THE NEXT BIG THING IN FRAN­CHIS­ING

Finweek English Edition - - FRONT PAGE - BY LISA ILLING­WORTH

Tra­di­tional pub brands like Dros and Keg are strug­gling to re­tain mar­ket share, with fran­chise ex­perts pre­dict­ing a rise in busi­nesses of­fer­ing craft beer and healthy food op­tions.

Ben Fil­mal­ter, founder of Mugg & Bean, who is now based in the US, says that the food ser­vices in­dus­try in the US is see­ing some in­ter­est­ing changes with new mi­cro-sec­tors emerg­ing.

“The quick-ser­vice restau­rants [QSRs] are see­ing a lot of ac­tion, but there are new trends such as the emer­gence of the ‘ farm-to-fork’ con­cept, which has a so­cial re­spon­si­bil­ity el­e­ment to it. Con­sumers want a guar­an­tee that their food is or­gan­i­cally grown lo­cally, and that by eat­ing at that restau­rant they are sup­port­ing a lo­cal com­mu­nity,” Fil­mater says.

Another de­vel­op­ment is the ‘ fresh-ca­sual’ mi­cro-sec­tor, a spin-off from the ‘fast-ca­sual’ model, whereby con­sumers want healthy al­ter­na­tives to the QSR, but with the speed at which a QSR de­liv­ers food. Fast-ca­sual restau­rants are one of the fastest-grow­ing seg­ments in the restau­rant in­dus­try and of­fer high-qual­ity food in a speedy man­ner, but in a more up­scale en­vi­ron­ment than tra­di­tional fast­food out­lets.

“Sadly, South Africa lags well be­hind the rest of the world. The clos­est thing we have to a fast-ca­sual restau­rant is Nando’s, but since hardly any fast-ca­sual brands ex­ist in South Africa, the ad­vent of fresh-ca­sual is still some time off.”

Morné Cronje, head of fran­chis­ing at FNB, be­lieves that craft beer is go­ing to be the next trend to take off. He pre­dicts that it will be­come an add-on to the cof­fee shop model that is cur­rently rul­ing the food ser­vices in­dus­try.

“Peo­ple are no longer go­ing to the

pub after work. Their time with their fam­i­lies is be­com­ing pre­cious and they are gen­uinely con­cerned about drink­ing and driv­ing. Big pub names like the Dros and the Keg are fad­ing away be­cause there has been some brand con­fu­sion and peo­ple don’t have the lux­ury of pub­lic trans­port so they have to drive them­selves home. We haven’t funded a pub con­cept in the last five years - that demon­strates the mar­ket’s re­luc­tance to spend time drink­ing after work,” states Cronje.

The Keg fran­chise was bought by Fa­mous Brands in 2010 for R27m when there were 33 restau­rants around the coun­try – to­day there are 15.

De­spite the poor per­for­mance of Keg, Fa­mous Brands con­tin­ues to grow ag­gres­sively. The group, which opened 96 new restau­rants in the six months to end Au­gust, re­ported a 14% in­crease in rev­enue to R1.57bn over the pe­riod. It plans to open another 136 restau­rants in the sec­ond half of the fi­nan­cial year. Ja­son Mus­cat, se­nior in­dus­try an­a­lyst at FNB, says that high food in­fla­tion is putting pres­sure on food and bev­er­age fran­chises. “There is also quite a sat­u­rated food and bev­er­age en­vi­ron­ment in fran­chis­ing at the mo­ment and so there is a lot of choice for con­sumers who are un­der eco­nomic pres­sure as it is. We are also see­ing a trend of con­sumers that are un­der pres­sure rather tak­ing dis­pos­able in­come and im­prov­ing as­sets like their houses, rather than on go­ing to eat out.”

Fa­mous Brands has con­tin­ued to per­form well be­cause it has di­ver­si­fied the brands that it owns, for ex­am­ple, by its March pur­chase of a 70% stake in the frozen yo­ghurt QSR, Wak­aberry, he says.

Fil­mal­ter, who burned his f in­gers ex­pand­ing Mugg & Bean in the UK, is now work­ing on ex­pand­ing the brand to the US. “Most of the adap­tion work is com­plete, it is now a process of real es­tate se­lec­tion,” he says. “We are con­sid­er­ing Charleston in South Carolina. We have re­searched ex­ten­sively and f ind noth­ing quite like Mugg & Bean in the US. Sev­eral US con­sul­tants as well as anec­do­tal data support our as­ser­tion.”

Taste Hold­ings, which owns brands l ike St Elmo’s, Scoot­ers Pizza and Domino’s Pizza, bought Arthur Ka­plan Jew­ellers in Oc­to­ber to com­ple­ment its fran­chised jew­ellery business NWJ Hold­ings. This, ac­cord­ing to Mus­cat, is a good move as LSM 8-10 earn­ers are less l i kely to feel the ef­fects of macroe­co­nomic fa c t or s a nd ar e ex­pected to keep spend­ing on lux­ury items l i ke high- end watches and jew­ellery.

While food fran­chises have felt the pinch, other sec­tors have seen high growth, no­tably the health and beauty sec­tors, with brands like Sor­bet do­ing very well, and the ed­u­ca­tion in­dus­try, such as ADvTECH, which owns Craw­ford Col­lege schools, says Cronje.

FA­MOUS BRANDS PLANS TO OPEN

136 ANOTHER RESTAU­RANTS IN THE SEC­OND HALF OF THE FI­NAN­CIAL YEAR.

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