Taste Hold­ings (TAS) is a young group with a sta­ble of fast grow­ing, vi­brant Quick Ser­vices Restau­rant (QSR) brands, and a rather op­por­tunis­ti­cally ac­quired jewellery seg­ment, NWJ, all wrapped into a fran­chise busi­ness model.

While NWJ of­fers ex­po­sure to a val­uedriven jewellery of­fer­ing, the Jewellery seg­ment is a slow grower and of­fers limited to no syn­er­gies with the rest of Taste’s group.

So, ig­nor­ing NWJ, Taste’s in­vest­ment case re­ally re­volves around its food seg­ment; both the fran­chises and its de­vel­op­ment of a sup­ply chain and prod­uct of­fer­ing in its fran­chisee net­work (the ‘Food Ser­vices’).

While hold­ing dif­fer­ent brands that are tar­geted at dif­fer­ent mar­kets and dif­fer­ent LSMs, Taste’s food seg­ment fol­lows a sim­i­lar styled busi­ness model to Fa­mous Brands (FBR). This is true even to the ex­tent that Taste has re­cently es­tab­lished a Food Ser­vices di­vi­sion, which is es­sen­tially sim­i­lar in op­er­a­tion to Fa­mous Brands’ Man­u­fac­tur­ing, Lo­gis­tics and Sup­ply Chain di­vi­sions.

The the­ory of this busi­ness model is sim­ply to sell prod­uct to your fran­chisees.

This not only al­lows you to man­age prod­uct qual­ity, stock lev­els and build greater trust and sus­tain­abil­ity in your fran­chisee base, but you es­sen­tially have a cap­tive client-base (the fran­chisees) that earns you man­u­fac­tur­ing and sup­ply chain mar­gins.

A decade ago, th­ese ‘Food Ser­vices’ rev­enue streams con­trib­uted around 81% of Fa­mous Brands food-re­lated rev­enue and around 56% of the Group’s op­er­at­ing prof­its. This has crept qui­etly up to around 90% of rev­enue and about 69% of the Group’s op­er­at­ing prof­its (this style of busi­ness model has large op­er­at­ing lever­age). This is a mas­sive Cu­mu­la­tive Aver­age Growth Rates (CAGR) of 38% year on year (y/y) for the last 10 years. In many senses, Fa­mous Brands is a food man­u­fac­tur­ing and sup­ply chain busi­ness with a fran­chisee route-to-mar­ket.

Ten years ago Fa­mous Brands’ fran­chisee net­work was ap­prox­i­mately 500 stores, which is ba­si­cally com­pa­ra­ble to Taste’s cur­rent net­work of around 524 stores. Also, Taste’s Food Ser­vices only started in the last year or so, made a small loss dur­ing the last fi­nan­cial pe­riod and con­trib­uted only around 58% of the food seg­ment’s rev­enue dur­ing the pe­riod.

So, not only is Taste’s size com­pa­ra­ble to Fa­mous Brands’ a decade ago, but its ‘Food Ser­vices’ drive is go­ing in the same di­rec­tion and from an ex­tremely low base.

Taste also an­nounced a fund­ing deal with Ned­bank and Brim­stone to help fi­nance new Fish & Chip Co. fran­chisee (fi­nanc­ing of new fran­chisees is of­ten a bot­tle­neck in rolling-out new stores). Founder and CEO of Taste, Carlo Gon­zaga noted that “it is a bet­ter deal than it sounds as we re­ally have many guys that get turned down at com­mer­cial bank fund­ing stage”.

So, add a fast grow­ing fran­chisee base (‘cap­tive client-base’) to a ris­ing per­cent­age of the menu be­ing man­u­fac­tured and sup­plied by Taste (pos­i­tive op­er­at­ing lever­age), and the ex­po­nen­tial up­side growth of Taste starts to be­come quite ap­par­ent.

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