THE NEXT BIG THING IN FRANCHISING
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.