Why this South African fast food franchise had to review its model after opening 300 stores in four years
JSE-listed Gold Brands says that significant demand has fueled the accelerated roll out of its flagship home-grown fast food franchise Chesanyama to more than 300 stores.
Gold Brands listed on the AltX board of the JSE at the beginning of the year and on Monday delivered its maiden interim results for the six months ended August 2016.
Revenue declined 13.8% to R100.6 million, “reflecting the overall slowdown in the economy, which is not only affecting the opening of new stores but also the revenue of the existing stores and the slower uptake of new franchises in the period, in line with the group’s more selective approach to new hands on franchisees as well as financial institutions’ stricter lending requirements”.
The group reported diluted headline earnings per share of 3.18 cents, from 3.48 cents before; however, profit for the period advanced to R3.5 million, from R2.96 million.
The company’s brands include Chesanyama, Black Steer, Hot Chicks, 1+1 Pizza, Opa! Pitaland and Wild Wings.
Gold Brands said that menu prices were increased, on average, by 8% in March 2016, having absorbed higher input costs to continue offering value to consumers for as long as possible.
Operating expenses declined 7.4% to R25.9 million, notwithstanding the recruitment of sector specific skills to increase franchisee-support capacity at head office.
The group said it achieved lower transport costs as a result of better route planning while maintenance costs decreased due to capital investments in new equipment.
CEO Praxia Nathanael, said: “The roll out of new stores slowed during the period, with less funding available for new franchises. Consumer spending was constrained in lower LSMs, offset by growing customer support in the middle-income market and group revenue dropped 13.8%.
“We mitigated the revenue impact with a pleasing increase in gross margin to 30.9% as a result of improved procurement, increased volumes of in-house production and better internal controls.”
Nathanael said that the group’s flagship Chesanyama brand and the more recently-acquired Black Steer brand, continued to enjoy high levels of consumer support – four years after launch.
How much it costs to set up a Chesanyama franchise
Nathanael said that the improved profile as a listed company enabled Gold Brands to attract a number of skilled industry specialists, including Manny Nichas – former CEO of Ocean Basket – who is responsible for franchising operations.
“In a very short space of time, he has made pleasing progress in improving franchisee compliance as well as introducing more stringent requirements for new entrants to ensure their sustainability. We also reviewed the quality of existing operators to evaluate profitability at store level, including the closure or relocation of non-performing stores.
“Our ultimate objective is to provide consistent quality and service to end-consumers regardless of which store they frequent. We are confident that these initiatives will reposition our brands to continue growing profitably and that Gold Brands is well positioned to weather the current economic environment,” the chief executive said.
Nathanael said added that franchisee selection processes have been reviewed, with a continued preference for hands-on operators. Extended franchisee training programmes provided by the head office are also under development and improved support structures to assist franchisees in building their businesses are being formulated.
Investments to bring additional production and distribution capacity in-house are paying off. “The production of spices and sauces in-house has been bedded down and contributed to higher margins. The meat processing and pre-cooking is also finding favour among franchisees and providing more consistent meals to end consumers,” Gold Brands said.
Loading ...