Chesa Nyama chokes as diners lose appetite
The township-style fast-food brand was a winner with consumers when it opened its first store in 2012 and it then embarked on an expansive growth strategy. But the expansion may have been overambitious.
Its rival, Shisa Nyama, started with a single store in Midrand in 2007 and became a franchise operation two years later. The company opened 28 stores, but now has 19.
Shisa Nyama operating manager Fathima Cele said the reason for the drop in the number of stores is that people who have come in do not understand the business’s different divisions. Shisa Nyama has three divisions: a food trailer truck; an express store, which is the most popular and competes with Chesa Nyama; and a lounge set-up which is more social and has space for a DJ.
“They [franchisees] get into the lounge set-up and they had to close down because they did not understand the set-up,” she said.
“We don’t have as many stores as Chesa Nyama and it’s done deliberately; the vision of the brand is not to flourish to a point where we can’t service it.”
Shisa Nyama stores are mostly in KwaZulu-Natal, but there are a few elsewhere in South Africa and in Botswana, Lesotho and Swaziland.
According to results for the 12 months to end-February, Gold Brands added 64 Chesa Nyama stores, compared with the target of 84 new stores during the period, which it set when it listed on the JSE in February last year.
In its maiden results, Gold Brands reported headline earnings of 10.25c per share, reflecting annual compounded growth of 41% since 2014. Chesa Nyama is the biggest contributor to the group’s revenue.
Orin Tambo, an investment analyst at Intellidex, said: “Investors are generally concerned that the low-end segment of the market — Gold Brands’ key market — is struggling and, in many cases, worsening. Investors must be pricing in anticipated tougher earnings times ahead for fast-food and restaurant stocks in general.”
Gold Brands’ competitors appealed to middle- and higher-income earners, who tended to be more resilient to economic shocks.
“Gold Brands lacks the track record. It has to prove itself first to get into that league,” said Tambo.
But Gold Brands still has plans to expand to the US, to appeal to South Africans living there, a strategy that it hopes will boost profits.
“It would definitely be good,” Stylianos Nathanael said of the US plan. “We’ve got the look and feel, I’m confident.” But he admitted a major marketing drive was needed to restore Chesa Nyama’s position in the South African market.
He said the group would spend R13-million on a three-month campaign “to take the brand forward [and] get that excitement back into Chesa Nyama”.
Investors must be pricing in anticipated tougher earnings times ahead