This report initiates our coverage of the food services sector in South Africa. It focuses on two listed food service companies: Famous Brands (FBR) and Spur Corporation (SUR).
Growth in the food services industry has been driven by price inflation, as the total industry in constant prices has declined at a 1.1% CAGR since 2008. As a consequence, food retailers have been taking market share away from the food services industry. However, the takeaway and fast-food segment has grown at a 4.2% CAGR since 2008, with Covid-19 accelerating the move towards convenient meal options. Market shares by chain shows that Spur (6.6%) is the third biggest chain in South Africa, behind KFC (24.4%) and McDonald’s (12.7%). When comparing market share by company, FBR is the second biggest, with a market share of 16.3%, while Spur Corporation has a market share of 10.0%.
FBR has made 35 acquisitions in the last 20 years as part of its growth strategy, especially in the casual dining space where it is underrepresented. While it has had mixed results with acquisitions to its restaurant chains, the additions to its vertical supply chain have provided franchisees with price stability and agility to adapt to changing market conditions.
Since FY22, SUR now recognises the income from its outsourced distributor, structurally raising its revenue but dampening margins. Our analysis shows that SUR has a relatively high average transaction value, especially within its speciality segment. We believe the acquisition of Doppio Collection is a good fit to diversify the speciality portfolio with a lower average meal cost chain that also offers longer trading hours.