Burger King has continued to make a loss in South Africa, with other international imports like Dunkin Donuts and Baskin Robbins not faring much better.
This is according to the latest financial results for brand managers, Grand Parade Investments (GPI), for the year ended June 2018.
The group reported a 20% jump in revenue to R1.145 billion, while it managed to narrow its net loss by R79 million, to R49.9 million for the year.
The loss was driven by the cost of sales (R596 million) and operation costs (578 million), with the group recording an operating loss of R30.5 million.
Grand Parade’s investments are divided into two main groups – food and gaming – with the former headlined by Burger King, of which GPI owns 91% of the brand in South Africa (with an intrinsic value of R838 million).
The group also controls 100% of the local franchising of Dunkin Donuts (intrinsic value – R40 million) and Baskin Robbins (R13.8 million) – however none of these big brands are yet turning an operational profit.
According to GPI, it hit its target of having 80 Burger King franchises open by June 2018, having opened 19 new Burger King restaurants in the year. The group also rolled out 5 stores for Dunkin Donuts and 1 store for Baskin Robbins, bringing total stores to 11 and 5 respectively.
Burger King is by far the biggest contributor to revenue in the group, having recorded R756 million in 2018.
While Burger King is not making an operating loss (posting earnings before tax of R22.9 million, up from R12 million in 2017), the group still faces pressure due to rising costs, a hike in VAT, and more taxes being placed on the food industry.
The total number of Burger King restaurants at 30 June 2018 was 87 stores of which 80 are corporate owned.
The average monthly restaurant revenues (ARS) increased by 5.3% from R0.865 million in 2017 to R0.911 million in the current financial period, largely as a result of positive restaurant comparative sales of 3.45% (2017: 1.82%) and a proportional increase in revenue from Drive Thru sites opened towards the end of the 2017 financial year.
Burger King’s total revenue for the year increased by 22.19% from R623.5 million in the prior year, to R756.2 million, serving a total of 15.6 million customers (compared to 13.3 million in the prior year).
“The resulting increase in revenue was however offset by higher than anticipated food cost increases, increase in the VAT rate of 1% and the implementation of the Healthy Promotion Levy during the second half of the financial year,” GPI said.
This translated to a decrease in the restaurant EBITDA margin from 9% in the prior year to 6.6% in the current year.
Despite the adverse condition, Burger King narrowed its headline loss from R41.3 million in 2017, to a loss of R29.7 million in 2018 – an improvement of 28%. However, the headline losses for Dunkin Donuts and Baskin Robbins increased to R29.8 million and R24.9 million, respectively.
“The decline in headline earnings is largely due to Dunkin’ Donuts, including the Bakery and Baskin-Robbins which collectively contributed a R62.9 million headline loss before taxation for the period and was offset by Burger King, which decreased its loss contribution by R11.5 million to R29.7 million,” the group said.
The only food investment to show headline earnings in the green was the group’s minor stake in Spur, which grew from a headline loss of R4.9 million in FY 2017, to a positive balance of R608,000 in 2018.
GPI highlighted a declining economy and tough trading conditions in South Africa.
Consumers are highly indebted and higher taxes in the food industry in particular pushed margins thinner, it said. The group also pointed to organisational changes within the business as some internal issues contributed to the loss.