Spur Corporation is battening down the hatches for a potentially volatile next six months amid the spectre of a third wave of infections.
But the group, which owns Spur Steak Ranches, RocoMamas, Hussar Grill and Panarottis Pizza Pasta, has been expanding new home delivery channels,preparing food for delivery from its restaurants' kitchens as it looks to navigate one of the most difficult periods in the history of casual dining in SA.
To this end the group, which is debt-free and has not had to secure any loans, is holding on to cash of R178m to ride out any potential storms over the next six months of its financial year. This also means not paying dividends to shareholders in the first half of its financial year to end-December.
"The reason we are not paying a dividend is we don't know what the future holds because of the Covid pandemic," says new CEO Val Nichas.
The value of the franchise fee
concessions Spur Corporation offered franchisees in the six months to December.
— R25m
"Should we go into a third wave and tighter restrictions are placed on the restaurant industry and on the market as a whole, we need to be responsible and be sure we've got enough cash to allow the business to carry itself through this period."
Until her appointment as Spur CEO, Nichas ran a consultancy for eight years and prior to that was a Famous Brands executive who, among her various roles, spent three years running the Wimpy casual dining unit. She has been in her new job since January. She replaced Pierre van Tonder, who retired at the end of December after 36 years with the group, 24 of them as CEO.
Nichas says Spur offered franchise fee concessions worth about R25m to its franchisees over the six months ended December and that its cash resources will be used to help to ensure the sustainability of the organisation and to "keep our franchisees in business by offering them support".
Its results, released this week for the six months ended December, show the full impact of the economic fallout from the pandemic, with revenue declining 40.2% to R314.2m and headline earnings plunging 76.4% to R26.8m.
The group's plans include increasing home delivery on platforms such as its "virtual kitchen" concept, which provides delivery-only brands such as the Bento hamburger to an increasingly younger clientele, and expanding drive-through and "click 'n collect" options.
Exploring other channels
But its sit-down casual dining format will always be its "strategic competency", Nichas says. "That is what we do well and know well. Spur will remain there, we will just evolve it in terms of its offering.
"In terms of exploring other channels that are aligned to consumers' needs, yes, though it's not our direct competency, we are looking at amplifying our offering on those channels. We did it out of need initially because of the Covid-19 pandemic and we've had some good experience with it.
"We didn't always sell such high volumes through third-party aggregators but I think this period has proved that, yes, people still love their favourite brand and the only way they could get it [at some stages of the lockdown] was through a third-party aggregator because the stores were closed."
Small Talk Daily analyst Anthony Clark says there "remains no heady rush back" into the fast-food and quick-dining sector "for any material earnings recovery", but if he "had to be in the sector" he "would choose Spur" as it is "ungeared" and "under new management realises it needs to be nimble to realign its business to changing consumer buying and eating habits".
Dirk van Vlaanderen, portfolio manager for Kagiso Asset Management, says the pandemic has "certainly focused and re-energised the group behind exploring alternative ways to generate sales for franchisees, such as 'virtual kitchens'. Although it is very early days, we believe it is important for Spur to explore all avenues to remain relevant to changing consumer needs while defending franchisee profitability."
He says under the new CEO "there also seems to be a willingness to explore alternative restaurant formats such as drive-throughs and a shift to more convenience offerings within the existing brand stable".
The group says takeaway sales more than doubled over the previous year and now account for 27% of total restaurant sales. At RocoMamas - one of the group's top performers - takeaways now account for 53% of sales. The lifting of the alcohol ban and relaxing of other restrictions have seen an increase in people visiting Spurs and RocoMamas, Nichas says in a results statement.
Group sales for February 2021 were at 82% of the prior year.
Nichas told analysts in a presentation that the group has been grateful to see people prepared to queue to get a seat at a Spur, which under lockdown level 3 had to ensure that only 50 people were in a branch at any given time. She welcomed the move to lockdown level 1, saying the group could now increase the seating in restaurants to 100 customers and operate in normal trading hours.
Van Vlaanderen says the "relatively quick rebound in restaurant sales after restrictions were eased is encouraging for the overall brand health and eventual path back to a more normal level of sales". But he says results were "obviously heavily impacted" by restrictions to curb the spread of Covid-19, especially in December, which is "seasonally a strong trading period for the group".
