World Cup fans will smell our coffee, says Famous Brands
October 27, 2009
By Florence de Vries
Famous Brands would score big during the soccer World Cup next year from positioning most of its fast food stores on routes with high transient volumes, such as airport sites and malls, Zahira Osman, an equity analyst at Afena Capital, said yesterday.
The JSE-listed owner of Steers and Wimpy, which have many restaurants at airports, was well positioned for higher volumes next year, Osman said.
Famous Brands increased revenue 14 percent to R811 million in the six months to August, during which it acquired coffee shop franchise Mugg & Bean. The global footprint of the group, which also operates in the UK, stands at 1 723 franchises across South Africa and other African countries.
Kevin Hedderwick, the group's chief operating officer, said the local franchising unit, which includes Debonairs and FishAways, was the major contributor to the group's performance.
Operating profit rose 10 percent to R94.2m, while the division's operating margin settled at 59.6 percent, diluted through the inclusion of a company-owned Tasha's restaurant.
Headline earnings a share rose 16 percent to 93c, while cash from operations added 64 percent to R159m. System-wide sales, including new restaurants, grew 9.5 percent, with like-on-like sales growth of 4 percent. In the time, 52 restaurants opened and 43 existing ones were revamped.
Osman believed the results for rival Taste Holdings were not directly comparable given differing business models. "But the results in the franchising food segment of Taste Holdings, consisting of the Maxi's and Scooters Pizza, show that operationally, Famous Brands posted a better result," she said.
Taste's franchise food unit had negative top-line growth and margin compression, underpinned by slower new store openings.
Globally, extreme economic conditions prevailed, hampering the recovery of Wimpy UK. Like-on-like sales growth was down 6.3 percent for the period.
Osman said that Famous Brands had only recently embarked on a repositioning of the Wimpy UK brand and that it was too early to assess the success of the strategy, especially given the current recession.
"The success of a franchise depends very much on brand equity, the footprint and scale to effect efficiencies and continued growth. This is especially key in a market tailored to the eating out culture, resulting is a competitive backdrop within the casual dining segment. An offshore strategy is therefore generally high risk," she said.
Looking ahead, Hedderwick expected tough trading conditions. "But given our positioning at airports, coastal resorts and malls, we should capitalise on the summer holiday trade."
Famous Brands leapt 10 percent to R23.10 yesterday.
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