Famous Brands, the owner of Wimpy, Fishaways and Steers, is providing financial relief to its franchisees as they face higher levels of load-shedding, with 10% of their restaurants lacking backup electricity.
The restaurant franchiser and manufacturing group joins a host of companies that have warned of a spike in operating costs as a result of the blackouts.
Famous Brands has 2,518 restaurants in South Africa, including the Debonairs, Milky Lane and Mugg & Bean brands.
“These financial relief measures include a lower royalty and marketing percentage on sales generated during load-shedding hours,” Famous Brands CEO Darren Hele said after the group released annual results this week.
The group reported that its diesel costs for non-fleet usage soared 957% to R14.8m in the year to February. It said that on top of higher operating and capital costs, load-shedding caused increased risk of food waste.
It warned that there was also an increased risk that higher stages of load-shedding would result in social instability. It anticipates a recession, especially with blackouts expected to increase during the winter.
The group had invested in larger, more efficient generators and solar. But Hele said restaurants that do not have backup power are in buildings which do not cater for generators or other alternatives.
“There has been a good response from landlords in finding ways to remedy the situation”, he said, but in some cases restaurants had relocated if landlords had no immediate plans for backup power.
Spur Corporation CEO Val Nichas said in February that it would try to negotiate better deals on diesel for franchisees and explore a group-negotiated rate. It would also advise franchisees on the best energy systems. There was an opportunity for new restaurants to add different power solutions, she said. The group owns Spur, RocoMamas, John Dory’s, Panarottis and The Hussar Grill.
Hele warned that the next two to three years would be challenging as load-shedding puts pressure on marginal restaurants and electricity becomes more expensive.
“Uncertainty around load-shedding is a big concern ... everything else you can work with. We want to know if it’s the new normal so we can deal with it,” he said.
He said despite the impact of blackouts the company would forge ahead with its plans to roll out new restaurants.
However, its signature brands — Lupa Osteria, Lexi’s and Mythos — were not attracting new franchisees because capital expenditure was higher than for other brands and the skill sets were different. “We have a lot of work to do and it (signature brands) will be reviewed," he said.
Famous Brands' revenue for the year was materially higher than pre-pandemic levels thanks to increases in restaurant and retail sales.
While consumers were returning to dining out, many preferred home-cooked meals or ordering in. As a result, the company would “amplify our delivery services to extend our footprint”, said Hele.
It would also continue to roll out smaller formats at convenient locations and grow its drive-through restaurant footprint.
However, the company warned that trading conditions remain challenging and the restaurant industry is highly exposed and vulnerable to load-shedding. “All brands had to manage menu price increases carefully to balance protecting franchise partner profitability while offering value to consumers in an inflationary environment,” Hele said.
John Loos, property strategist at FNB Commercial Property Finance, said this week in a research note that the restaurant sector is yet to recover to pre-Covid levels and has to face up to renewed consumer financial constraints on the back of rising interest rates and recessionary economic conditions.
“These economic events would likely begin to force consumers to reprioritise expenditure partly away from non-essential spend such as eating out and takeaways,” he said.
Loos said with the full pressures of interest rate hikes yet to be felt, and heightened load-shedding continuing to put the brakes on the economy, “a tough near term trading environment with further sales growth slowdown seems likely”.
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