Famous Brands slimming down as tough times bite
Group shuts 96 stores among brands in SA, including Wimpy
● Famous Brands, the owner of Wimpy, Debonairs, Steers and Mugg & Bean, has seen its share price register a marginal gain in the past year. The one-time darling of the market is finding it increasingly difficult to operate, forcing it to close stores in underperforming areas and exit some of its other brands.
Speaking on the sidelines of the group AGM, Famous Brands CEO Darren Hele told Business Times: “We were clear that there would be a lot more abnormal closures than we are accustomed to … there were a couple of big chunks in there. There were some big store [closures] in Nigeria and the withdrawal from markets like Egypt, which saw the closure of five Bread Basket sites.
“When you start to add those up they become big chunks and make the number look abnormal for the year.”
In the past year, Famous Brands closed 24 stores in its rest-of-Africa and Middle East region. In SA, the group closed 76 stores among its mainstay brands, including Wimpy, and 20 stores of niche brands, including Vovo Telo and Bread Basket.
After the closures the group will have 478 Wimpy stores in SA.
As the company continued to repair and rationalise certain brands, such as sit-down restaurant Europa, it sold shares in those that “despite remedial efforts offer[ed] no potential for growth under our stewardship”, it said. These include grilled-chicken brand Giramundo, bakery restaurant the Bread Basket, health-food brand Juicy Lucy, and pub brands the Brewers Guild and McGinty’s.
“There are always going to be some elements of closure, especially in SA, where the demographics change,” Hele said. The Wimpy closures were slightly abnormal but were because of shifting demographics, he said. “When you have a 50-year-old brand, you are going to have some sites that have been there for 40 years. So if you went to downtown Johannesburg, that’s not Wimpy’s heartland any more.”
Nolwandle Mthombeni, an investment analyst at Mergence Investment Managers, said the closures are likely to benefit the group. “One of the most important strategic decisions a management team can do is exit underperforming regions or businesses, as this allows resources to be reallocated elsewhere so they can generate required returns.”
Mthombeni said closures are normal and expected when one runs a franchise, and “it only becomes a problem when the closures accelerate and exceed new openings. This results in your business declining, which is what happened with Wimpy UK; it has struggled to grow earnings in recent years.”
Famous Brands has 78 Wimpy stores in the UK. The UK market continues to be the achilles heel of the group. Since buying UK brand Gourmet Burger Kitchen (GBK) for R2.1bn — the largest acquisition in its history — two years ago, Famous Brands’ share price has declined almost 30%.
“We’ve been very open,” said Hele. “If you look at our year-end results we’ve been very clear and we’ve gone to the market to explain what the issues there are, and [we] are transparent around the details of the turnaround plan and what we plan on doing.
“We’ve said to the market that we would like to get GBK to profitability this year and it’s going to be a challenge, but the plan is to continue to grind out results because if the business is not performing, we’ve got to get out there and fix it.”
Part of the plan to resuscitate the brand will include reviewing some of the sites, revamping some restaurants, and providing support to and stabilising the leadership structures.
But with impairments related to GBK, including a R69m write-down on property, plant and equipment as well as R304m on intangible assets and a provision for property-related
We were clear that there would be a lot more abnormal closures Darren Hele
Famous Brands CEO
expenses of R33m, and the group’s UK failure is a hard one to swallow.
As a result, GBK and French bakery and café brand PAUL — for which Famous Brands has the Southern African licence — have put their expansion plans on hold in the short term as the company tries to be prudent in its capital allocation until trading in SA and the UK improves.
When asked whether Famous Brands would be able to save GBK, Mthombeni said: “I think it is more a question of whether they can get a return on the investment. The brand itself is still dominant in the UK. However, it’s just not meeting the growth projections, especially in light of how much they paid for it. It’s more likely that it will take two to four years longer than initially planned to generate the return on the investment, but it can be achieved.”
Famous Brands has 2,853 restaurants in SA, the rest of Africa, the Middle East and in the UK.
Just three days after the AGM, Nik Halamandaris, whose family started Famous Brands, sold shares in the group. Halamandaris sold shares worth R6.7m and the Panis Trust sold shares worth R7.5m.