a traditionally moribund night of the week, but backfired as far as franchisee profitability was concerned and has been changed considerably.
Then there was the disastrous social media experience involving a racist incident at the Texamo Spur in The Glen Shopping Centre in Johannesburg, which took its toll. According to Van Dijk, some Spur outlets lost 50% of their turnover virtually overnight. But she points out that the group has extended assistance to many of these franchisees, to the tune of about R18m, by way of concessions on their franchise fees.
RocoMamas remains the star in the Spur portfolio, with turnover from its South African operations rising 78% in the year to June. “Never in my 35 years’ experience in franchising have I seen a brand like this” raves Van Tonder. The Hussar Grill, an upmarket chain of steakhouses, also performed exceptionally well, with turnover growing 36% during the year.
On a much less positive note, Captain DoRegos went back- wards by 18% in terms of turnover. This chain is up for sale, though Van Dijk is at pains to point out that it won’t be a fire sale and Spur won’t abandon its franchisees in the sale process. Also, Spur’s Australasian operation suffered due to the mining slump in western Australia.
Making a virtue of necessity, Van Tonder says the Texamo Spur incident helped the group to get tighter focus. “We’ve had five smaller incidents like this since the big one,” says Van Tonder. “But by training our people in conflict management and ensuring owners could resolve issues on the spot, these subsequent events haven’t even made it into the social media space.”
Spur remains a quality business, but will probably struggle to claw back market share in SA’s intensely competitive casual dining space, especially with local consumers squeezed. The international footprint of 63 stores (out of a total of 591) is growing, even though the UK is now discontinued.
At R28.50, the share is almost 30% below its peak of about R40 just more than two years ago. On a historic price:earnings ratio of 15 times at the prevailing share price, it is not especially compelling unless the turnaround is particularly profound.