Iconic fast food restaurants shut down across South Africa

A tough consumer environment has forced Famous Brands to close poor-performing fast-food restaurants across South Africa, including Steers, Debonairs Pizza, and Fishaways outlets.

South Africa’s quick-service restaurant (QSR) industry is navigating a challenging year, grappling with inflation, budget-conscious consumers, and fierce competition from both traditional rivals and emerging threats such as grocery retailers and coffee shops.

As outlined in Trade Intelligence’s recently published Food To Go report, the sector’s ability to adapt has become essential for survival.

The report highlights that while QSRs experienced 11.2% growth, this was largely driven by food inflation rather than genuine expansion.

“Quick-service restaurants have experienced solid growth in 2023, despite constrained consumer spending,” noted Sandy Sutton, Retail Analyst at Trade Intelligence.

However, she also pointed out that the same food inflation that has buoyed revenue has simultaneously eroded consumer spending power.

Famous Brands, Africa’s largest restaurant franchisor, has felt the full impact of this tough environment.

Chief Executive Darren Hele described the past six months as one of the tightest periods for consumer disposable income.

Famous Brands, which owns leading chains such as Steers, Debonairs Pizza, Wimpy, Mugg & Bean, and Fishaways, along with signature brands like Mythos, Vovo Telo, and Salsa Mexican Grill, has had to adapt by closing underperforming outlets.

In its financial results for the six months ended 31 August 2024 (H1 FY25), Famous Brands reported marginal revenue growth and steady operating profit, achieved through stringent cost management.

Despite this, lower sales volumes and rising overhead costs pressured profit margins.

Basic earnings per share rose 11% to 221 cents, while headline earnings per share increased by 9.5% to 218 cents. The company also hiked its dividend by 9% to 150 cents per share.

However, the group’s performance was uneven across its portfolio.

Leading brands such as Steers, Wimpy, and Fishaways continued to show resilience, buoyed by their strong market presence and appeal to cost-conscious consumers.

In contrast, the Signature Brands portfolio, catering to more discretionary and luxury dining experiences, struggled amid declining consumer spending power.

The downturn in discretionary income also impacted the group’s manufacturing and logistics operations, with decreased retail revenue and profitability driven by lower potato chip sales.

Closing stores

To mitigate these challenges, Famous Brands implemented a strategic rationalisation plan.

Between 1 March 2023 and 29 February 2024, the group closed 47 restaurants in South Africa, including 14 Steers outlets, 11 Fishaways restaurants, 5 Debonairs Pizza outlets, 7 Mugg & Bean stores, 6 Wimpy locations, and 4 Milky Lane branches.

The Signature Brands portfolio also saw significant closures, including the conversion of 10 Fego Caffés into Mugg & Bean restaurants.

This trend continued into the first half of FY25, with an additional 18 outlets shut down.

The closures were attributed to demographic shifts, increased competition, and the diminishing viability of certain trading areas.

Nevertheless, the group emphasised that these decisions were necessary to strengthen its overall portfolio and position it for future growth.

Despite the operational headwinds, Famous Brands remains cautiously optimistic about the future.

The group’s latest report expressed hope that anticipated interest rate cuts might improve consumer sentiment, though the translation of this optimism into spending power will take time.

“We are cautiously optimistic about a degree of recovery in the second half of the year,” the company stated.

Looking ahead, Famous Brands is banking on a robust pipeline of promotional activity during the peak summer season and a renewed focus on its core brands.

The company also plans to open 89 new stores in the second half of FY25, signalling a commitment to growth even in the face of economic challenges.

Investments in digital transformation remain a priority, with innovations aimed at enhancing convenience, customer engagement, and operational efficiency.

While the QSR sector in South Africa is undeniably under pressure, the resilience and adaptability demonstrated by market leaders like Famous Brands underscore the industry’s potential to weather the storm.

With strategic closures, targeted investments, and a focus on core strengths, the sector holds onto hope for a brighter future, even as it navigates the complexities of the present.

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