Famous Brands looking to expand African footprint

With the continent's middle class expected to triple by 2031‚ consumer facing industries are harnessing opportunities to cash in on the surge in consumer spending.

Avior equity analyst Jiten Bechoo says resource driven growth is generating growth in African consumers' disposable income.

"As jobs are created and incomes rise‚ consumers have less time for cooking and eat out more. Moreover‚ eating out becomes a viable occasional treat‚" he says.

Plans on track

Famous Brands‚ whose portfolio includes Wimpy‚ Debonairs Pizza and Steers is on track with its plan to open about 55 restaurants in Africa this year.

"With more than 12 years' experience in the region‚ we're quite a long way up the learning curve; we've paid our school fees. Our philosophy about Africa is to think narrow and deep rather than wide... for us‚ it's about 15 African countries and working those very hard with regard to the brands and trading formats. We're enthusiastic about the potential to grow our presence on the African continent‚" Hedderwick said.

For the quarter March to May‚ the group's Africa region‚ which excludes SA‚ saw a 27.2% improvement in sales.

"What this figure is really telling us is that they're forging into the rest of Africa and that is making a big difference for them‚" Chris Gilmour‚ an analyst at Absa Investments‚ says.

Debonairs a success

Debonairs Pizza has been a particularly successful export for Famous Brands in Africa - it has outlets in the Kenya‚ Democratic Republic of Congo (DRC)‚ Sudan and Nigeria.

The opportunities in the rest Africa for Famous Brands are "quite big‚" according to Duane Cable‚ portfolio manager at Coronation Fund Managers.

"We think the business is well positioned given its experience in SA. The market here is still underpenetrated relative to developed market trends‚ and the rest of Africa is in an even earlier stage‚ so we think potential is definitely there. We rate the business highly. It's quite capital light. They have a great management team with strong brands‚" he said.

While rich pickings are clearly available‚ this must be tempered with the reality of doing business in Africa‚ as risks such as the lack of formalised retail infrastructure‚ power shortages and poor logistics exist.

Infrastructure a challenge

Bechoo says the greatest challenge for Famous Brands will be to establish a supply chain to service its outlets as infrastructure in Africa is poor.

"The other challenge that it could encounter is the difficulty in establishing credible and sustainable suppliers of inputs. African expansion by companies which supply the group in SA is still slow and tentative due to the political and economic risks still evident in African countries‚" he says.

"On the whole‚ Famous Brands' African expansion strategy should therefore be tentative to prevent a misallocation of capital‚ together with a mistiming of entry." Bechoo says.

Africa's fast-growing prospects have caught the eye of local players Spur Corporation and Taste Holdings‚ as well as global chains.

US competition

The US's Subway sandwich franchise‚ which is owned by Doctor's Associates has around 30 restaurants on the continent and aims to open twenty 20 in Kenya over the next six next years‚ and others in SA and Zambia. While Domino's Pizza‚ which is the largest pizza chain worldwide‚ opened two restaurants in Nigeria last year‚ and is exploring expansion opportunities in Kenya and SA.

Another international food company establishing a steady platform in Africa is YUM Restaurants International‚ through its KFC‚ which it intends to grow "exponentially" in the future.

The group now has over more than 1‚000 KFC restaurants on the continent‚ although SA‚ where it opens between 40-50 stores a year‚ still makes up the majority of the group's African portfolio. Yum also operates the Pizza Hut and Taco Bell brands.

Brand recognition

According to KFC Africa MD Doug Smart‚ a challenge in the rest of Africa is that consumers don't really know the brand as well.

"KFC has been in SA since 1971 and so almost all of our consumers grew up with it and they know it‚ it's a household name‚ in many parts of Africa that is not the case they may not have ever heard of it ever. Another challenge is that because we don't have scale‚ our offerings are more expensive than they are in SA‚ which by definition means we appeal to a smaller audience and so we are very interested in quality growth in Africa‚" he says.

The group is entering countries including Zimbabwe and Uganda‚ and is looking to expand into other new African markets as well. According to Bruce Layzell‚ the group's GM of new African markets‚ Nigeria would be "a gem in Africa" for the group‚ given its size‚ economic growth driven by oil wealth‚ and its growing middle class.

In November last year KFC in November last year opened the first ever drive-through restaurant in Ghana.

Source: Business Day