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
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