Famous Brands Faces Economic Challenges But Remains Resilient

Famous Brands, the franchisor behind beloved South African restaurant chains like Debonairs, Wimpy, Steers, Mugg & Bean, and more, recently released its interim results for the first half of 2023. The report reveals a mixed financial performance marked by various economic challenges, but also demonstrates the resilience of South African consumers who continue to patronize restaurants in the face of adversity.

Economic Headwinds Affecting South African Consumers

South African consumers have been dealing with a range of economic challenges during the first half of 2023. These challenges include:

1. Water and Electricity Shortages: South Africa grappled with water and electricity shortages, impacting both households and businesses. Load shedding, in particular, contributed to food inflation and supply chain disruptions.
2. Food Inflation: Food inflation remained high due to load shedding and the increased use of diesel by food producers. This has had a significant impact on the cost of food production.
3. High-Interest Rates: South Africa faced high-interest rates, which put pressure on consumers’ budgets and limited their spending capacity.

Consumer Resilience in the Face of Adversity

Despite these troubling economic challenges, Famous Brands noted that South African consumers have displayed remarkable resilience. They continue to patronize restaurants, viewing them as an escape from their daily struggles and an opportunity for affordable indulgence.

However, tighter budgets have prompted consumers to be more conscious of their spending, resulting in more modest dining habits when eating out.

Shift Towards Convenient Dining Options

In response to economic challenges and changing consumer behavior, Famous Brands has observed a shift in consumer preferences towards more convenient dining options. These include delivery, collection, and drive-thrus.

1. Drive-thrus: Drive-thrus are becoming a preferred channel due to their convenience and safety, especially in times of social unrest. However, this trend is unlikely to replace the traditional restaurant experience, which remains a cherished option for celebrating occasions or spending time with friends and family.

Challenges and Disruptions

The group also faced challenges and disruptions during the first half of 2023, which had a significant impact on their operations.

1. Social Unrest: The challenging socio-economic environment and government service delivery failures resulted in growing social unrest. In August 2023, the Western Cape experienced an eight-day taxi strike, leading to restaurant closures and canceled deliveries due to transport unavailability.

Financial Performance

Despite these headwinds, Famous Brands managed to post impressive financial results for the first half of 2023. Here are some key financial highlights:

• Total Revenue: Total revenue for the period increased by 10% to R3,940 million compared to R3,579 million in 2022. This indicates strong consumer demand for the company’s offerings.
• Operating Profit: The group’s operating profit decreased by 6% to R371 million, down from R393 million in 2022. This decline can be attributed to various economic challenges.
• Earnings per Share: Headline earnings per share dropped by 7% to 199 cents, compared to 215 cents in 2022. Basic earnings per share also saw a significant decrease of 23%, dropping to 199 cents from 215 cents in 2022. This decrease is primarily due to the Gourmet Burger Kitchen liquidation dividend of R75 million from August 2022.
• Interim Dividend: Despite the challenges, Famous Brands remains optimistic for the future and declared an interim dividend of 138 cents per share, up from 130 cents in 2022. This demonstrates the company’s commitment to its shareholders and its confidence in the long-term outlook.

Conclusion

Famous Brands, the franchisor behind some of South Africa’s most beloved restaurant chains, has faced significant economic challenges during the first half of 2023. However, the group’s ability to weather these challenges and maintain a strong customer base indicates the resilience of South African consumers and the enduring appeal of dining out, even in trying times.

As the company continues to adapt to changing consumer preferences and navigate the ever-evolving economic landscape, it remains optimistic about the future. The declaration of an interim dividend reflects the company’s confidence in its ability to overcome the current challenges and thrive in the long run.

South Africa’s dining landscape may be evolving, but Famous Brands’ presence in the market remains strong, and its commitment to delivering quality dining experiences to consumers endures.