SPUR CORP. LIMITED INTEGRATED REPORT 2015

STRATEGY

Economic material matters

SUSTAINABLE LOCAL FRANCHISE MODEL

As a franchising company, Spur Corporation can only generate a sustainable return for its investors if the franchise model allows franchisees to earn a reasonable return. In other words, group revenue growth is directly linked to the collective revenue growth of franchisees across the group.

STRATEGIC RESPONSE

A profitable outlet starts with the selection of suitable franchisees, and the identification of sites that are appropriate for the target market of the brand and attract sufficient foot traffic. Consumer awareness of the brands is raised by effective and innovative marketing, which drives customers to the outlets. Ensuring high standards of food quality, restaurant finishes and good service, through training and regular monitoring, supports repeat visits, as does a compelling loyalty offering. The group’s centralised procurement strategy ensures that food supply and quality are consistently excellent and input prices competitive.

Spur Corporation has added brands in the last three years to complement the middle-market target family-oriented consumer served by the established brands Spur Steak Ranches, Panarottis and John Dory’s. Captain DoRegos caters for the lower-income market, serving quick affordable meals. The Hussar Grill operates at the other end of the economic spectrum, offering an upmarket dining experience and a comprehensive wine selection. The group’s latest acquisition, RocoMamas, offers a trendy alternative for a younger demographic.

This range of brands allows the group to access a broader target market and gain market share.

The new small format Spur concept has lower set-up and running costs and is well suited to smaller urban areas which cannot sustain a full-sized restaurant. The new Spur Grill and Go concept aims to deliver the Spur experience to South African consumers in a smaller, more efficient counter-service model that shows excellent potential for high traffic locations where consumers demand quick service. The group is planning to rollout three small format Spur outlets and four Spur Grill and Go’s in the coming year.

The new Spur RBW (Ribs Burgers Wings) concept is a smaller format outlet designed specifically for the UK market. The first pilot outlet opened in Corby in the UK in June 2015 and early trading has been encouraging. This model has potential for expansion in other, non-South African markets.

Franchise models are continually reviewed and revised to ensure that franchisee profitability is supported. This includes store designs that reduce set-up costs, improve kitchen efficiencies and flows, use space more effectively, and introduce more energy-efficient technology in the kitchens.

  2015 
target 
Achieved  2016 
target 
Number of local outlets      
Spur Steak Ranches  

Most of the group brands materially achieved their targets, but Captain DoRegos closed more outlets than anticipated, and the national rollout of The Hussar Grill was delayed.
278  277  288 
Panarottis 77  75  79 
John Dory’s 38  38  39 
Captain DoRegos 67  57  59 
The Hussar Grill 12  10 
RocoMamas N/A  24 
           
Existing restaurant turnover growth percentage      
Spur Steak Ranches  
Panarottis achieved its turnover growth target, but Spur and John Dory’s did not – due largely to the impact of load-shedding. Captain DoRegos did not achieve its target due to the impact of the economic downturn on its target market.
7.7  7.3  7.5 
Panarottis 10.5  15.8  11.3 
John Dory’s 8.5  5.7  13.2 
Captain DoRegos (5.7) (20.2) 2.0 
The Hussar Grill N/A  N/A  12.3 
         
Total restaurant sales (R’m)      
Spur Steak Ranches  
John Dory’s did not achieve its sales targets due to store closures, shopping centre revamps and load-shedding. Captain DoRegos closed more stores than anticipated. The opening of a new The Hussar Grill in Johannesburg was delayed until September 2015.
4 301  4 309  4 682 
Panarottis 516  565  654 
John Dory’s 347  335  396 
Captain DoRegos 165  143  153 
The Hussar Grill 81  72  99 
RocoMamas N/A  24  203 

 

STORE DESIGN AND SPECIFICATIONS

Standardising store design and specifications across a brand creates a consistent customer experience and ensures consistency across all operations in terms of buildings, kitchens, service and food offerings. This also supports franchisees’ ability to maintain the consistently high standards required by the group.

STRATEGIC RESPONSE

A regular upgrade cycle of revamps and refurbishments ensures outlets stay topical and appealing to their target markets and has a direct and demonstrable impact on franchisee turnover.

MENU ENGINEERING

Refining the menu on an ongoing basis ensures that each brand accurately takes account of their customers’ taste profiles, identifies opportunities for promotions and ensures competitive offerings at each restaurant. Menu engineering helps to optimise sales mix, food cost and product range and supports kitchen redesigns and process efficiencies to enhance the brands’ appeal to their target markets while supporting margins.

STRATEGIC RESPONSE

Promotions have to be priced competitively enough to appeal to consumers while not eroding franchisee profitability. This is especially important in an environment of high food inflation, when menu engineering assists in maintaining franchisee gross margins while ensuring that menu prices remain competitive.

EFFICIENT USE OF RESOURCES TO REDUCE COSTS

Electricity supply interruptions had a negative impact on operations, particularly in the five months from November 2014 to March 2015. Many restaurants have generators; however, turnover is still affected when the rest of a shopping centre or shopping precinct is not trading due to load-shedding.

STRATEGIC RESPONSE

While the direct environmental impact of Spur Corporation is relatively small, the combined footprint of franchisees’ restaurants is significant and the group focuses on identifying ways to improve the efficiency of energy and water use.

The rising costs of electricity and gas, as well as electricity supply interruptions, have made the efficient use of energy critical to franchisee profitability. The group continues investigating opportunities to improve back-of-house layout and introduce innovative technology solutions to improve efficiency of energy and water usage, and product consistency.

Some franchisees have invested in environmentally friendly solutions to reduce energy costs in stores and have seen favourable returns on their investment. The economic return on investment for environmental initiatives will be highlighted through various sustainability initiatives.

INTERNATIONAL EXPANSION

Expansion into other territories offers the opportunity to grow the group and its revenues while diversifying geopolitical risk. However, expansion plans must take the unique market dynamics of different geographies into account to mitigate risk.

STRATEGIC RESPONSE

Expansion into the developed markets of the UK, Ireland, and Australia has been challenging mainly due to high occupancy and labour costs. The last three remaining company-owned restaurants in Australia have been sold and all outlets in that country are now franchised.

The focus in the UK and Ireland will be on exiting unprofitable company-owned restaurants and piloting the smaller format Spur RBW (Ribs Burgers Wings) high street model. This model is based on lower set-up costs, reduced occupancy and labour costs, and a streamlined menu, and should be a more compelling investment proposal for prospective franchisees.

The group’s brands have been well received in the rest of Africa and Mauritius. These markets offer excellent opportunities for growth with the challenge of securing suitable sites while managing occupancy costs, placing skilled employees and ensuring consistent supply of quality ingredients.

  Achieved in 2015  2016 target
2015 targets        
International revenue 33.3% of total group revenue   International revenue was impacted by the closure of the company-owned Mohawk Spur in Wandsworth (UK) and the disposal of company-owned Australian restaurants. International profits fell due to the poor performance in the UK. Logistical challenges, particularly in Africa, prevented the opening of more international outlets. 29.3% 21.0%
International profits 3.4% of total group profit 1.9% 4.0%
62 international outlets 58 outlets 66 outlets

PRODUCT RESPONSIBILITY

The group is acutely aware of the importance of establishing a procurement process that supports product responsibility. The various strategies undertaken to maintain high standards are summarised below:

  • Training of franchisees’ employees in food preparation, customer service, food safety and the other relevant areas.
  • Regular visits and assessments to each restaurant by dedicated operations managers to monitor quality and adherence to food preparation and presentation specifications.
  • Hazard Analysis and Critical Control Points (“HACCP”) compliance has been implemented at the sauce manufacturing facility.
  • A capability assessment process is applied to all new suppliers, which includes a HACCP and/or ISO 22000 review component.
  • Regular auditing of major suppliers against HACCP and/ or ISO 22000 standards, and ongoing encouragement of all suppliers to achieve compliance.
  • Specialised food safety audits of suppliers through an independent third party.

While 100% of Spur Corporation’s seafood is sourced through suppliers that comply with SASSI and Marine Stewardship Council (“MSC”) guidelines, a large portion of fish supplies are secured from Namibia, where compliance in this area is currently under review by the WWF and MSC. The group’s ability to comply with its 100% stated target is therefore dependent on the outcome of this review.

Monosodium glutamate (“MSG”) was removed from all Spur Corporation products during the year. Unfortunately, the MSG flavour profile is difficult to match, and, following a significant number of customer complaints, the group took the decision to re-introduce a nachos and boerewors product that includes MSG. Spur Corporation continues to investigate alternatives in line with its commitment to product responsibility.