Some heartburn in UK but no coronary for Famous Brands
Steers and Wimpy owner is forced to close some outlets due to lower consumer confidence ahead of Brexit
Famous Brands, whose foreign affair has soured, closed a premium burger restaurant in the UK last weekend and has set funds aside in case it decides to close another five outlets in that market.
The owner of the Steers and Wimpy brands said on Thursday it had impaired the value of its Gourmet Burger Kitchen (GBK) business in the UK by R373-million and made provisions worth another R33-million for potential store closures there.
“In the current environment in the UK, store closures are unfortunately going to be a feature of the landscape, so we’ve been prudent and provided [but] we’re not rushing out to do it,” Famous Brands CEO Darren Hele said.
The company bought GBK for £120-million (R2-billion) in 2016, partly funded with debt.To turn the chain’s fortunes around, Hele said Famous Brands was working on improving GBK’s food delivery offering, making its “understated” street-facing restaurants more attractive and visible, and revamping outlets in certain malls.
Hele said the unit would shift “out of growth mode” to focus more on customers. “The pace of store growth won’t come to a standstill but if we open two in the coming year versus 10 in the past year that will be a lot.”
While GBK had recorded a small operating loss in the year, “we want to make sure that we get to a break-even point by the end of this year. I think as soon as there’s clarity around Brexit, we think it should turn, but probably the next 12 to 18 months are going to be critical,” he said.Vestact portfolio manager Michael Treherne said GBK did well until 2017 but had since struggled owing to lower consumer confidence ahead of Brexit, the rise of online food delivery, and intense competition in the premium burger segment.
“It’s probably going to be a case of who can withstand the storm,” Treherne said.
“I don’t think GBK is going to be hugely profitable at least for another couple of years and, even when they do turn that business around, UK margins compared to SA margins are chalk and cheese,” he added.
However, Treherne said Vestact was “excited” about the long-term potential for Famous Brands’s new “Frozen For You” offering in SA, which lets customers buy frozen food online.
“In time, especially as millennials stop using kitchens, a nice alternative is to buy something that’s frozen and probably healthier than fast food.”