Famous Brands, the franchisor group with some 2 522 restaurants in South Africa, has described a troubling picture of the tough operating environment that affects restaurateurs in this country.
As Africa's largest restaurant franchisor, Famous Brands also has 311 stores in 17 countries in the rest of Africa and the Middle East, and 65 restaurants in the UK.
Yesterday the company announced it had to step in to help its franchisees in South Africa in March with a scheme to lower franchise fees during periods of load shedding, which cost the group R11.6 million.
The group, which owns brands such as Steers, Debonairs Pizza, Fishaways and Wimpy, said the local restaurant industry is under strain due to rising costs, alternative power costs and reduced consumer spending.
“South African consumers face several challenges, including political uncertainty, the ongoing water shortage, an electricity crisis, elevated food and fuel prices and higher interest rates.
“Despite this, consumers are more resilient than expected and still spend time at restaurants. Restaurants offer affordable indulgent moments as a reprieve from their daily challenges. However, with tighter budgets, consumers do not eat out as lavishly as before,” the group said.
Supply chain issues and inflation pressure related to the Russia/Ukraine war had eased, but food inflation remained high due to loadshedding costs, it said.
Imported products such as hake and coffee were more expensive due to the weak rand. High price increases were also recorded during the six months for the key products of chicken, eggs, pork and vegetables, the group said.
In addition, due to unusual weather patterns and loadshedding, poor harvests of potatoes were experienced from April to October, which led to a big increase of input costs in the production of frozen chips.
Consumers were being enticed through value deals, discounts, smaller meals with lower price points, competitions, menu innovation and loyalty programmes.
Shopping centres, which tended to have alternative power, had recovered from their pandemic slump, with foot counts returning.
“While consumers enjoy the convenience of delivery, collect and drive-through channels, these options will never replace the restaurant experience,” the group said.
In August, the Western Cape experienced an eight-day taxi strike, resulting in restaurant closures and cancelled restaurant deliveries due to transport unavailability.
By the end of Famous Brands’ interim period, 91.3% of its Leading Brands portfolio had alternative power solutions and experienced an increase in sales during load shedding.
The group also had to deal with a “challenging” insurance renewal cycle, with group property damages and business interruption premiums escalating at more than 470% to R22m.
These increases were related to higher reinsurance costs and increased risk perceptions around food facilities.
Famous Brands’ revenue for the period increased 10% to R3.94 billion.
Operating profit fell 6% to R371m. Headline earnings per share fell 7% to 199 cents. Earnings were lower than the prior period mainly due to Gourmet Burger Kitchen liquidation dividends of R75m received in the first half of 2023, and excluding this, basic earnings per share would be 8% up on the prior period.