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Pizza and burger categories come out tops among Spur’s virtual kitchen brands

Spur CEO Val Nichas discusses strategies implemented for both staff retention and store survival during the Covid onslaught, as well as its interim results.

NOMPU SIZIBA: Restaurateur The Spur Corporation released half-year results. Being in the dining business, the enterprise was hit hard by the Covid-19-related regulations. For the six months ended December 2020 the company reported that group revenue declined by 42.2% to R314.2 million, while diluted headline earnings per share declined by 74.5% to 31.88 cents. The company says that, owing to markedly slow trade and lower cash generation, shareholders will not be getting an interim dividend on this occasion.

To take us through how their operations fared, I’m joined on the line by Spur Corporation’s newly appointed CEO, Val Nichas. Thanks very much for joining us, Val. It’s been a really tough time for the restaurant and hospitality sectors, among others. Of course, regulations put in place to curb the spread of the virus unfortunately will no doubt have badly affected your business.

VAL NICHAS: Yes, if you do look at our numbers, you’ll see we had a direct impact, especially in the strict lockdown. In April we basically had zero restaurants trading. So that was very difficult for us as a network, and we obviously had to try and respond promptly to what we were going to do.

And then of course, in the first few months of the lockdown I think we all thought we were going to be closed for three weeks and [then Covid] would be forgotten, but it continued. And there were some stringent measures. I think as a casual dining restaurant group it was really difficult to trade initially with delivery only, then with limited capacity, limited trading hours. And then of course the ad hoc ban on alcohol didn’t help either.

So yes, we had a direct impact in our most difficult months. We were trading at only about 15% of the previous year, and then we clawed back to about 75% of the previous year, and then dropped again. Just before lockdown Level 1 one was relaxed, we were trading at ‑31%; and already in February we’ve seen an improvement and we are about ‑18%. And of course on March 1 the announcement was very well received, because we are basically doubling our capacity from 50 people to a hundred, even though our restaurants are a lot bigger than that – we can seat anything from 200 to 250 and more. But we’re very grateful that we’ve got the additional capacity and also the extended trading time.

NOMPU SIZIBA: Now Val, obviously you’ve gone very fast forward because you’ve come to the present, but I just want us to go back. As you saw how the land lay in terms of the uncertainty of regulation and the development of the Covid-19 pandemic, in the face of such huge operational challenges what decisions were taken to keep the franchise at least alive, given considerably less revenue from traditional business while I suppose the usual overheads also stayed in place?

VAL NICHAS: Yes. The brands definitely responded very quickly and nimbly to try and answer to the takeaway needs of the consumer. So our own loyal customers, who could no longer come and enjoy a meal at our restaurants, were looking to obviously engage with us on home deliveries. So what the company did then was launch 14 virtual kitchen brands, which we are calling VK brands, across the various categories. We had a couple around pizza, some in burgers, some in ribs, and so on. And those were put into proof of concept from May on a sort of staggered take-on by franchisees. We have 423 restaurants that participated in the VK brand, and some were more successful than others.

So from May onwards we’ve been reducing that to seven of the best ones, and they’ll move into proof of concept for another six months. And of those, the winners were definitely the pizza and the burger categories, which are really good delivery categories – and we know that from the market.

And then we’ve had one main winner leading the pack, which is a VK brand called Bento’s. It’s quite a funky sort of very simple but tasty burger that we are promoting. That’s really had a good response. At Uber it had a 25% re-order rate. So the response from the market was really good and nimble, and we responded quickly to say, well, we’ve got to get into takeaway.

We also increased our spend on online advertising with the online and third-party aggregators to promote delivery and click-and-collect. So not only did our third-party deliveries increase, but so did our takeaways overall.

NOMPU SIZIBA: Val, in the six-month period under review, which of the brands that you run appear to be more resilient, if at all?

VAL NICHAS: Food – even though it has delivered a negative growth, which is understandable because of the trading hours – has still delivered a very good performance relative to the market conditions. I mean, people were queuing to come and sit down and come and celebrate, but we could only have 50 people at a time. So I think relative to the conditions, I think Spur has done well.

And then I think probably our rising star is RocoMamas. It traded only about 15% short of the previous year, and it’s now on par with last year. I think it was well poised for the changes in the market.

It’s a hamburger category. It’s easy to serve that over the counter, it’s easy to deliver it, it’s in good sites where people can access it easily. It’s got the right attitude and brand positioning, so that’s definitely done really well.

Our other few brands, obviously our speciality restaurants, suffered a lot because of the loss of dinner sales and alcohol sales. Those are sort of longer casual dining visits. It’s [about] going to have a dinner, enjoying it, having starters, having a main course. But they are relatively small in our stable.

And then our two brands, Panarottis and John Dory’s, while they trade in a very important and lucrative category – one being seafood, one being pasta – didn’t perform as well as our mother brand, but also understandably because of the market conditions.

NOMPU SIZIBA: Now within the franchises, how were workers dealt with and supported during the period?

VAL NICHAS: The restaurant staff – each franchise owner was accountable to get the (UIF-Covid-19 Ters) support. So that was handled. We didn’t face [a lot of job losses] in the restaurants. We did have some casual waiters who obviously weren’t utilised during this period because of the low capacity. But people were looked after in terms of all the support. And I think for a lot of franchisees who have been running these restaurants for years and have got a lot of loyal staff, the aim was to retain the people. But obviously some of the casuals were affected.

NOMPU SIZIBA: Now, of all the lockdown phases, would you say that the imposition of Level 3 in December was the worst? How bad did things get at that time when you would have expected a lot of festive traffic and so on?

VAL NICHAS: December was really disappointing. As quite rightly said, it’s the peak trading season for any retailer, and especially a food retailer. We were tracking relatively well until the middle of December. Then the announcement came to close the beaches – in fact, it was earlier in December – and we saw a dramatic shift and people were flying back immediately. We had up to a 40% drop in turnover in the coastal regions, particularly the Eastern Cape and Western Cape. We did claw back some of that lost turnover inland, but not enough to improve the December trade.

NOMPU SIZIBA: Now, going back to what you were telling us about “now”. The country’s back to Level 1 of the lockdown as of the beginning of this week, with limits on gatherings having eased somewhat. How significant is this for you guys? What practical changes at head-office level have you started to advise franchisees to follow?

VAL NICHAS: Nompu, interestingly enough on Saturday I was in a restaurant, and it was incredible to see our loyal customers waiting in a queue 20-deep, sitting on benches we had provided to wait to get a seat, and some were standing in queues. So I think the response to now moving from 50-max capacity to a 100 is going to be a dramatic improvement for the business. And I think our franchisees are most relieved to have that opportunity and also the extended trading hours. We can basically trade our full hours, which is trading until 10pm. Your last order can be until then, whereas before we had to get everyone back before curfew. So we will continue with giving them the marketing support, giving them the support they need. We are also on a one-on-one basis going to be looking at stores that are still struggling, to offer them the support.

As you know, for the 11 months we offered a blanket franchise concession on the fees.

What we’ll do now is start looking at the stores that aren’t trading, and really look at support on a one-on-one basis, because there are some stores that are trading well.

Then there are some sites, like the casino sites, the airport sites and the resorts side like Sun City. Those are high-volume sites and are really not doing well at the moment because of the problems in those areas: lack of tourism, hotels not really in full capacity, and so forth. Those will need more care.

NOMPU SIZIBA: I was going to say no doubt you continue to support those because you know when things go back to “normal” it will be back to those high volumes.

VAL NICHAS: Yes. And Nompu, our philosophy and our view was that our primary aim was to keep the restaurants open. We need to do whatever we can with our franchise partners. Obviously we’ve had the landlords giving support, especially in the beginning. But that’s our aim. We just can’t afford to close restaurants. And I’m pleased to say that in the last six months of the trading period we didn’t close many stores at all.

Out of our 633, locally and internationally we closed 22. A lot of those were problems stores already, not just as a result of Covid; they just couldn’t sustain Covid.

NOMPU SIZIBA:. In times like these, I suppose, survival is at the forefront of things. But presumably you are looking beyond this Covid era. Are there any expansion plans in play at all?

VAL NICHAS: There are no definite plans that we can announce at this stage, but we are busy with our teams looking at future growth. And yes, we are going to have quite a robust strategy in terms of how that growth is going to come. Obviously a lot of it will be from our own brands that still have a lot of potential in the market.

And then we are looking at some new formats. We are looking at some other opportunities, whether they’re homegrown brands, whether it’s expanding the VK brand, or whether it’s bringing in an area we don’t have or a category that could complement our current portfolio.

So no, no plans that we can announce as yet, but a lot of work happening behind the scenes.

NOMPU SIZIBA: That was now Val Nichas, the CEO of Spur Corporation.

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”Cheer up! The worst is yet to come”

Mark Twain (1835-1910)

Snap – that’s why I believe it’s more of a Hamburger hut these days than anything else.

Maybe they should change their name to Spur Burger – their steaks are totally overpriced!

End of comments.

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