Tough trading hits Spur profit
• Political uncertainty trims margins of steak ranches as well as brands such as Panarottis and The Hussar Grill
Tough trading conditions gnawed into Spur Corporation’s margins in the half-year to endDecember, but the restaurant franchisor still has a strong appetite for expansion.
Tough trading conditions gnawed into Spur Corporation’s margins in the half-year to endDecember, but the restaurant franchisor still has a strong appetite for expansion.
Results for the six months to end-December released on Thursday showed Spur’s gross profit margin dropped from 73% in the corresponding interim period in 2016 to 71%.
The operating profit margin dropped from close to 40% to less than 35% after margins of flagship Spur Steak Ranches as well as smaller brands such as Panarottis, John Dory’s, The Hussar Grill and Captain DoRegos eroded markedly.
Margins of Spur, the largest component of revenue and profits, were pushed down to 84.5% from 88.5% previously. The exception was gourmet burger brand RocoMamas, which reported a 55% gain on profits to R13m with operating margins fattening to 73.3% (70.4% previously). Overall, total franchised restaurant sales from local and international operations slipped 2.6% to R3.7bn.
Spur CEO Pierre van Tonder said franchised restaurant sales in SA were 3% lower as ongoing political instability and higher living costs negatively affected consumer sentiment and discretionary spending. He noted an improvement in the second quarter of the interim period with restaurant sales in SA declining 0.2%, having dropped 6.2% in the first quarter.
Van Tonder said Spur Steak Ranches limited the decline in sales to 5.3% in the second quarter, a big improvement on the 14% decrease registered in the first quarter.
He said Spur’s first-quarter business had been affected by the aftermath of the social media fallout following an altercation between customers in a Spur outlet in March 2017. The Spur management continued to take decisive action to ensure the profitability of its franchisees in the prevailing lean trading environment, Van Tonder said.
This included a shift in the promotional strategy away from discounting to protect franchisee margins. “While this has had the expected negative impact on restaurant turnovers in the short term, the move has buoyed franchisee profitability, which is critical to the sustainability of the franchise model.”
Van Tonder said the pizza and pasta segment, comprising Panarottis and Casa Bella, grew sales by almost 7%. “This is a pleasing performance in the highly competitive pizza market where several chains have launched aggressive discounting campaigns to attract customers,” he said.
Although Spur endured tough trading in the six months under review, the appetite for expansion is still strong. In the interim period a net 22 outlets across all brands were opened in SA.
Five international outlets were opened and five closed. Outlets opened in Nigeria (Spur and Panarottis), Mauritius (Spur Grill & Go), Kenya (RocoMamas) and Namibia (John Dory’s).
The restaurant footprint in SA would be expanded in the second half with the opening of 21 restaurants across Spur Steak Ranches (three), Panarottis (one), RocoMamas (10), Captain DoRegos (five), The Hussar Grill (one) and Casa Bella (one), Van Tonder said.