Despite posting tepid results from its UK operations, Famous Brands still see the highly competitive market as a good investment.
The local giant operates 97 restaurants in its UK Gourmet Burger Kitchen burger chain it acquired in September 2016 in a £120m deal as well as Wimpy UK, bought in 2007.
CEO Darren Hele told Fin24 the fast food retailer will put brakes on investing more capital in its UK operations.
“There are still lots of positives sides in the UK and it is a good market to compete in. We have to keep going,” said Hele.
Delivering the company’s annual results in Johannesburg, Hele said the UK food services sector continues to face difficulties such as higher property rates and increased labour, the exchange rate and food costs.
“The UK in the long term is a good investment, there is no doubt that the euro and the pound are always going to be the stronger currencies … right now we are not putting more capital into the UK,” said Hele.
Famous Brands’ UK business has struggled to produce great returns in recent years, with the group citing the Brexit impact as one of the factors crippling consumer confidence and a downturn in the fast casual dining category.
The company said it recorded an impairment of R304m, as a result of “unexpected poor GBK (Gourmet Burger Kitchen) performance and continued subdued market in the UK”.
Famous Brands, which is Africa’s largest branded food service franchiser, owns 2 853 restaurants across South Africa, other parts of Africa and the Middle East.
SA shows resilience
While the UK took a hammering from the effects of tougher trading environment, South Africa showed resilience in all sectors.
With well-known fast food chains like Steers, Debonairs Pizza, Mugg & Bean and Fishaways, the local business weathered the challenging domestic conditions, which include constrained household income and weak economic growth.
Hele said it is still too soon to determine how much impact the value-added tax hike would have on the business. In April, government raised VAT from 14% to 15%, the first increase in over 24 years.
“Since the VAT has gone up we haven’t seen a major shift in our business, but it’s early days,” he said.
“The food we sell is discretionary to some degree, it is not always a luxury but considered an indulgent purchase for some people,” he added.
The performance of South African operations lifted Famous Brands revenue by 23% to R7bn in what Hele describe as not a particularly brilliant showing, but “good” nonetheless.
He did not rule out the prospect of venturing into more African markets, saying the continent holds great growth prospects for the group, apart from language and cultural barriers presented by Francophone countries.
“Growth prospects are focused around southern Africa and then East Africa, particularly Kenya and West Africa which is mainly Nigeria and Ghana.”
In January 2017, Tiger Brands announced it had extended its footprint to Ghana but exited the Democratic Republic of Congo, Ivory Coast and Tanzania.
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