Chicken on the menu

Your choice: this one or Spur?

Finweek English Edition - - INSIGHT -

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


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