Famous Brands free to focus on Africa expansion, says Darren Hele
GBK’s demise frees group to expand operations in Africa
With the Covid-19 pandemic having dealt a death blow to Famous Brands’ Gourmet Burger Kitchen (GBK) business in the UK, the owner of Wimpy, Steers and Debonairs can now draw a line under it and focus its attention on expanding its successful operations in the rest of Africa.
Famous Brands CEO Darren Hele says contending with a struggling business such as GBK meant the group didn’t have “as much freedom to execute” on rest-ofAfrica expansion opportunities “as we would have liked”.
“When you have this challenge like GBK, you can’t take as many risks or be as bold as you can when you don’t have this kind of shackle on you,” says Hele, speaking after the release of the company’s results for the six months ended August 31.
But now the worst is behind Famous Brands, with it having fully impaired GBK by a total of R1.6bn. The UK business was bought for about £120m (about R2.5bn) in 2016.
Hele says that though over the past two years Famous Brands had experienced success in stabilising GBK, which had been battered by Brexit and a poor UK economy, the business “came up against new and even more destructive headwinds in the form of the pandemic”. This ultimately led to GBK going into administration.
Without the GBK business dragging down the group, it will now have far more freedom to focus on expanding elsewhere, particularly in East and West African countries.
“We have been constrained by the fact that we’ve had this GBK matter to deal with. It hasn’t just been a Covid matter, it goes back to before Covid. Covid has probably drawn a line under it. From a capacity perspective and capability, we will have more mobility to put more effort into Africa,” he says.
Explaining why the group would prefer to focus on Anglophone Africa, Hele says: “A lot of Africa is Francophone, which is another barrier. When you’ve got to try and do everything in French, it’s not easy.”
Hele says there will always also be a strong focus on continuing to build on the group’s success in the South African portfolio. “It’s a balance. SA will always be our home market but moving into Africa more than we’ve done is definitely on the cards. It has been for a while but will certainly be a lot easier now we have a narrower focus.”
As it stands, Famous Brands has a portfolio of 23 restaurant brands with 2,838 restaurants in the UK, SA, the rest of Africa and the Middle East.
Its South African business, with 2,400 outlets, still accounts for the lion’s share of its revenue.
It has 283 outlets in countries such as Kenya, Angola, Ethiopia, Lesotho, Malawi, Mauritius, Mozambique, Nigeria, Sudan, Zimbabwe and the United Arab Emirates. Hele believes there is definitely room for growth in the rest of Africa as its brands are already entrenched there, but he reveals no specific targets or time frames for its expansion plans.
“The important thing to remember about the rest of Africa is what we find is that our brands resonate in those markets. People in the rest of Africa have an affiliation to SA in some way or other. It’s also a less competitive market, so our brands fill a need in the market,” says Hele.
“We also don’t need to acquire. GBK was an acquisition, it wasn’t us growing our business organically. We can grow organically in Africa — yes, there may be opportunities for acquisition but it’s not the primary driver.”
As far as the group’s half-year results were concerned, they showed the full effect of the economic fallout from the pandemic as most of Famous Brands’ reporting period fell within the strictest lockdown months.
Revenue for the period slumped 48% to R2bn, while it reported an operating loss of R110m compared with an operating profit of R376m in the same period last year.
But the group says its business is resilient, pointing out that it has not had to use a R300m facility it secured with Nedbank during the lockdown.
And though there was concern Famous Brands would need to raise capital through, for example, a rights issue, Hele says though you can “never rule it out” given all the unknowns around the economic effect of the Covid-19 pandemic, as things stand right now an equity funding move “is not something that’s on our radar screen”.
Small Talk Daily’s Anthony Clark says the
The important thing about Africa is that our brands resonate in those markets Darren Hele
Famous Brands CEO
spectre of a possible equity raise had been “weighing ” on Famous Brands’ share price for some time and that Hele’s comments “should take some pressure” off it.
Year to date, the group’s share price has fallen about 45%.
“The fact that they have this unused R300m facility tells you they are doing OK,” Clark says.
One challenge that Famous Brands will face in the coming months is rising food prices.
Hele says the pressure on pricing “started off with the rand weakness against the dollar, which has now subsided to some degree”. He says “global supply chains are in a little bit of a mess post-Covid, as are the South African supply chains, so lots of the proteins are feeling the effects”.
“However you look at it, the price goes through to the consumer at some point. You try to mitigate as much as you can and try and be efficient, but ultimately it starts to filter through.”
Clark says food inflation in both locally and internationally sourced products will be a concern for groups such as Famous Brands and Spur Corporation in the coming months.
This could include, for example, tomato paste used for sauces and pizzas, which is mostly imported, says Clark.
Rising food prices
“With the rand having gone to hell in the last six to seven months because of the economy and Covid, the import of any foodstuffs coming in from Europe or anywhere which is priced in dollars or euros is going to be between 20% and 30% more expensive and there is going to be a margin squeeze.”
Clark says fast-food groups “cannot absorb these price increases” due to currency weakness.
Locally, food prices are rising as soft commodities such as wheat, maize, soya, canola and sunflower oil “are all up about between 30% and 50% so far this year domestically”.
“Something has to give; you either have to pare your menu, change your recipes or suck it up,” he says.
“That is what is going on currently. There are going to be significant price increases hitting every single sphere of food manufacturing and food retailing.”