Regular users of food delivery platforms such as Uber Eats or Mr D Food may be ordering from their neighbourhood Spur or Panarottis without even realising it.
In the middle of last year, franchise group Spur Corporation launched four virtual, online delivery-only brands to “capitalise on global trend to home consumption”.
This was obviously accelerated by the hard Covid-19 lockdown in March last year – which saw no restaurants allowed to trade until May, at which point they were able to provide delivery-only services. From June, this was expanded to takeaway, with full sit-down service permitted from the end of June.
The group was – and remains – at obvious risk from a structural shift in the market in favour of delivery, especially until the Covid-19 pandemic runs its course.
There is a risk too that, for certain segments of customers, this shift becomes permanent.
Globally, the trend towards dark or ghost kitchens is unambiguous.
These cooking facilities set up for the preparation of delivery-only meals via ‘brands’ on delivery platforms are competing aggressively with established delivery-focused (or ‘takeaway’) operations.
Spur has cleverly followed this trend, which has seen existing players leverage their store networks to compete in adjacent markets or categories. Spur says its “virtual, online, delivery-only brands operate from existing brick and mortar host restaurants and require limited additional investment by franchisees”.
The virtual brands
Using its footprint of nearly 550 restaurants, Spur launched the trial of those four brands in June.
It says: “The Goodie Box, Pizza Pug and Reel Sushi virtual brands are targeted at the more cost-conscious consumer while Bento offers burgers to the more discerning consumer market.”
Importantly, these offer existing franchisees the “opportunity to generate incremental turnover”.
This means that a Panarottis franchisee is able to, for example, offer three competing propositions in the delivery space: Panarottis, Pizza Pug and Brooklyn Pizza Kitchen (a newer brand).
The delivery position of Panarottis itself is limited. Franchisees cannot undercut menu pricing, and because the menu of this family sit-down restaurant has been designed for the input costs inherent in that business, pricing of its delivery menu options is not exactly competitive with pricing by rivals.
Limitations, and opportunity
Additionally, the menus for Spur’s multitude of brands (Spur, Panarottis, John Dory’s, The Hussar Grill, Casa Bella, Nikos, RocoMamas, Spur Grill & Go and RocoGo) have been carefully and specifically engineered for whatever proposition that brand is catering for. This means that some of Spur’s menu – think steak, for example – doesn’t exactly deliver well. Spur was not designed to be a delivery-focused operation.
This limitation exists in the Panarottis menu as well. Now, the franchisee operating via Panarottis on delivery services can compete in the value segment with Pizza Pug as well as via Brooklyn Pizza Kitchen which targets the “millennial and metropolitan market”. Menus are specifically designed for these propositions.
So, while Panarottis offers its well-known Al Capone Pizza for R143.90 on a delivery service, the franchisee can from the same restaurant offer basic pizzas (Peri Peri Chicken, Regina and so on) for between R80 and R90 on Pizza Pug, competing head on with Debonairs or Pizza Hut, for example. Plus, the franchisee can compete in a more contemporary segment with R120 to R150 pizzas via Brooklyn Pizza Kitchen. Here, the competition is Col’Cacchio or Piza e Vino.
For a restaurant owner, this is a no-brainer.
Franchisees carry significant fixed costs in any food operation (rent, utilities and staff). This incremental revenue boosts the top line, keeps the kitchen busy (making the operation more efficient) and, most importantly, allows the restaurant to address market segments and categories that the actual store can’t.
So instead of a franchisee losing an order to a value-focused or more ‘premium’ rival, it has a real chance now of getting that order.
With its vast experience, Spur will have ensured that margins on the menus from these virtual brands are carefully controlled.
This is critical as delivery ‘partners’ charge food outlets fees as high as 30% of an order. This is another reason why a Panarottis delivery order will not necessarily yield the same margin as that from a sit-down customer (never mind the higher-margin drinks and alcohol).
Additional new brands
In the latter half of last year, Spur rolled out a further handful of brands, the aforementioned Brooklyn Pizza Kitchen, Rib Shack Rocofellas, The Pecking Order, Char Grill Chicken, and Mexi Go-Go (certain of these could use some more brand development).
Spur says these last few brands represent “product categories where the group is currently under-represented” (chicken and Mexican food).
It is playing to its strengths, with:
- The two virtual pizza brands leveraging Panarottis stores;
- The four virtual brands (The Goodie Box, Bento, The Pecking Order and Mexi Go-Go) leveraging the mammoth Spur footprint; and
- Reel Sushi piggybacking on John Dory’s, Rib Shack Rocofellas (rather obviously) on RocoMamas, and Char Grill Chicken on Nikos.
According to SmallTalkDaily analyst Anthony Clark (the only participating analyst), former CEO Pierre van Tonder commented at the group’s late December virtual AGM that its franchisees are “operating 300 virtual kitchens currently”.
This is a big number – somewhere between a third and half of its restaurant footprint, depending on how it counts these brands.
Expect more focus on these virtual brand efforts this year, as the group looks to increase “appeal to a wider target market audience, attract different generations and lifestyles and enter new product categories”.
And there’s more …
It has also tip-toed into the prepared meal/home meal kit space with Hussar Home (Cape Town only for now) and Spur Braai Shop (via selected stores and Mr D Food) and will soon launch a Panarottis Home Cooked proposition. This is another focus for 2021.
Read: Spur expects Covid-19 effects to linger longer (Nov 2020)
One wonders what Famous Brands, now free of the costly distraction of Gourmet Burger Kitchen (GBK) in the UK as well as a long-overdue portfolio clean-up locally, has up its sleeve?
It notes only in its most recent results that “the significant increase in online ordering and delivery is likely to become a permanent feature which will demand that traditional casual dining brands improve take out/delivery capability”.
Watch this space ….
Listen: In a segment of this MoneywebNOW podcast, Anchor Capital’s Deryck Janse van Rensburg discusses Spur’s post-lockdown business