Debonairs, Wimpy and Steers owner strains as SA households come under pressure

Famous Brands – the franchisor for Debonairs, Wimpy, Steers, Mugg & Bean and more – has seen a significant drop in its earnings and profits.

In the group’s interim results for the six months ended 31 August 2023, the group said that South African consumers face several headwinds, including water and electricity shortages, food inflation and high interest rates.

“Despite this troubling background, consumers are more resilient than expected and still spend time at restaurants. Here, restaurants offer affordable indulgent moments as a reprieve from their daily challenges,” the group said.

“However, with tighter budgets, consumers do not eat out as lavishly as before.”

The group noted that shopping centres have seen an influx of consumers as they have backup power systems; this was especially the case in Johannesburg and Cape Town following a cold winter.

Although the supply chain and inflationary challenges from the Russia/Ukraine war have eased slightly, food inflation remained high due to load shedding and the increased use of diesel by all food producers.

There were also significant price increases for chicken, eggs, pork, vegetables, coffee and potato chips over the period.

“While raising menu prices to recover costs is essential, higher prices risk alienating customers,” the group said.

In addition, the group said that consumers are being drawn to convenient options, such as delivery, collection and drive-thrus.

“Here, drive-thrus are gaining momentum as a preferred channel due to their comfort and safety. However, these options will never replace the restaurant experience, as consumers still want to celebrate occasions or meet up with friends and family,” it said.

It added that South Africa’s government service delivery failures and the challenging social-economic environment resulted in growing social unrest.

“In August 2023, the Western Cape was subjected to an eight-day taxi strike, resulting in restaurant closures and cancelled restaurant deliveries due to transport unavailability.”

Financials

Although total revenue over the period jumped by 10% to R3,940 million (2022: R3,579 million), the group’s operating profit dropped by 6% to R371 million (2022: R393 million).

Headline earnings per share also dropped 7% to 199 cents (2022: 215 cents), whilst basic earnings per share dropped 23% to 199 cents (2022: 215).

The group said the lower earnings were primarily due to the Gourmet Burger Kitchen liquidation dividend of R75 million from August 2022.

Without the liquidation dividend, basic earnings per share would have increased by 8% over the prior period.

Despite the challenging economic environment, the group said it remains optimistic for the future and declared an interim dividend of 138 cents per share (2022: 130 cents).

The group’s key financials can be found below:

Read: Businesses in South Africa are losing R724,000 per hour – and it’s not because of load shedding