South Africa’s Famous Brands builds a commanding position at home

With more than US$450 million in annual sales, South Africa’s Famous Brands has become a major player in South African consumer foodservice, while emerging as one of the few operators with a significant presence in sub- Saharan Africa. Though fellow South African chain Nando’s draws more headlines internationally, its sales remain just one-fifth those of Famous Brands, which held a 20% share of South Africa’s chained consumer foodservice in 2008. Offering a range of brands and concepts, from hamburgers to coffee shops, the company enjoys a long history and significant brand recognition in its home market, giving it a considerable competitive advantage in one of the world’s fastestgrowing foodservice markets. What’s more, Famous Brands faces little direct competition in sub-Saharan Africa, a market with long-term potential that remains largely untapped. Finally, the company has proven quite aggressive in rolling out new concepts such as coffee shops and fast casual, while also heavily promoting its flagship brand through branded retail products such as sauces and spices.   A PIONEERING PLAYER Famous Brands’ origins date back to the 1960’s when George Halamandres opened the first Steers steakhouse concept near Johannesburg, later adding the Steers fast food concept seen today and rolling out a franchising program in the early 1980’s. Largely inspired by the foodservice concepts Halamandres had encountered during time spent in the US, Steers was among the first foodservice chains to gain significant share in South Africa. Along with Spur Steak Ranches and others, Steers was part of a core group of South African operators to build a following in South Africa prior to major global expansion on the part of current global giants such as McDonald’s and KFC. What’s more, the growing international condemnation of the South African government’s apartheid policies in the late 1970’s and 80’s led many international chains to avoid the market altogether, giving native chains a significant first mover advantage—by the time many of the largest global chains entered (or re-entered) the market in the mid 1990’s, local chains has been in operation for up to twenty years, carving out potent branding and distribution systems. While the entry of foreign firms in force in the mid-1990’s brought bruising competition, forcing major adaptation on the part of many South African chains, Steers Holdings (as the company known as Famous Brands was then called) continued to expand, increasing its percentage of franchised outlets and steadily acquiring new brands and concepts, a process which culminated in the 2003 purchase of Pleasure Foods Limited, including the 200+ unit Wimpy hamburger chain, as well as Creative Coffee Franchise Systems Limited, South African licensees for the Brazilian and Illy coffee shop brands. Since then, the company has continued to make acquisitions, most notably the 2008 acquisition of tasha’s, an upmarket fast casual concept. The end result is a company with the broadest product and concept portfolio in South African foodservice, supported by an equally well-developed distribution and production network.   Economies of scale and scope to reap major dividends The sheer breadth of Famous Brands’ brand portfolio is impressive: it own the number one and number two burger fast food chains in South Africa with Steers and Wimpy, respectively, the number one pizza chain with Debonairs Pizza, and the number one fish fast food chain with FishAways, while also building a position in the fast-growing specialist coffee shop and fast casual subsectors. Further reinforcing the brand is the small but still-expanding retail products division, with Steers-branded sauces widely available in South African supermarkets. On top of a wide-ranging brand portfolio is a vertically integrated manufacturing and logistics system, in which Famous Brands sources, produces, and distributes many of the products and inputs used by its franchisees, allowing for both consistent quality and economies of scale in terms of purchasing and sourcing. While both the manufacturing and processing divisions are profitable for the company, margins are far lower than the core franchising division, with aim of both segments to reduce costs and ensure consistent quality for franchisees, rather than serving as major independent profit centres, thus keeping the incentives of the company broadly aligned with those of franchisees. Tight control over manufacturing has allowed the company to maintain consistent quality and support brisk expansion over an often-turbulent period in the development of the South African economy. What’s more, it has likely helped smooth the company’s expansion into other markets in sub-Saharan Africa, where Famous Brands now franchises close to 90 Debonairs Pizza, Steers, and Wimpy outlets, making it one of the largest operators in the entire region. Unlike chains from outside the region, the company has been able to leverage its existing production and distribution know-how to reach markets across Southern Africa, rather than building these networks and relationships from scratch, allowing it to potentially carve out the same kind of first-mover advantage it has enjoyed in its home market.   An enduring fixture in South African foodservice Put simply, Famous Brands is arguably the best-positioned player in all of South African foodservice, controlling several of the country’s oldest and best-known brands. Even McDonald’s has struggled to make headway against Steers and Wimpy in burger fast food – recent news reports have indicated the company is looking for a local partner to improve operations through a developmental licensing agreement in which the partner would take on most of the risk and investment in expansion, with some commentators even suggesting Famous Brands as a potential licensee. What’s more, the company continues to add to its portfolio, acquiring leading South African coffee chain Mugg & Bean this week in a R104 million (US$13.2 million) deal. While the company has yet to enter the lucrative chicken fast food market, a future deal should not be ruled out, with chicken fast food the one major market in South African fast food the chain has yet to enter. While it likely lacks fellow South African chain Nando’s potential for international expansion – much of Famous’ Brands competitive advantage is a result of its strong position in its home market, with a brand recognition and product offering no other chain can touch – its commanding share of the growing South Africa market is likely unassailable in the near-term, while any newcomer should expect an uphill battle in every major quick-service sector.   For further information: Please contact Michael Schaefer, Consumer Foodservice Analyst: Michael.Schaefer@Euromonitorintl.com