A RUM­BLE IN THE FAST FOOD JUN­GLE

The Star­bucks deal lit up de­mand for Taste shares. But how does the up­start com­pare with its older, more es­tab­lished ri­val, Fa­mous Brands? asks Rob Rose

Financial Mail - Investors Monthly - - Cover Story -

Fa­mous Brands CEO Kevin Hed­der­wick bri­dles ev­ery time some­one com­pares his com­pany with its smaller ri­val, Taste Hold­ings, which has been snap­ping at its heels for years.

“It does ir­ri­tate us be­cause our busi­ness mod­els are fun­da­men­tally dif­fer­ent, and be­cause [Taste CEO] Carlo Gon­zaga used to be a fran­chisee [of Fa­mous Brands’ De­bonairs pizza], and gained his learn­ing there be­fore start­ing a com­peti­tor,” he says.

There’s a pretty ob­vi­ous rea­son for com­par­isons, though: both are bid­ding for the wal­lets of, to use the cliché, “cash-rich and time-poor” cus­tomers look­ing for con­ve­nience foods.

Both also have pizza busi­nesses which sparked the “pizza wars” last Oc­to­ber, when Taste scooped up a 30-year master li­cence agree­ment as the South African part­ner of the world’s largest pizza de­liv­ery brand, Domino’s.

At the time, Hed­der­wick vowed that Fa­mous Brands would “fight with ev­ery inch of our re­solve” to pro­tect the mar­ket share of its De­bonairs brand.

Both also have a va­ri­ety of other brands, some of which are also in com­pe­ti­tion.

Fa­mous Brands owns Steers, Mugg & Bean, Tashas, Wimpy and Wak­aberry, among oth­ers. Taste has Maxi’s, the Fish & Chip Com­pany and, in­con­gru­ously, Arthur Ka­plan Jew­ellers.

In re­cent months, how­ever, Taste has be­come some­thing of a mar­ket dar­ling thanks to its knack of snaf­fling sexy deals.

In July, Gon­zaga re­vealed that Taste had got the li­cence to launch cof­fee brand Star­bucks in SA. In­vestors were might­ily im­pressed with this coup: on the day it was an­nounced in mid-July, Taste’s shares shot up 19,6% on the JSE, tak­ing its mar­ket value to around R1,3bn.

To many, Hed­der­wick among them, this seemed more like hype than any­thing.

“Star­bucks has yet to prove it­self in South Africa. Both Star­bucks and Domino’s are global brands, so there will be some trac­tion, but com­mer­cially, do the num­bers add up?” he com­mented to IM.

Gon­zaga, how­ever, is adamant that the num­bers do in­deed stack up. “Be­fore we do any deal, we look at the in­vest­ment case. Ev­ery sin­gle bit of money we al­lo­cate — and that in­cludes for Star­bucks — we look at in pure cap­i­tal al­lo­ca­tion terms and how we cre­ate value. Domino’s was the same,” he says.

Taste’s belief is that any pro­ject has to ex­ceed an in­ter­nal rate of re­turn of 25%, and 30% for each store. Any new pro­ject is pored over by Taste’s five-per­son in­vest­ment com­mit­tee, which analy­ses the pro­posal in strict fi­nan­cial terms.

“That’s the way we op­er­ate, whether it’s Star­bucks or a de­ci­sion taken to put a new watch brand into Arthur Ka­plan. It’s all about the in­vest­ment case,” says Gon­zaga.

When it comes to his feel­ings about Fa­mous Brands, Gon­zaga says only that “there’s no love lost be­tween our or­gan­i­sa­tions”.

“We’ll speak to each other if we have to,” he says.

For­get vanilla com­pet­i­tive ri­valry: the root of the bad blood dates back nearly two decades.

Back in the 1990s, af­ter fin­ish­ing his law de­gree, a 23-year-old Gon­zaga joined his fa­ther at his pizza fran­chise, De­bonairs, in Pine­town, north of Dur­ban. The Gon­zaga fam­ily did so well that they bought three more fran­chise stores, be­fore fig­ur­ing they could go it alone. So in Septem­ber 2000, the fam­ily launched Scoot­ers, from which the wider Taste Hold­ings grew.

Taste has be­come some­thing of a mar­ket dar­ling thanks to its knack of snaf­fling sexy deals

Pic­ture: iS­TOCK

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