Chicken on the menu
Your choice: this one or Spur?
SOUTH AFRICA’S BIGGEST fast food operator has finally gained a foothold in the chicken business. Famous Brands has bought a controlling stake in a startup rather than incur the costs of research and development itself. It’s a recipe that’s worked in the past and CEO Kevin Hedderwick anticipates it will do so again. Besides, the downside risk is small. Its initial outlay of R1,2m to cover operational costs for two years is small change and reflects the fact Giramundo – the firm in which it’s taken a 51% stake – is neither famous nor a brand in its own right. Not yet, anyway.
Hedderwick has been on the hunt for a chicken operation for the better part of the past decade. For Famous Brands, the acquisition of a controlling stake in Giramundo is a second bite at the chicken market: in 2003 it signed a deal with United States-based AFC International, with plans to roll out Church’s Chicken stores in SA and into 18 African countries over five years. It spent R5m in one year on 12 outlets before realising it wasn’t going to make the concept stick. Ever since then it’s been linked to various SA operators, but has failed to nail down a transaction.
Rather than buy the baggage of a more established operator – it’s been linked to both Nando’s and Chicken Licken – Famous has opted for a three container start-up in the Gauteng townships of Alexandra, Tembisa and Soweto, with plans for an outlet in Kokstad and Nelspruit by November. “It’s not about taking on Nando’s,” says Hedderwick. “We’ve a plan to grow this business by between 20 and 30 stores a year.”
The group is going to have its work cut out. The chicken category is fiercely competitive and dominated by KFC in the deep fried sector and Nando’s in flame-grilled, with a host of smaller, privately owned franchise operations also vying for space. Last year McDonald’s also announced its intention to be more competitive in the sector.
Giramundo does fit the Famous Brands growth profile nicely. Compared with its nearest listed rival, Spur Corporation, Famous Brands is considerably more dynamic and aggressive in terms of the number of brands it runs and the rate at which it buys up small players with potential growth prospects. By contrast to the Famous Brands growth story, Spur is sedate and more of a solid, dividend-yielding value play – content, it would seem, with delivering a more conservative investment return with fewer ancillary risks. When it comes to investing, which do you choose?
An investment in Famous Brands is a
BUTI VAN DER MERWE & KEVIN HEDDERWICK