Eateries in the Eastern Cape owned by Famous Brands are experiencing a reduction in customer numbers as South Africans’ disposable income shrinks further.
Darren Hel, CEO of the company that owns popular restaurant brands such as Steers, Wimpy, Mythos and Debonairs, said the six months to August was a mixed bag of performance across the business, but the greatest concern was the Eastern Cape.
Activities at Famous Brands outlets in the region were down compared with other provinces.
“There is some pressure being felt in the Eastern Cape, particularly the belt running from Buffalo City to Mthatha. That is typically an area that is productive, but it is suppressed from a consumer perspective right now.”
Retrenchments at mining companies in North West were also affecting sales in that province.
In the six months under review, Famous Brands closed 18 restaurants in South Africa and 23 in other countries — 17 of those in Nigeria alone — while its exit from Saudi Arabia also led to outlet closures.
In some areas, trading was not viable for franchisees, said Hele.
At its Signature Brands restaurants — which include Mythos, PAUL, Lupa and Turn ’n Tender — consumers shifted to competitors, while mainstream brands such as Wimpy, Mugg & Bean, Fishaways and Debonairs were hit by demographic changes.
“The Bridge shopping centre in Gqeberha was a precinct that was difficult to trade in, as it was affected by load-shedding and demographic changes.”
Hele said low consumer disposable income was prevalent and, despite emerging optimism, performance in the first quarter of the year had been dampened by persistent economic pressure on volumes.
“Trade has been under pressure and, despite a slight uptick towards the end of the reporting period and a better trend in the second quarter after the national elections, overall sales performance remained below expectations,” he said.
Famous Brands opened 35 new restaurants in the six months to August.
It has 2,925 outlets across 18 countries. In South Africa, it has 2,574 restaurants, while in Southern Africa it has 213, in countries such as Zimbabwe, Lesotho and Botswana. It has 76 outlets in the Middle East and 62 in the UK.
Famous Brands plans to open 89 new restaurants — 82 of them in South Africa. Hele said the Eastern Cape would also get new outlets.
“We won’t run away. We will continue to open and explore. We understand it is becoming harder for franchise operators in places where municipalities are not doing their jobs, but [we are] absolutely still looking at opportunities.”
Revenue for the six months to August increased 2% to R4.02bn. However, operating profit remained flat at R371m, with an operating profit margin of 9.2%, down from 9.4%.
Trade has been under pressure and, despite a slight uptick towards the end of the reporting period and a better trend in the second quarter after the national elections, overall sales performance remained below expectations.
— Darren Hele, Famous Brands
Mainstream brands marginally grew revenue 0.8% to R469m. Restaurant sales were below expectations for the six months, said Hele. Signature Brands revenue decreased 10.4% to R94m, driven by, among other things, lower franchise fees owing to restaurant closures. Liquor licence delays added to the pressure, as some new restaurants in South Africa battled to get approvals on time, said Hele.
“The performance of our Signature Brands portfolio has been affected by a lack of discretionary consumer income for luxury dining experiences. Overall, [these restaurants’] performance continues to be under pressure as lower consumer spending dampens demand,” said Hele.
Famous Brands also has a logistics, manufacturing, and retail operation with 11 manufacturing plants, where the business produces condiments such as Steers sauces and dressings, as well as spices, frozen meat products, coffee (ground and beans) and frozen potato chips, all of which are sold in retail stores. It has 117 products available at 3,178 formal retail outlets.
Revenue from the manufacturing unitwas in line with the prior period in 2023 at R1.6bn, driven by price inflation but offset by lower volumes and a negative shift in product mix.
Retail revenue decreased 8.3% to R171m, while operating profit declined to a loss of R2.6m, compared with a profit of R1.6m the previous year. Retail revenue was affected by lower frozen potato chip sales compared with the prior period.
“A main competitor was back in the market after a stock shortage in the previous year. Furthermore, imported frozen potato chips entered the South African market in early 2024 at discounted prices. Retailers bought these in large quantities and are clearing this stock at a discount owing to poor quality, thus depressing retail sales. This situation is expected to normalise in the second half of the financial year,” Famous Brands said.
Revenue in the logistics business, which distributes products to restaurants and retail stores, remained flat at R2.5bn.
Famous Brands expects improved trading for the rest of the year, as interest rate cuts may provide scope for a more positive consumer outlook.
“The past six months have been one of the tightest periods when it comes to consumer disposable income. While the outlook is optimistic — with load-shedding seemingly under control, political stability, dropping fuel prices, downward pressure on interest rates, and reduced food inflation — reasonable recovery of consumer disposable income might not occur in the medium term,” said Hele.
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