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Shanduka’s McDonald’s SA deal was never at risk – CEO

With the deal finailised Greg Solomon reveals the fast foods’ strategy.

GUGULETHU FUTHI: It’s Friday July 1 2011 and this special report podcast we speak to Greg Solomon, the managing director of McDonald’s South Africa, about the finalisation of the fast food outlet’s to Cyril Ramaphosa’s Shanduka Group. This is a deal that almost never happened because of the decision by SARS to suspend Section 45 of the Income Tax Act, which provides tax relief. Greg, how did the deal get finalised with Section 45 being a dark cloud hanging over it?

GREG SOLOMON: Hi Gugu, how are you doing, well, actually Section 45 was never a risk. I think that was a misinterpretation that, I guess, the media speculated over the last week. Section 45 is a draft act, it’s not even a finalised act right now and that will still be dealt with in the process, we’ll still liaise with the various legislation bodies in order to see how that pans out. If it has a financial implication on the deal, obviously we don’t want to have anymore financial costs, we’ll argue and fight those issues. But the deal is much bigger than Section 45 for us. The deal was never at risk, I want to stress that and stress that for your listeners and your viewers, as well. I think for us now it’s all about excitement now, it’s all about the deal has been concluded, we have national treasury approval, we have SARS approval, we have exchange control approval, we have Competition Commission’s approval. So, all of the legislative approvals are in place. Cyril is now the new development licencee and owner of McDonald’s South Africa and for that that spells out growth and for our customers, if I may, that spells out no major change. The Big Mac that they had and the world famous French fries that they had from yesterday; will be exactly the same as the world famous French fries of today. The difference is hopefully we’ll be doubling up this business, in the next four to five years, under Cyril’s leadership.  

GUGULETHU FUTHI: With regards to the licence, is this for South Africa only?

GREG SOLOMON: Yes, the licence is for South Africa only.

GUGULETHU FUTHI: Can you elaborate on Shanduka’s plans for McDonald’s in future?

GREG SOLOMON: Well, I think I must make a point that Cyril Ramaphosa, in his personal capacity, is the development licencee.

GUGULETHU FUTHI: Okay.

GREG SOLOMON: I think that’s first point number one, he’s definitely backed by Shanduka and Shanduka comes with a compliment of fantastic skill sets and management and leadership and together with McDonald’s South Africa management and leadership, we’ll be responsible for the day to day running of the business. So, Cyril’s role will remain strategic and yes, this transaction is about growth. It’s about creating more touch points for the customers that we serve and we currently touch about 6.5 million customers every single month at the moment, in 153 restaurants in all nine provinces. As I said to you before, we hope to expand on that considerably. 

GUGULETHU FUTHI: And with the number of stores that you mentioned, how many more stores might you be adding on to this, now that the deal has been concluded?

GREG SOLOMON: For us it’s not necessarily about chasing a number, we want responsible growth. We’ve never been in the game for being the biggest, we’re in the game for being the best and setting benchmarks and we’ll continue to do that. So, for us, holistically in our business, we think we can double up this business in the next four to five years and that means a nice steady growth in new restaurant opening too.

GUGULETHU FUTHI: Any locations that you might be looking into?

GREG SOLOMON: No, we see South Africa holistically, there’s obviously a lot of urbanisation happening at the moment, so we’ll continue to look quite heavily in the big cities. But we’re in all nine provinces, as well, we’ll have a more balanced approach into the more outlining areas. So, there’s no specific market, specific type of profile that we’re targeting, we’re a families business, we deal with moms, we deal with kids, young adults is a massive growing part of our business. We’ve got chicken, we’ve got beef, we’ve got fish, we’ve got breakfast, we believe that we’re a brand that can cater for all.  

GUGULETHU FUTHI: Will the South African consumer notice any difference when they visit a McDonald’s store, now that it’s under this new management, with regards to pricing, menu?

GREG SOLOMON: I don’t think immediately we’ll notice a difference but under Cyril’s leadership we’ll definitely look at all our different strategies as a business, as a whole. We do always strive to continue to become more locally relevant, we’ll be adding some new things on the menu, there’s no doubt about it. We’ll be adding some new restaurants that will make it more closer and conveniently located for customers to get to us. So, no doubt will there be different changes, it will all be positive change.

GUGULETHU FUTHI: What about your property?

GREG SOLOMON: Which? All the properties?

GUGULETHU FUTHI: All the properties and the new acquisitions that you’ll be taking on.

GREG SOLOMON: Well, it’s no secret that McDonald’s likes to own its property, we’re a big property investor and that will continue to take place. So, McDonald’s will continue, as we grow, to purchase more properties and to own more leases. Cyril Ramaphosa’s deal does mean that he now owns the entire business and that includes all the properties too.  

GUGULETHU FUTHI: Greg, what were the reasons for the acquisition?

GREG SOLOMON: Gugu, the reason is just a worldwide strategy. Fifty one, I think it’s 51, I’m not quite sure if it’s 55 or 51 but let’s say over 50 countries in the world, out of the 117 countries that we operate in, is already a development licencing model. This is the term called “glocal” that we often banter around in business, how do you take a global brand and merge it with a local icon like Cyril Ramaphosa to make the brand more powerful and that’s the strategy. This system and this model has been around for 20 years, the development licencing model. It’s very successful in other countries and I’m sure it will be extremely successful in South Africa.

GUGULETHU FUTHI: Although no official number has been given, it is believed that McDonald’s was…the licence was sold as it was seeking better opportunities in other markets. Why did Mr. Ramaphosa see an opportunity here?

GREG SOLOMON: Well, McDonald’s is clearly looking for opportunities all around the world. Mr Ramaphosa would seek this opportunity because he sees a strong business with strong momentum and he feels that from that perspective he sees some growth and potential.

GUGULETHU FUTHI: And with American eatery Burger King entering the South African market in October, will this be a threat to McDonald’s and what about other fast food outlets?  

GREG SOLOMON: Look, I would be too arrogant to say that we’re not following the landscape of the quick service restaurants. A very, very competitive, you could almost say, I wouldn’t say it’s a topping up as being inflated but it’s a very aggressive market. We feel with our 153 restaurants we’ve still got a lot of growth that we can see and so we’re very focused on our plans and actually giving the best McDonald’s service that we can. We think that’s our leverage point and our differentiating point. 

GUGULETHU FUTHI: Any plans to list?

GREG SOLOMON: No.

GUGULETHU FUTHI: None as yet?

GREG SOLOMON: None as yet.

GUGULETHU FUTHI: Finally, what can consumers expect from McDonald’s in future, with regards to extra ketchup and fries and maybe a free milkshake here and there?

GREG SOLOMON: I think the consumers are going to get their normal core Big Mac, French fries, some of the world’s best McFlurrys. Those reasons that they come to McDonald’s, they aren’t going to change but I think we’re going to add a little bit of spice to it and we’ll bring some diversity to our menu. So, from that perspective, watch out.

GUGULETHU FUTHI: Just for future reference, I take my cooldrinks with no ice [laughing].

GREG SOLOMON: Okay, that’s great, we’ll give it to you with no ice.

GUGULETHU FUTHI: That was Greg Solomon, the managing director of McDonald’s South Africa.

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