Spur: Food for thought

Financial Mail - Investors Monthly - - Front Page - Stafford Thomas

Last year marked 50 years since Spur Corp founder Allen Am­bor opened the first Spur restau­rant, the Golden Spur in New­lands, Cape Town.

It should have been a great year for the 613-store fran­chise group. In­stead it turned into a night­mare.

This be­gan in March, with a con­fronta­tion be­tween a white man and a black woman in Jo­han­nes­burg’s Tex­amo Spur. It led to the man be­ing banned from Spur restau­rants, and un­leashed an avalanche of an­tiSpur rhetoric on so­cial me­dia.

The fall­out sent the Spur Steak Ranch di­vi­sion’s sales tum­bling 14.9% in the last quar­ter of its year to June 2017, and a fur­ther 14% in the first quar­ter of its year to June 2018.

Though the de­cline eased to 5.3% in the quar­ter to De­cem­ber 2017, half-year Spur restau­rant sales were still down 9.3%, at R2.24bn.

Many fran­chisees were hurt badly. At the height of the furore, 180 of 286 SA Spur restau­rants were re­ceiv­ing sup­port, says long-serv­ing CEO Pierre van Ton­der.

Sup­port for fran­chisees meant Spur’s fran­chise and other rev­enue from Spur restau­rants ended the half-year down R16m (12.9%) at R107m. Op­er­at­ing profit fell R18.6m (17.1%) to R90.2m.

For­tu­nately, the fall­out has abated. “Spur [restau­rants] have made a big come­back,” says Van Ton­der. “At last we are com­pet­ing on a level play­ing field again. Only seven out­lets are still re­ceiv­ing as­sis­tance.”

This sug­gests that Spur’s head­line EPS, af­ter fall­ing 11.8% in the first half of the year, should re­cover in the sec­ond.

But with Spur restau­rants ac­count­ing for al­most three­quar­ters of the group’s SA restau­rant op­er­at­ing profit, the Tex­amo Spur in­ci­dent high­lighted the need to fur­ther di­ver­sify in­come sources.

Un­like ri­val Fa­mous Brands, Spur was slow off the mark with brand diver­si­fi­ca­tion. Un­til re­cently, its only sig­nif­i­cant moves in this di­rec­tion were the launch of Pa­narot­tis Pizza Pasta in 1990 and the ac­qui­si­tion of John Dory’s Fish, Grill & Sushi in 2004.

In Spur’s past half-year, the 83 Pa­narot­tis restau­rants and seven up­mar­ket Casa Bella restau­rants in SA gen­er­ated an op­er­at­ing profit of R23m — 9.5% of to­tal SA restau­rant op­er­at­ing profit. John Dory’s 48 SA restau­rants gen­er­ated an op­er­at­ing profit of R5.1m.

The pres­sure to di­ver­sify fur­ther is be­com­ing in­tense. “The restau­rant land­scape is chang­ing enor­mously,” says Van Ton­der. “Peo­ple are con­tin­u­ally look­ing for new eat­ing ex­pe­ri­ences.”

In an ef­fort to broaden its brand of­fer­ings, Spur made its first se­ri­ous move in late 2013, buy­ing up­mar­ket steak­house chain The Hus­sar Grill for R35m. At the time, the brand com­prised six restau­rants in the West­ern Cape.

Spur has since es­tab­lished restau­rants in Jo­han­nes­burg, Dur­ban and Port El­iz­a­beth, and one in Lusaka, Zam­bia.

Van Ton­der says the brand is prov­ing to be “a big suc­cess”. Re­flect­ing this, its 17 SA out­lets in the half-year in­creased sales 24.1% to R90m, and 11.1% on a like-for-like ba­sis. Op­er­at­ing profit was up 7.5% at R2.5m.

Spur’s diver­si­fi­ca­tion coup came in March 2015, when it bought a 51% stake in gourmet burger chain Ro­coMa­mas. It sub­se­quently in­creased its stake to 70%.

Ro­coMa­mas took off with a vengeance, grow­ing from nine restau­rants at the time of its ac­qui­si­tion to 58 in SA and one each in Namibia, Kenya, Mau­ri­tius, Oman and Saudi Ara­bia by the end of 2017.

In the past half-year, Ro­coMa­mas in­creased SA restau­rant turnover by 37.5% to R320m and gen­er­ated a 57% rise in op­er­at­ing profit to R12.7m. This built on a 62% rise in op­er­at­ing profit in the pre­vi­ous half-year, and re­sulted in Ro­coMa­mas oust­ing Pa­narot­tis from its po­si­tion as the group’s sec­ond­biggest restau­rant profit cen­tre.

Spur’s diver­si­fi­ca­tion drive con­tin­ues. In June it said it will buy a 51% stake in the up­mar­ket Nikos Coal­grill Greek group. Nikos Coal­grill was founded in 2017 and has two restau­rants in the Dur­ban area and four in Gaut­eng.

“There will be 10 Nikos Coal­grill restau­rants by the end of this year,” says Van Ton­der. “We see the po­ten­tial to grow it to a na­tional chain of 50 restau­rants over the next few years.”

Nikos Coal­grill will not be the last brand to en­ter the Spur fold. “We are look­ing at oth­ers,” says Van Ton­der. “But we will re­main pru­dent and cau­tious.”

Though Van Ton­der is not spe­cific, it would not be sur­pris­ing to see an­other deal an­nounced in com­ing months.

Since its list­ing 32 years ago, Spur has served its share­hold­ers ad­mirably. Ex­pect more of the same in the years ahead.

The restau­rant land­scape is chang­ing enor­mously. Peo­ple are con­tin­u­ally look­ing for new eat­ing ex­pe­ri­ences

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