12 FOOD FOR THOUGHT

Spur and Famous Brands have been particularly hard hit by Covid-19

As a 50-year-old brand, the conservatively managed Spur Corp restaurant business has ambled along, focusing mainly on its eponymous family steakhouse brand and only occasionally adding a new food offering.

Spur’s aggressive and expansionary competitor Famous Brands happily gobbled up many smaller outfits and built up a shipload of food brands — from Debonairs and Wimpy to Mugg & Bean, to name a few. Famous Brands was the undoubted fast-food gorilla in the room — perhaps until its costly UK foray with British burger chain GBK (bought for R2.1bn in late 2016).

Spur, by contrast, tended to buy small local chains with great brand and customer reputations — and then expand them slowly throughout its nationwide network.

In 1989, Spur added a pizza and pasta offering by launching the Panarottis chain — the first effort to diversify away from the core Spur brand.

Overall, according to the most recent company update, Spur had 633 outlets in SA and internationally, with 87% of the business being generated domestically.

The group’s brands of Spur, Panarottis and John Dory’s operated 298, 91 and 52 outlets respectively, with the core Spur Steak Restaurants making up 47% of all eateries in the chain.

The seafood business John Dory’s was acquired in 2004 to further expand Spur’s offering and balance the burger-andsteak-dominated portfolio.

Only one Spur move went wrong: the acquisition of seafood business Captain DoRegos in 2012.

The business struggled for years and in 2018, after many gripes from investors, Spur sold it for R5m. It was a loss, but palatable compared to the billions Famous Brands lost on GBK.

In 2014, Spur acquired the Western Cape-based upmarket steak business of The Hussar Grill for R35m.

This higher-margin business has resolutely shown consistent profit growth but remains true to its heritage.

There are 21 venues today and the business has pretty much been immune to SA’s economic travails.

The star deal was the 2015 acquisition of a stake in a small embryonic “smash burger” business called RocoMamas. From the original three outlets, Spur now runs 75 RocoMamas outlets as at its June 2020 yearend (12% of its total outlets).

On a one-year basis, Spur’s share price has fallen 27% relative to 21% for Famous Brands. Much of that differential has been market relief that Famous Brands is free of the GBK drama and its associated losses.

On a three-year and fiveyear perspective, Spur Corp has outperformed Famous Brands handsomely.

On a three-year view Spur was down 34% against 55% for Famous Brands. Similarly, on a five-year share price performance, Spur fell 38% and Famous Brands 55%.

Much of this underperformance in the share prices of both counters can be traced back to the Covid-19 pandemic, which hit the domestic fast food and restaurant sector like a sledgehammer.

When the government locked down the economy and businesses had to close, the fast food and restaurant sector’s sales plunged by 100%.

As restrictions were gradually eased and outlets could reopen, initially for delivery only, then for full patronage, there was some recovery in the sector.

The fast food side fared better than the restaurant side. This was a hindrance to Spur, which remains predominantly a sit-down-and-eat business.

With the alcohol sales ban, curfew restrictions curtailing

“The group’s brands of Spur, Panarottis and John Dory’s operated 298, 91 and 52 outlets respectively

evening dining and social distancing reducing tables served, sit-down-and-eat venues were much harder hit than the fast food takeaway outlets. Takeaway brands also benefited from drive-through sales outlets, which Spur did not offer.

In addition, Eskom’s loadshedding also played havoc with dining-out plans.

It was only in the latter part of 2020 that some semblance of normal trading, to around 90% of pre-Covid levels, returned to restaurants.

With the festive period coming after the hard lockdown and extended school holidays, Spur probably had a fair festive trading period.

Then, again, restaurants were hit by the government reimposing the alcohol ban and tightening curfew rules. Today, many restrictions have been eased but the damage to the 2020 results was already done.

The tone at Spur’s AGM, convened just before Christmas, was cautious but optimistic. However, the January 29 Spur trading update for its six months ended December 2020 confirmed the impact of the pandemic.

Total group restaurant sales for the period fell 30%. Pretty much every one of the six business units was hit, even the resilient Hussar Grill (-38%).

The two largest businesses, Spur Steak Ranches and Panarottis, fell 31% and 37% respectively.

Only RocoMamas performed better, with sales down 15% as a greater proportion of their sales was derived from delivery and self-collection.

Spur did innovate, and about 300 “dark kitchens” were operating, mainly to supply food to consumers for delivery or collection.

International turnover fared much better, because many markets had lesser restrictions or Covid-19 infections compared to the draconian SA rules. International sales for the six months fell 17%. Spur operates 87 outlets outside SA.

It seems the market was expecting worse. Since the first-half trading statement was released, the Spur share price to date has risen 14%.

But with the pandemic still prevalent and concerns that rolling government restrictions could be re-imposed on a third wave of Covid in the winter months, the restaurant sector is not yet out of the woods.

Spur has also undergone wholesale change in management. Longstanding insiders have exited, including 61-yearold Pierre van Tonder, who was the CEO for 24 years.

His shock departure in July 2020 caused some ripples. The well-regarded COO, Mark Farrelly, also suddenly left in August, amid some speculation that he was passed over for the top job.

In October 2020 it was announced that the CFO was also stepping down from his role and would take on other internal responsibilities.

Spur announced that Val Nichas would take over as CEO and Cristina Teixeira would take the CFO role.

Nichas has an illustrious career in fast food, having worked in advertising before moving to Famous Brands in 1999. After working within Debonairs, Wimpy and Steers, Nichas was eventually appointed as the Quick Service Restaurant (QSR) head.

She inherits a clean managerial slate at Spur as her tenure started on January 1 2021.

IM wonders how a centralised and loyal Spur managerial team — who had worked for decades with the same leaders — will adjust to a fresh new face.

Nichas is 58. Van Tonder was 61. IM further wonders if Nichas is there to caretake and keep the helm stable until another candidate is groomed to run the 50-year-old business?

The first results presentation and strategic direction review from the new CEO and CFO will be eagerly awaited by investors and the market.

Results for the second six months will be highly dependent on the pandemic and ongoing social distancing regulations.

With consumers under the whip and reining in spending in favour of more in-home eating and dining, IM needs to see evidence of some renewed consumer confidence within the sector before recommending an overall sector recovery buy.

If we had to choose between the two fast food counters, IM would stick with Spur as our favoured sector counter.

Its footprint is smaller and cleaner than that of Famous Brands and the business has cash as well as fresh new leadership, which may push for innovation and expansion.

Pictures: FREDDY MAVUNDA