- From the ban of alcohol sales to the national lockdown and the curfew, South Africa’s restaurant industry has been dealt a significant blow.
- All the restaurants in the Spur Group’s stable have reported significant drops in sales for May and June.
- Analysts are divided about whether the group will be able to make it out of the pandemic unscathed.
Restaurants in South Africa have certainly seen brighter days.
Lockdown restrictions on trade have crippled the once robust industry with restaurant group, Spur, being no exception as all its restaurant chains have reported a massive drop in sales.
From a ban of alcohol sales, the national lockdown and the curfew, the restaurant industry has been dealt a significant body blow. Last week owners and their employees took to the street to protest lockdown regulations with the hashtag #JobsSaveLives.
The group which owns Spur Steak Ranches, Italian food franchise Panarottis, seafood restaurant John Dory’s, burger joint RocoMamas and steak restaurant Hussar Grill have a similar story.
Spur has been struggling to stay afloat throughout lockdown and made it known in May, when sales were allowed to resume, that they were seeking assistance from financial institutions to secure credit to prepare for the economic impact of Covid-19.
The group also implemented a 20% salary reduction from 1 June, in line with a reduced work week. Fees for non-executive directors were also to be reduced by 20% from 1 June. All of these measures were already painting a rather bleak picture for the restaurant group.
- READ | Lockdown eats nearly half of Spur’s restaurant sales
Last week, it announced that total franchised restaurant sales declined by just under 22%, with sales plummeting close to 88% in May and about 84% in June.
The release of retail statistics by Stats SA revealed that there has been a 100% decrease in food and beverage sales in April compared with 2019 and 98% in May. This corroborated Spur’s weaker trade showing experienced across the restaurant sector.
“The restrictions on the sale of alcohol, and the curfew imposed on all South Africans, together with customer anxiety about contracting the virus and growing personal financial stress, has had a detrimental impact on our business,” said Pierre van Tonder, its outgoing CEO.
He said the numbers were expected and indicated that the final results for the year would be down by a minimum of 40%.
“Given that it is only the middle of July, I would expect that number to be revised because Spur’s year-end is June; their second half, particularly quarter three and four was fully impacted by Covid-19 regulations in the country. Whereas Famous Brands (owner of Steers) have an August reporting and won’t be as badly affected because of the timing of its results,” he said.
The booze ban is one of the greatest grievances of the restaurant industry, as alcohol is often the selling factor for eating out. President Cyril Ramaphosa announced the second alcohol ban during a presidential address on 12 July.
Lulama Qongqo, an investment analyst at Mergence Investment Managers said: “It is tough because one thing that keep people going back to restaurants is alcohol. Spur will struggle when it comes to making sales, especially because they are a middle income to slightly higher income dining company. And in such a dining company, alcohol does matter. There is an appeal to having beer or wine with your meal.”
Company branding
Branding yourself as a company is crucial as it distinguishes you from the rest, but it can also harm your company when the environment changes and adaptation proves difficult.
According to Qongqo, Spur branded itself as a family dining experience and this was harming them as they could not acclimate to the new normal.
“The appeal of Spur also comes from their play area; it is the best in SA. If Spur loses this appeal, that means their franchisees will continue to suffer and the economy is not doing them any favours. People are really struggling financially; it’s a highly discretionary thing, going to restaurants.”
The resignation of the CEO
Earlier in the week, the long-serving Van Tonder handed in his resignation after leading the restaurant group for 24 years.
Anthony Clark, an independent analyst at Small Talk Daily Research, said there was nothing untoward about Van Tonder’s resignation.
“He is leaving for no reasons, there is no health issue, there is no drama. He has been with the company for many years. He is 61 and his children all live offshore. He just wants to spend some more time with his family. Surely, the guy deserves a break.”
Qongqo expressed a deep sadness and said Van Tonder’s resignation was “a blow for the company”.
“The update was tough to read, and unfortunately it is difficult to have hope for them going forward especially seeing that Pierre has resigned. He is a brilliant CEO; he is energetic, has compassion.”
“These are the type of characteristics you need during hardship. That is also another blow to the company.”
A future for Spur?
The restaurant group, founded in 1967, has had its fair share of trials and tribulations over the years. However, Covid-19 has dealt the group a massive blow.
The question of whether it would make it out unscathed is one even analysts cannot agree on.
“Spur is a very well-run, conservative business with net cash – it is the only company in the fast food sector that is debt-free. In an uncertain economy, when consumers are under pressure you want to be with companies with strong balance sheets and no debt, that’s Spur Corporation. Famous Brands (owner of Steers) is full of debt and has its own problems internationally,” said Clark.
Shares in Famous Brands have slumped over 53% this year, while Spur has seen its stock fall about 44%. Over that time, the JSE All Share Index has lost just under 20%.
Qongqo believes there was a future but if things didn’t change for the better “… Spur is going to have to come out of the ashes because that is what is going to become of them.”
“Spur hardly owns any corporate stores besides new concepts they have been working on. So, it’s the franchisees who are in the most trouble. A lot of franchises will close and some will sell if things don’t improve and if this alcohol ban continues.”
According to Qongqo, Spur’s smaller segments such as Hussar Grill and RocoMamas would also bear most of the brunt.
“Famous Brands will probably do better when it comes to recovering on sales even under Level 1. Because they are cheaper and they are geared for social distancing. You don’t go to Steers for the experience you go there for the burger and you get out. But you go to Spur for the experience and it’s a higher price point, these things all together make it very difficult for them to compete in a tough environment where people are earning a lower income,” she said.
