Darren Hele
Chief Executive Officer
In 2024, our revenue and operating profit came under sustained pressure as inflation dampened demand. Nevertheless, we continued to hold and win market share by providing value, developing fresh and enticing products and delivering marketing campaigns that reinforce relevance and quality. We added 137 new restaurants to our network, which is pleasing growth, although lower than our plans.
Our results demonstrate resilience considering the worsening economic and trading conditions. In this financial year, South Africa experienced its most severe power cuts to date, the Rand was extremely volatile, and inflation, especially food inflation, continued to rise. Consumer household spending is under extreme pressure, and operating costs at the restaurant level are increasing. Several of our markets have become more challenging, especially with respect to inflation and weakening currencies. Fortunately, our management team is well-versed in navigating environments with significant inflation.
It is hard to overstate the impact of load shedding on our economy as growth for 2023 limped in at 0.6%, and several industries allocated resources to keep the lights on rather than grow. The restaurant industry, where sit-down dining has not recovered to pre-pandemic levels, is highly exposed to load shedding. In general, load shedding was at higher stages and ran throughout the week, including weekends, which affected prime trading hours. Load shedding and the associated cost of alternative energy sources remain a major cost driver across the supply chain, increasing costs for franchise partners.
Basic infrastructural challenges, including water shortages, put additional pressure on our industry. Our franchise partners must deliver ‘business as usual’ for consumers, which comes at a cost. This limits their ability to expand, contribute to the economy and create jobs.
From March 2023, we assisted franchise partners with a 1% point reduction (0.5% royalty and 0.5% marketing) on their franchise fees for sales generated while trading during load shedding. By year-end, the total financial relief provided to South Africa franchise partners was R21.6 million. Around 15% of our sales occurred during load shedding.
We are working with franchise partners to ensure that they have access to alternative power solutions. By year-end, 95% of Leading Brands restaurants had some form of alternative power in place. We will continue to focus on closing the alternative power gap, including encouraging strategic sites to have more of their operations powered by alternative energy. We have also invested in understanding power utilisation by brand and are building sustainable energy management solutions into each brand’s business model. This includes energy considerations in restaurant design and configuration, moving to gas-supplied equipment and implementing energy efficiency measures.
Read more about how we are working with franchise partners to mitigate the impact of load shedding.
Progress with strategy
In 2024, we made a number of decisive strategic advances. We continued to invest in consumer-facing technology as an increasingly important differentiator. This includes our purchase of a strategic shareholding in Munch Software in October 2023, which will give us a tangible competitive advantage in the Point of Sale (POS) space with a Rand-based fee structure and targeted development. We also successfully implemented the delivery hub model and found it to be a highly effective way to enhance own delivery while removing the ‘hassle factor’ from franchise partners.
We continue to benefit from the operational efficiencies realised from our Manufacturing Way programme and improved Logistics footprint. In 2024, we continued to implement our new warehouse management system at our distribution centres, with one distribution centre remaining for implementation. The system continues to deliver better business intelligence, planning and scheduling capabilities.
Our people strategy is sound, with annual enhancements to our employee value proposition and deep thinking around people development and succession planning. Our overall Voice your View score, a measure of employment engagement and satisfaction, improved to 78% (2023: 77%) and placed us in the top company category for the survey. Our net promoter score, a measure of whether employees would recommend Famous Brands as an employer, improved to 22.3 (2023: 21.4). Pleasingly, we retained our Level 2 B-BBEE contributor status and improved our scores in three of five scorecard pillars.
Read more about our consumer-facing technology projects, our Supply Chain performance and human capital initiatives.
Growth in AME
We continue to build our on-the-ground presence in AME to support our growth. In 2024, we opened 13 restaurants in AME, with the bulk of this activity in the UAE. We, together with our franchise partners, are investing in own delivery channels and delivery hubs. In December 2023, we entered Côte d’Ivoire and opened our first restaurant. We acquired majority shareholding of franchise operations in Mauritius with our long-standing franchise partner.
From September 2023, we implemented a new management structure for the AME region. We split the region’s management so that the SADC markets of Angola, Botswana, Eswatini, Lesotho, Malawi, Mozambique, Namibia, Zambia and Zimbabwe are now managed out of South Africa by the Leading Brands team. These markets are profitable and well-established, and most have achieved some scale. This revised structure has resulted in lower costs for the SADC business through, closer alignment to the Leading Brands infrastructure.
The AME markets outside of SADC are more difficult to manage, less profitable and require a different approach. We now manage these countries from our Dubai office, where we have resources to oversee West Africa (Nigeria and Côte d’Ivoire), East Africa (Kenya, Mauritius and Ethiopia) and Gulf (UAE and Saudi Arabia) hubs. This will allow us to accurately report on the true costs and returns of our investments in these countries. We plan to grow our brands and networks in these markets with a responsible, deep and narrow focus.
We are excited about the prospects in the Middle East, and in many ways, this region presents an easier market than many other African operations. Regulations are well-established, overall adherence is better, and the financial and physical infrastructure is better developed. The response to Steers and Debonairs Pizza in the UAE, has been pleasing. We continue to bolster the franchise support team and have appointed a manufacturer for sauces, coffee and ice cream based in Dubai.
Read more about our performance in AME.
Trade-offs in 2024
Exiting Oman: In March 2023, our strategic partner in Oman decided to close their Quick Service Restaurant division. We initiated a project to consider the viability of entering into a new arrangement with this partner to take over the operational control of the business. After considering the business case and the level of risk associated with the project, we exited from Oman. In September 2023, the four Debonairs Pizza and four Steers restaurants closed in Oman.
Retaining our Nigerian investments: Nigeria has had a particularly tough year, with annual inflation touching 28.92% and food inflation reaching 33.93% in December 20231. Our investment in that country continues to be affected by difficult economic conditions and a significantly weaker Naira. We have decided to stay invested as our partner, UAC, has taken steps to right-size the business by closing unprofitable restaurants, exiting its sub scale supply chain operations. We remain confident that UAC is the right partner in Nigeria who has shown commitment to the business and is well-equipped to unlock future growth in a promising but difficult market.
| 1 | This is according to Nigeria’s National Bureau of Statistics (NBS). |
Looking forward
Our 2025 financial year will be a difficult one due to poor macro-economic conditions in South Africa and many other markets. However, we are convinced that we have the right brands and strategy to grow, win market share and claw back our margins. We will implement our Leading Brands restaurant rollout plan in SADC and AME. This will include a focus on boosting our drive thru presence as new sites become available. We will continue to invest in consumer-facing technology while scaling the highly successful delivery hub model to improve our own home delivery capabilities.
As always, we aim to safeguard the sustainability of our franchise partners. This is especially relevant today, with fewer potential franchise partners willing to invest in a tough restaurant market. We will continue to support franchise partners by offering a lower royalty rate for sales generated during load shedding.
In 2025, we will complete the last phase to optimise our Logistics footprint. This final phase includes relocating our cold storage facilities from Crown Mines to our redeveloped and fit-for-purpose Midrand Campus. This will see us consolidate our Gauteng Logistics operations, allowing for more efficient operations. In 2024, this development was delayed as we waited for upgraded power supply from City Power.
Furthermore, our focus now turns to delivering a similarly significant initiative in our Manufacturing division. Our plants are ageing, and some need to be refurbished or even relocated. In addition, we are exploring exciting manufacturing technologies that are not widely adopted in South Africa and will offer us a competitive advantage. We are in the process of developing a roadmap for Manufacturing, with investments carefully staggered over several years.
Our Manufacturing division will continue to sustain its goal of driving operational efficiencies, including managing our cost base, maintaining high quality output, and reducing waste and use of natural resources. We continue to develop our procurement capability to provide competitive value for our plants and franchise partners.
I am heartened by the progress made by our Retail division in 2024, it is achieving pleasing revenue growth and offering a greater variety of products. This includes another year of strong performance for our range of Wimpy chips, which have cemented their market position in 2024. While operating in a fiercely contested space where consumers spend carefully, Retail offers compelling brands and quality products that consumers trust. The division will introduce new product lines in the 2025 financial year. In the medium to long term, our Retail business has the potential to grow a sustainable revenue stream.
A note of thanks
I thank our Board members for their continued guidance in 2024 and the relationships we have built. I appreciate the commitment of my executive team and thank them for their energy and innovative thinking. Our dedicated workforce is the reason Famous Brands is a successful Group, and I congratulate them for the progress made in 2024 in implementing our strategy.
I would like to give special thanks to our Chairman, Santie Botha, who will retire as an independent non-executive director and Chairman at our AGM in July 2024. Santie was appointed as the Board’s first independent Chairman in June 2012 and has overseen significant change and growth at Famous Brands. I am thankful for her invaluable counsel and support over the years, including during the turbulent COVID-19 pandemic. We will miss her keen business and marketing instincts and commitment to our success. We wish her well with her new ventures.
I am looking forward to working closer with Chris Boulle, our incoming Chairman. Chris is well-acquainted with the Group and has already added significant value as a non-executive director and Chairman on various committees.
I also thank our important stakeholders, including shareholders, suppliers, consumers and communities, for their continued support of our brands and growth story.
Darren Hele
Chief Executive Officer
21 June 2024
