Famous Brands has spent almost three decades attempting to build an international business, but the results suggest the effort has yielded close to nothing in return, according to an asset manager.
Perspective Investment Management founder and chief investment officer Daniel Malan said the fast food franchise’s international expansion has consumed significant capital and organisational resources yet delivered negligible profits.
Famous Brands first spread its wings beyond SA in 1997 and bought UK-based Gourmet Burger Kitchen (GBK) in 2016 for more than R2bn. That acquisition ended badly when GBK was placed into business administration in 2020.
Malan said the R2.1bn write-off of the deal and the “soft costs” of expansion, including management time, consulting fees, travel and lost opportunities, mean the group’s “return on sweat” from its international push is close to zero.
Malan says the company continues to face challenges abroad, including restaurant closures and legal issues.
“After 28 years of expansion outside its core SA market, Famous Brands now has 342 restaurants internationally and 2,666 in SA. So, they have 11.4% of their restaurants outside SA,” he said.
“In the most recent results, their combined contribution to revenue was 7.6%, and their combined contribution to operating profits was just 1.5%. They are also grappling with a number of challenges across their international division — hyperinflation, load-shedding, restaurant closures and legal matters. Doing business across 19 countries across Africa, the Middle East and the UK is clearly not a simple matter.”
His comments come after the group, whose brands include Wimpy and Steers, closed six restaurants in the United Arab Emirates amid a legal dispute with its multi-store franchise partner. The company said the stores were shut after the partner failed to comply with franchise terms. It declined to comment further, citing ongoing legal processes.
The closures hit performance in the rest of Africa and Middle East region, where revenue fell 5.4% in the six months to August.
In his analysis, Malan draws a comparison with Shoprite, which chose to exit loss-making African markets and refocus at home, a move that has strengthened its core business.
Shoprite has withdrawn from markets such as Ghana, Malawi, Nigeria, Kenya and Uganda due to challenges including weak currencies, high inflation and import duties.
“Shoprite eventually figured out that doing business in Africa is not worth it. They called it a day wherever it did not make sense, took it on the chin, and have been dominating in their core SA home market ever since. What a surprise.”
Famous Brands CEO Darren Hele recently told Business Day the company remains committed to Africa as its main growth focus. It also plans to deepen its presence in Kenya, Namibia and Botswana, supported by new franchise partnerships and steady consumer demand.
In Kenya, the business has shifted to a fully franchised model and is investing in local teams to drive market growth, he said. The group also sees potential beyond Nairobi as economic conditions stabilise in the East African country.
In the Southern African Development Community (Sadc), group revenue rose 2.7% in the six months to end-August, boosted by easing inflation in markets such as Botswana and Namibia. Famous Brands said improving economic conditions are expected to lift discretionary spending and benefit restaurant sales.
