SPUR CORP. LIMITED INTEGRATED REPORT 2014

Strategy, risks and key performance indicators (“KPIs”)

Local restaurant revenue growth

Sustainable growth in revenue and profits requires Spur Corporation to maintain or grow market share while increasing the number of viable restaurants. Restaurant growth should not be achieved at the expense of quality. The challenges our growth strategy for local restaurant revenues faces are summarised below.

Suitable sites for restaurants

The group’s history of strong performance and brand recognition has helped our success in securing good locations for our restaurants. There have been fewer large shopping centres built recently than there were in the past decade and competition for restaurant sites is increasing.

We apply rigid site selection criteria based on demographic and spending patterns in the area. Our development team establishes and maintains relationships with property developers, landlords and potential franchisees to ensure that new potential sites are identified as early as possible and matched to appropriate franchisees. Site availability is something of a virtuous cycle – as a brand trades better and becomes more established, landlords become more interested. Spur is already well regarded by landlords and the strong recent performance of Panarottis and John Dory’s has supported access to good locations.

Suitable franchisees

Potential franchisees are rigorously assessed to ensure that they have the necessary skills, resources and work ethic to run a successful restaurant. When a restaurant does not perform to expectations, it affects customers, the viability of the franchisee’s business and the brand’s reputation.

The substantial funds required to cover the start-up costs of a restaurant represent a significant hurdle for many prospective franchisees. Therefore, we continue working with financial institutions to facilitate funding for good prospective franchisees. Prospective franchisees may be less inclined to commit funds in the current economic environment, especially in the newer group brands.

We also manage outlet set-up costs to keep these reasonable through a focus on cost and quality of raw materials, efficient use of space and practical functionality in restaurant layouts and blueprints. We match the appropriate outlet model to the opportunity that is presented.

Franchisee B-BBEE compliance

Franchisees’ ability to secure new leases and operating licences such as liquor licences may be linked to their B-BBEE compliance in future. If suppliers are not encouraged and supported to ensure they comply with B-BBEE requirements, the group may not be able to maintain its restaurant and revenue growth targets.

Our approach is to ensure that franchisees are aware of the business imperative of transformation and highlight practical methods for them to achieve transformation within their businesses. Specific plans include:

  • The group’s transformation executive hosting franchisee roadshows on transformation.
  • Making information and guidelines on the B-BBEE scorecard available to franchisees.
  • Undertaking a baseline study on a sample of outlets to identify gaps and devise generic transformation strategies for franchisees, and then setting relevant 2020 targets.
  • Being vigilant in identifying opportunities for black franchisees and providing them with the necessary support.
  • Enforcing the installation of a 10% black working partner in franchised restaurants, to the extent possible.

Growth in our target market

Market demographics in South Africa are shifting and we believe that growth in our middle to higher LSM target markets will continue, although at a slower rate than in the past decade. Consumers in the lower LSM markets served by Captain DoRegos remain under pressure.

Our strategy is to attract more customers into our restaurants through excellent food, good service, competitive specials and targeted marketing initiatives. We also incentivise increased average spend per visit through upselling and through our loyalty programmes. Our continued investment in business intelligence improves our understanding of customer behaviour and market research helps us to identify and respond to changes in consumer trends. Uptake of loyalty cards in Spur and John Dory’s is growing strongly and spend from card holders in June 2014 accounted for 44% of total sales at Spur and 24% at John Dory’s. We keep our restaurants attractive through ongoing revamps and where necessary, through relocating outlets to better trading sites.

Changing consumer tastes

Market share growth depends on our ability to continue meeting changes in consumers’ taste profiles, keeping our product offerings relevant and ensuring that our restaurants always meet our customers’ needs and wants. We monitor this through market research, our business intelligence and through constant interactions with our franchisees and customers. We constantly re-evaluate our menu to ensure that it remains topical and that we give consumers what they want.

Targets for 2015

  Existing
restaurant
turnover
growth
%
Total
revenue
Rm
Number
of local
outlets
Number of
revamps/
relocations
Loyalty membership Loyalty
spend
Rm
Spur Steak Ranches 7.7 4 301 278 40 1 900 000 1 900
Panarottis Pizza Pasta 10.5 516 77 8
John Dory’s Fish Grill Sushi 8.5 347 38 8 199 000 85
Captain DoRegos (5.7) 165 67 5
The Hussar Grill N/A 81 12


We opened more outlets than targeted in each brand apart from Captain DoRegos where closures of underperforming outlets resulted in the total number of outlets declining to 61 at year-end (2013: 72).

Existing restaurant turnover (total turnover adjusted to exclude new outlets opened during the current year) grew above target for Spur, Panarottis and John Dory’s. However, this declined in Captain DoRegos due to the closure of 15 outlets during the year, exacerbated by the highly competitive market in which the brand operates and the impact of the economic slowdown on its target consumers. Comparative data is not provided for The Hussar Grill as it has only been included for the six-month period since its acquisition in January 2014.