Operational review

Brands

Our Brands portfolio comprises our Leading brands and our Signature brands. The Leading (mainstream) brands portfolio is segmented into Quick Service, Fast Casual and Casual Dining brands. Several of our Signature (niche) brands are JV partnerships with the founders of the respective brands.

Our brands are represented through a network of 2 791 franchised and 107 Company-owned restaurants in SA, the AME region and the UK.

SA

Leading brands portfolio: Quick Service

Our Leading Quick Service brands are those that prioritise take away and delivery offerings. While these restaurants offer a limited sit-down option, their focus is on quick service. The brands in this segment are: Steers, Debonairs Pizza, Fishaways and Milky Lane.

While Wakaberry and Giramundo remain part of the Leading brands’ results, they are not reported on and are in the final stages of being rationalised.

The commentary which follows outlines the key developments and initiatives, awards and areas of future focus for each of our Leading brands. We have also rated the performance of each brand in the review period against our FY2020 areas of focus and targets.

This rating is denoted as follows:

Achieved

Partial achievement

Non-achievement

Better for You awareness

In the interests of our customers, and in line with the Department of Health’s goal to assist South Africans to reduce obesity, our Leading brands have implemented a range of initiatives to raise awareness of healthier eating. All Leading brands’ menus:

  • showcase a “Better for You” offering;
  • offer vegetarian and/or vegan options*; and
  • differentiate between sugar soda versus sugar-free soda; the sugar-free option being cheaper. Our TruFruit juice range has also been reformulated to comply with beverage sugar legislation.

* This does not apply to Wakaberry and Giamundo menus.

In addition:

  • full nutritional guidelines, including a list of allergens, are provided on our Leading brands’ websites to enable customers to make informed choices.

With effect from October 2019 our Leading brands committed to providing information at point of sale to enable customers to make informed meal choices and manage kilojoule intake. Fishaways was our first brand to publish a full calorie/kilojoule count for every item on the menu, followed by Steers and NetCafé in April 2020. Debonairs Pizza and Mugg & Bean OTM are scheduled to follow in October 2020.

Complementing the collective effort of our Leading brands, the individual brands have also implemented bespoke initiatives, as outlined below.

  • Images of beverages on menus are “no sugar” varieties;
  • beverages containing sugar may be swopped out for bottled water, at no extra cost;
  • vegetarian and bunless burger meal options have been introduced; and
  • the Steers “upsell” concept previously promoted on menus has been discontinued, to disincentivise upsizing of meals.
  • The menu offering includes a Rustic Slim Fit Range of pizzas made with reduced cheese and half the dough ball; and
  • images of beverages on menus are “no sugar” varieties.
  • The offering includes an Under-500-calorie menu, which continues to be expanded, incorporating new vegetarian options;
  • images of beverages on menus are “no sugar” varieties; and
  • for the first time, two Heart and Stroke Foundation-endorsed meal options are available.
  • Salads and vegetables are offered as a swop-out for chips on the main menu, and the children’s menu offers vegetables as a swop-out to chips. This alternative offering is promoted by visuals on the menus;
  • Coca-Cola No Sugar has been moved to the top of the beverage menu, and still mineral water has been listed as a beverage option; and
  • fresh fruit salad has been added to the dessert menu.
  • In partnership with Discovery Health, Mugg & Bean is participating in a Vitality Healthy Dining initiative, represented by a bespoke “Nutritious and Delicious” menu offering promoting healthy and nutritious items;
  • significant changes have also been made to the children’s menu: vegetables or salad are offered as a swop-out for chips, sweet potato fries as a swop-out for potato fries and grilled chicken strips as a swop-out for crumbed chicken strips; and
  • Coca-Cola No Sugar has been added to the menu and bottled water is offered as a swop-out for soda, at no extra cost.

Signature brands portfolio

Our Signature brands portfolio comprises a wide range of niche bespoke Casual Dining offerings, including tashas, Turn ‘n Tender, PAUL, Vovo Telo, Mythos, NetCafé, Coffee Couture, Salsa Mexican Grill, Lupa Osteria, Europa, Keg and House of Coffees.

Some of these brands are wholly owned, while others are JV partnerships* with the founders of the respective brands.

Signature brands’ restaurant footprint

Contribution to revenue (%)

During the review period, we exited two brands: The Bread Basket and Catch.

Performance summary

Our Signature brands operate in the overtraded, highly competitive Casual Dining market segment and their performance for the review period reflects the difficulties faced. Like-for-like sales for the year were flat, while system-wide sales growth was constrained by the closure of 17 restaurants, 10 of which resulted from the portfolio rationalisation strategy. In light of the subdued economic environment, the roll out of new restaurants was necessarily conservative.

Lupa Osteria delivered the portfolio’s strongest like-for-like performance, largely attributable to a menu and pricing review, followed by PAUL, which is well positioned to appeal to the niche premium-end market segment, and the coffee brands which benefit from strong strategic alliances with hospital partners, Netcare and Mediclinic.

Areas of focus in FY2020

  • Continued to optimise the portfolio through rationalising underperforming brands and restaurants and growing the footprint of brands which are scalable
  • Drove margin growth
  • Better aligned investment in resources with returns
  • Where possible, upweighted brand awareness across all technology channels
  • Continued to explore opportunities to develop and incubate new innovative brand concepts which have the potential to be substantial brands

Key developments and initiatives

  • Progress was made in re-engineering the central hub operating structure and costs
  • The operating model was restructured to categorise similar brands into appropriate silos, being captive markets (coffee brands), traditional markets (Salsa Mexican Grill, Lupa Osteria, Turn ‘n Tender and Mythos), and luxury brands (PAUL and tashas)
  • The enhanced delivery offering through third-party aggregators continued to deliver good sales growth
  • The Group acquired a further 27% in Turn ‘n Tender from minority shareholders, bringing the total shareholding in the business to 78%
  • Significant success was achieved in reducing new store set-up costs

Awards

Best of Joburg Readers’ Choice Awards

  • Winner of the Best Mexican restaurant category

Best of Pretoria Readers’ Choice Awards

  • Winner of Best business lunch, Beat the budget and Best new restaurant

Best of Ekurhuleni Readers’ Choice Award

  • Winner of the Best Mexican restaurant

SA Council of Shopping Centres Award

  • Best restaurant design won by the Menlyn Maine restaurant

Best of Joburg Readers’ Choice Awards

  • Winner of the Best breakfast and Best brunch categories

BBC Food Awards (won by tashas Dubai and tashas Flamingo Room)

  • Best Breakfast and Best Mediterranean restaurant

Time Out Restaurant Award

  • Best breakfast (tashas Abu Dhabi)

Harper’s Bazaar

  • Best interior design award in the Middle East (Avli by tashas)

Best of Joburg Readers’ Choice Awards

  • Winner of Best Greek restaurant, Best outdoor dining, Best business lunch, Best neighbourhood restaurant
  • Best of Pretoria and Ekurhuleni Readers’ Choice Award for best Greek restaurant

Best of Joburg Readers’ Choice

  • Winner of Best French restaurant category

Best of Joburg Readers’ Choice Awards

  • Winner of Best steakhouse

Best of Ekurhuleni Readers’ Choice Awards

  • Winner of Best steakhouse and Best business lunch

Best of Pretoria Readers’ Choice Awards

  • Winner of Best steakhouse

Diners Club Platinum wine list award

International Business Excellence Award for Best steakhouse restaurant of the year – SA

Areas of focus in FY2021

  • Continue to optimise the portfolio to drive growth and ROI, including rationalising underperforming brands and restaurants
  • Expand the footprint of those brands which are scalable through franchised, and if required, Company-owned stores in the short term to establish brand footprints

AME

The Group trades in 16 countries in this region. Debonairs Pizza, Steers, Wimpy, Mugg & Bean and Mr Bigg’s contribute almost 93% of all brand revenue in the AME. Other brands include Fishaways, Milky Lane, Fego Caffé, Keg and Europa.

Solid system-wide and like-for-like sales were reported for the period, with 12 of the 16 markets recording positive system-wide sales growth. Six of those delivered double-digit growth. Particularly strong performances were recorded by the operation in Botswana, which benefited from an enhanced online ordering platform and improved efficiencies in input costs; in Kenya, where the market remains very responsive to our brands and affords strong growth potential; and in Sudan, where Debonairs Pizza, the clear market leader, continued to record good growth despite political and social unrest in the country.

Areas of focus in FY2020

  • Implemented a more direct approach to developing brands in the region, through establishing an in-country team and investing in Company-owned outlets in key nodes in the Middle East and East and West Africa
  • Continued to expand strategic alliance partnerships, trialled new trading formats, strengthened marketing capability and leveraged delivery offerings where appropriate

Key developments and initiatives

  • Acquired the intellectual property rights for Mugg & Bean in the Middle East and took on master licensees in the United Arab Emirates (UAE) and Saudi Arabia
  • Signed a master license agreement with Oman Oil for the development of the Steers brand in Oman and Saudi Arabia, as well as the Debonairs Pizza brand in Oman
  • Signed a master license agreement for the development of the Debonairs Pizza brand in the UAE
  • Opened the first Company-owned Debonairs Pizza outlet in Kenya
  • Opened an office in Dubai dedicated to providing support to the Middle East master license partners
  • Launched a new dark store (delivery only) format for Debonairs Pizza in the UAE
  • Launched a dark store format for GBK in the UAE

Areas of focus in FY2021

The primary goal is to grow system-wide turnover through the following initiatives:

  • Entrench the Group’s successful deep and narrow strategy by investing in key markets and growing scale, while rationalising non-performing markets, brands and stores which offer no growth or recovery potential
  • Leverage new master license agreements in Oman, Saudi Arabia and the UAE
  • Leverage strategic petroleum and other alliance partnerships
  • Grow supply chain capability in the region where viable
  • Develop and leverage in-country brand management teams
  • The key markets identified for expansion include Kenya, Nigeria, Zambia, Botswana, Mauritius and Malawi

UK

Our brand portfolio in the UK is segmented into Fast Casual (GBK) and Casual Dining (Wimpy).

Supply chain

The Group’s supply chain comprises our Manufacturing and Logistics businesses, which are managed and measured independently.

The overriding feature of the period was persistently low food inflation, which placed pressure on these divisions to contain price increases to support growth and profitability in the front-end Brands business.

Manufacturing

The majority of our manufacturing plants are wholly owned, but we also operate certain JV partnerships, as outlined in the manufacturing plant statistics table below.

Areas of focus in FY2020

  • Intensified the focus on efficiencies, reducing costs and increasing production volumes to drive profitability across all plants. Good progress was achieved, although LBF continued to underperform against targets
  • The FY2020 capex approach was conservative and phased, aimed at unlocking capacity at among others, the Cheese Company,
  • Improved attainment of KPIs namely: quality, speed, cost, morale, safety, delivery and utility consumption
  • Increased volume production of chicken wings to meet the growing demand from our Meat Plant and Cater Chain

Key developments and initiatives

  • Total volumes for the business declined in light of lower demand levels, although certain plants performed ahead of others (specifically the meat and cheese plants)
  • We embedded the Group’s Manufacturing Way (a blueprint for plant management), focused on asset care methodology, improved preventative maintenance schedules and generally ran more efficiently (including improved productivity and process yields), with notable step-changes achieved in the bakery, sauce and spice plant and LBF
  • Successful closure of the Western Cape meat processing plant and relocation of production to the facilities at Cater Chain and Midrand Campus
  • Supply to the retail business (direct to consumers) remained a key component of the manufacturing strategy
  • We invested R10 million in more efficient equipment to manufacture Debonairs Pizza toppings, resulting in an improvement in process yield

Areas of focus in FY2021

  • Continue to review relevance and ROI of all manufacturing plants, and if appropriate, exit selected non-core plants. A range of new capex projects have been identified to expand capability and enhance efficiencies. These will be selectively implemented, pending the outcome of the pandemic on future cash reserves and cash flow priorities. Projects include upgrading the bacon line for the brands, and further roll out of the enhanced asset care programme to ensure plant reliability and agility
  • Ongoing focus on enhancing efficiencies and reducing costs to improve sustainable profitability of the business and franchise partners
  • Continual review of asset care practices and ensuring maintenance capex focusing on safety and environmental aspects
  • Intensify focus on managing and reducing negative environmental impacts

The goal to drive environmental awareness and reduce our carbon footprint was advanced through a range of initiatives:

  • The Cater Chain boiler was converted from paraffin to gas, resulting in a marked reduction in the Group’s CO₂ emissions;
  • more precise electricity and water metering was rolled out to all the major manufacturing sites;
  • Coega Dairy implemented a solar project in November 2019; the 3 250 photovoltaic (PV) panels installed can generate up to 1.2 MW of energy;
  • our new DC in the Free State has a solar roof system that will contribute to reducing the carbon footprint; and
  • water consumption was reduced by over 15% at the LBF plant through optimising water pressure settings and nozzle sizes.

All manufacturing plants continued to drive projects to improve their work practices across all key utilities. Where possible, machines and equipment are switched off when not being used and on again just in time for use; fridge and freezer doors are securely closed at all times and continual checks are done to identify leaks and unnecessary waste of utilities.

Disappointingly, as a result of Eskom’s frequent load shedding, use of back-up generators more than doubled year-on-year.

Manufacturing plant statistics

Logistics

Areas of focus in FY2020

  • Commissioned new DCs in the Free State and Western Cape within budget of R24.3 million and on time. Deployed our warehouse management system in both regions, the benefits of which are beginning to manifest through better information and improved efficiencies and controls within the operations
  • Continued to plan for growth and reviewed and enhanced capacity, capability and efficiencies across our 10 DCs on an ongoing basis

Key developments and initiatives

  • Expenses in the Centres of Excellence exceeded sales growth, primarily due to higher key input costs including above-inflation wage costs and the strategic decision to support the front end of the business by containing price increases
  • Successfully took on previously outsourced retail distribution business
  • Centralised the Logistics reporting function, focusing on operational efficiencies and cost reduction
  • Installed more precise utility electrical meters in all DCs and implemented systems to facilitate daily utility reporting and management
  • Rolled out new software across all DCs for the efficient and effective management of health, safety and environmental parameters
  • Internal re-alignment of costs in terms of stock storage to mitigate off-site storage spend in the division,
  • All DCs achieved either NOSA 3 (good) or 4 (very good) gradings at the first attempt
  • Capex managed well and within budget

Areas of focus in FY2021

  • Continue to address capacity constraints with a planned investment programme in regional DCs (this will be robustly reviewed in light of the COVID-19 global pandemic impact)
  • Primary distribution costs have been de-linked from logistics. With effect from 1 March 2020, all of Famous Brands’ manufacturing plants and third-party suppliers will offer delivered prices to regional DCs
  • The division is in the process of benchmarking secondary distribution rates to the market, with a view to moving to a rate per case margin for delivery, as opposed to the current method of a margin as a percentage of sales
  • Benchmark logistics processes, costs and margins to market best practice to enhance efficiencies and reduce operating costs to improve sustainable profitability of the business and franchise partners
  • Continued focus on managing and reducing negative environmental impacts

Performance post year-end

The impact of the COVID-19 global pandemic has been extremely challenging for the supply chain businesses, which have been severely affected by the total closure of our restaurants during the initial lockdown and subsequent restricted trading of restaurants thereafter.

In Level 5, while our retail operation continued to trade, Lamberts Bay Foods was our only manufacturing plant permitted to operate given its ‘essential service provider’ status. In Level 4, only limited small-scale logistics and manufacturing services were required to support our franchisees’ delivery-only trade. In Level 3, manufacturing and logistics operations will be ramped up in line with demand from the franchise network. We anticipate that our operations will only return to some degree of normality once all trading restrictions are lifted.

The full impact of the pandemic on this component of the business remains uncertain as the situation continues to evolve. Management will continue to monitor and mitigate the risks where possible.

Group associates

The Group holds strategic stakes in the following entities: UAC Restaurants Limited in Nigeria and By Word of Mouth, FoodConnect and Sauce Advertising in SA.