Spur: Food for thought

Last year marked 50 years since Spur Corp founder Allen Ambor opened the first Spur restaurant, the Golden Spur in Newlands, Cape Town.

It should have been a great year for the 613-store franchise group. Instead it turned into a nightmare.

This began in March, with a confrontation between a white man and a black woman in Johannesburg’s Texamo Spur. It led to the man being banned from Spur restaurants, and unleashed an avalanche of antiSpur rhetoric on social media.

The fallout sent the Spur Steak Ranch division’s sales tumbling 14.9% in the last quarter of its year to June 2017, and a further 14% in the first quarter of its year to June 2018.

Though the decline eased to 5.3% in the quarter to December 2017, half-year Spur restaurant sales were still down 9.3%, at R2.24bn.

Many franchisees were hurt badly. At the height of the furore, 180 of 286 SA Spur restaurants were receiving support, says long-serving CEO Pierre van Tonder.

Support for franchisees meant Spur’s franchise and other revenue from Spur restaurants ended the half-year down R16m (12.9%) at R107m. Operating profit fell R18.6m (17.1%) to R90.2m.

Fortunately, the fallout has abated. “Spur [restaurants] have made a big comeback,” says Van Tonder. “At last we are competing on a level playing field again. Only seven outlets are still receiving assistance.”

This suggests that Spur’s headline EPS, after falling 11.8% in the first half of the year, should recover in the second.

But with Spur restaurants accounting for almost threequarters of the group’s SA restaurant operating profit, the Texamo Spur incident highlighted the need to further diversify income sources.

Unlike rival Famous Brands, Spur was slow off the mark with brand diversification. Until recently, its only significant moves in this direction were the launch of Panarottis Pizza Pasta in 1990 and the acquisition of John Dory’s Fish, Grill & Sushi in 2004.

In Spur’s past half-year, the 83 Panarottis restaurants and seven upmarket Casa Bella restaurants in SA generated an operating profit of R23m — 9.5% of total SA restaurant operating profit. John Dory’s 48 SA restaurants generated an operating profit of R5.1m.

The pressure to diversify further is becoming intense. “The restaurant landscape is changing enormously,” says Van Tonder. “People are continually looking for new eating experiences.”

In an effort to broaden its brand offerings, Spur made its first serious move in late 2013, buying upmarket steakhouse chain The Hussar Grill for R35m. At the time, the brand comprised six restaurants in the Western Cape.

Spur has since established restaurants in Johannesburg, Durban and Port Elizabeth, and one in Lusaka, Zambia.

Van Tonder says the brand is proving to be “a big success”. Reflecting this, its 17 SA outlets in the half-year increased sales 24.1% to R90m, and 11.1% on a like-for-like basis. Operating profit was up 7.5% at R2.5m.

Spur’s diversification coup came in March 2015, when it bought a 51% stake in gourmet burger chain RocoMamas. It subsequently increased its stake to 70%.

RocoMamas took off with a vengeance, growing from nine restaurants at the time of its acquisition to 58 in SA and one each in Namibia, Kenya, Mauritius, Oman and Saudi Arabia by the end of 2017.

In the past half-year, RocoMamas increased SA restaurant turnover by 37.5% to R320m and generated a 57% rise in operating profit to R12.7m. This built on a 62% rise in operating profit in the previous half-year, and resulted in RocoMamas ousting Panarottis from its position as the group’s secondbiggest restaurant profit centre.

Spur’s diversification drive continues. In June it said it will buy a 51% stake in the upmarket Nikos Coalgrill Greek group. Nikos Coalgrill was founded in 2017 and has two restaurants in the Durban area and four in Gauteng.

“There will be 10 Nikos Coalgrill restaurants by the end of this year,” says Van Tonder. “We see the potential to grow it to a national chain of 50 restaurants over the next few years.”

Nikos Coalgrill will not be the last brand to enter the Spur fold. “We are looking at others,” says Van Tonder. “But we will remain prudent and cautious.”

Though Van Tonder is not specific, it would not be surprising to see another deal announced in coming months.

Since its listing 32 years ago, Spur has served its shareholders admirably. Expect more of the same in the years ahead.

The restaurant landscape is changing enormously. People are continually looking for new eating experiences