Tasty Acquisition Pays Dividend for Taste Holdings


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Branded franchise group Taste Holdings overcame cautious consumer spending to boost profit before tax 20% to R30.3 million in the year to February.

A month before year-end, the group acquired The Fish & Chip Co for R66 million to raise its national store footprint to 543 stores (2011: 329) and provide a valuable in-road into the lower LSM consumer categories as a balance to its existing brands.

Taste is a South African-based management group invested in franchised, category specialist restaurant and retail brands. The group currently has more than 550 locations nationally across its food brands Scooters Pizza, Maxi’s, St Elmo’s Woodfired Pizza, The Fish & Chip Co and jewellery brand NWJ.

Taste CEO Carlo Gonzaga said the latest acquisition contributed significant critical mass to its food franchise, while accelerating its vertical integration strategy. He anticipated opening another 50 outlets in the next six months to capitalise on its market leadership position – a bold but achievable target given that the brand has opened over 25 outlets since the year end.

During the review period, system-wide revenue grew 21% to R909 million, pushing group revenue to R265 million (R234 million).

Costs as a percentage of revenue improved for the third consecutive year, declining to 37% (39%).

Headline earnings a share rose 16% to 12,4c (10,7c) while the 33% increase in the dividend to 4c (3c) reinforces the cash generative nature of the business model. Gonzaga said as well as The Fish & Chip Co acquisition, Taste further integrated the food division and re-imaged and launched the St Elmo’s restaurant concept for a casual dining sit-down experience.

He said underpinning each brand were strong value-for-money propositions, contemporary store designs and convenience either via services or location. The division now also produced the sauces, spices and dough pre-mix ranges for Maxi’s, Scooters and St Elmo’s and production on these products for the 250 Fish & Chip Co outlets would be internalised during the current year.

The food division lifted system-wide sales 30% to R660 million. Discounting The Fish & Chip Co contribution, this figure would have risen 25%, a good result.

Same store sales remained positive at 5,8% that Gonzaga said was “indicative of the competitive trading environment”. Although opening a net positive number of stores, higher electricity costs and restrained consumer spending affected franchisee profitability.

The annual Franchise Association of Southern Africa franchise awards saw Scooters win the Brand Builder of the Year Award for the fourth time since its inception in 2000 and be named a finalist in the Franchisor of the Year Award, an accolade Maxi’s won in 2010.

The jewellery division experienced mixed fortunes during the year. Outstanding performances in the retail division saw same-store sales increasing 14.7% for the 12 months, reinforcing the strength of the brand and its value based merchandise strategy. Franchisee same store sales, on the other hand, remained flat as owners struggled to reinvest in an inflationary commodity market. This negatively affected the franchise and wholesale division that sell stock to franchisees. Gonzaga said that despite the franchisee performance and the closure of eight outlets, system-wide sales rose to R249 million from R243 million. Operating profit in the jewellery division dropped 5%, causing profit margins to dip to 13,5% (14,1%).

The country’s third-largest jewellery brand and the only vertically integrated franchise jewellery chain, NWJ has 81 outlets nationally. The brand owns and operates around 23% of the total outlets; provides franchising and merchandising services to its franchise network; manufactures certain products sold in its chain and sources and distributes items not produced in-house.

Costs as a percentage of revenue remained unchanged at 22%. “Consumer purchasing patterns continue evolving and the year-long sustained strong performance of the company-owned outlets indicates the strength of the NWJ brand and its ability to offer value,” Gonzaga said.

Consequently, the division was focused on improving franchisees’ abilities to mimic the corporate store performance and would consider acquiring stores from existing franchisees should the opportunity arise.

Looking ahead Gonzaga said the group was committed to being a diversified South African franchisor and would continue seeking out opportunities. The short-term focus included organically growing the jewellery division and integrating The Fish & Chip Co acquisition to unlock value within the food services division.

Compiled on behalf of Taste Holdings by: Ahoy! PR

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