GBK leaves a nasty taste
It was a great deal for Nando’s when it sold the UK business Gourmet Burger Kitchen to an overeager buyer
When Famous Brands went on the hunt for a “transformational” UK acquisition, rival Nando’s saw it coming.
Nando’s had Gourmet Burger Kitchen (GBK) ready to foist on the overeager buyer.
Famous Brands, which was built on SA power brands including Debonairs Pizza, Steers, Wimpy and Mugg & Bean, made a grab for GBK in October 2016, snapping it up for what was to prove a very inflated, debt-funded £120m.
It was a winning deal for Nando’s, which had acquired the-then 53-restaurant GBK for £30m six years earlier — when the premium burger sector was just taking off.
For Famous Brands, GBK brought with it 97 corporate-owned restaurants. It was at a time when consumer confidence was dwindling in the wake of Brexit, the UK’S vote in June 2016 to exit the European Union.
The premium burger sector was also showing signs of fast becoming overtraded. It was a trend seemingly ignored when Famous Brands pushed the button to acquire GBK.
“GBK has had to face a proliferation of competitors,” says Famous Brands CEO Darren Hele. Indeed it has, with the number of restaurants serving the sector having grown from 213 in 2014 to 351 in 2016 and 401 in 2017.
Famous Brands (which has annual revenue of R7bn) notes in its release of annual results to February: “With the entry of new participants, first movers have lost their advantage and market share, as consumers seek out new novelty offerings.”
Hit hard by the trend, GBK’S market share has fallen from a dominant 43.1% two years ago to 31.5%. But suggesting a problem going deeper than a proliferation of new entrants, the combined market share of GBK’S two biggest competitors, Five Guys and Byron, rose from 21.9% to 34.7% over the past two years.
Whatever the case, GBK’S woes (which included a 6.8% same-store sales slump in its past year) were enough to leave it nursing a £3.6m (R60m) operating loss.
GBK, in its first 20 weeks of being consolidated by Famous Brands in the previous year, delivered an operating profit of R36m or R94m on an annualised basis.
It is a far cry from the optimism at the time of GBK’S acquisition, when it was predicted to generate 45% of group operating profit within four to five years. In its past year Famous Brands’ operating profit stood at R890m.
Without providing any indication of when GBK will be put on an even keel, Hele says: “We are fighting it out.”
GBK’S former MD and operations head, who both resigned in 2017, were not prepared to support Famous Brands in its fight.
“They did not want to stay with a company they no longer saw as a growth business,” says Hele.
Famous Brands is no stranger to the UK market, which it entered in 2007 through the £3m acquisition of Wimpy UK. This was not an acquisition showered with great success. The