Spur is cooking again

Spur Corp is finding flavour again.

Strong half-year results at the restaurant group show that its brands continue to resonate with customers looking for value — especially its core brand, which has gone through a refresh that has been in the wings for the past few years.

Even with the slowdown in the economy the group plans to open 41 new restaurants in South Africa for the financial year, expanding in smaller towns and cities where it does not have a presence. There are also plans to expand internationally, with 12 new restaurants set to open for the full year ending June 2024.

CEO Val Nichas talks of moving from a period of repair to a season of reinvention. She says revamped restaurants recorded annual turnover growth of about 23% and even as high as 35%, which indicates a good return on investment.

But consumer spending is not consistent; there’s a lot more around paydays and grant days. South African growth was driven mainly by the Spur and Panarottis brands, where restaurant sales rose 10% in the first half, with a 6% increase for RocoMamas. Sales at John Dory’s were 0.8% lower. Sales at the group’s speciality brands division — which houses among other brands The Hussar Grill and Nikos and now 60% of the Doppio Collection — jumped 38.7%.

Franchised restaurant turnover rose 10.4% to R5.4bn (including the stake in Doppio), and revenue based on franchise fees, sales from retail company stores and manufacturing income increased 15.2% to R1.8bn. Group headline earnings for the six months ended December rose more than 15% to R130m. The group increased its interim dividend by 15.9% to 95c a share. Its balance sheet is ungeared and it has cash on hand of R288m.

Nichas says the company has received considerable interest across its franchise network in the Doppio Collection portfolio of speciality brands, “and this will be key to expanding the brands nationally”.

The group benefited from tourism numbers in the Western Cape, and to a lesser extent in KwaZulu-Natal, in December, and reported double-digit growth for the festive season trading period.

Spur has 305 stores across South Africa. Of these, 251 exceeded their turnover records in December, though much of this occurred in the week just before Christmas, as consumers had held back until then.

The inability to access a reliable supply of clean water in certain regions is becoming an increasing challenge for the group, in particular around Joburg. Of its 595 restaurants in South Africa, 217 have invested in infrastructure to secure a supply of usable water. The company says it is investing in water storage, and about a third of its South African franchises have added tanks for purification systems. Nichas says clean water has been harder to provide for than electricity; storage tanks are bigger than generators and don’t always fit the available space.

Overall, the group is doing well; it has done a superb job in repositioning what was becoming a very tired company … It has reinvigorated the brand to make it relevant

—  Anthony Clark

As for the electricity challenges, Nichas says consumers are getting used to load-shedding and have integrated this into how they live. “In the early days of load-shedding they were running out to restaurants more, and now they’ve got wiser. I think the load-shedding issues have become something of a norm.” Almost all the franchises already have backup power.

Spur’s share price is up 22% in the past year. Nichas says trading conditions will be challenging, with electricity shortages, inconsistent water supply, high unemployment levels and supply chain disruptions, along with high interest rates and the weakening currency. She says the high cost of living continues to affect household spend, and lower- and middle-income consumers are diverting a greater share of their wallets to fund the increasing cost of food, housing, energy and transport.

“A lot of consumers are going for brands they trust and [looking for] the best value, the best price and [the best] meal solution. They expect to get great service and good value products and tummy fillers”.

The group is looking at “market share through conquest” to attract consumers to their restaurants. Nichas says the biggest opportunity is in the value proposition, special offers and added value, especially in terms of service and areas for children.

The group has undertaken several initiatives such as affordable platters across some of the brands so that sharing becomes an opportunity. The average transaction value of a meal has grown in line with inflation, not above it. And in some brands the frequency of visits has decreased.

Small- and mid-cap analyst Anthony Clark says the earnings increase of 16% is “a very good result in a difficult environment”. Consumer spending really started to materialise in December. “The consensus is that the consumer was hoarding money in late October and November and saving it for Christmas, and while they made their budget, it was only in the last week of December [that they spent more freely].

“Consumers remain circumspect with their spending, and spending remains very directional. People are looking for trusted, known brands with value offerings, and they’re happily prepared to shuffle between brands they trust that have special offers at the time.

 “Spending has become localised and concentrated in certain periods of each month.

“Spur continues to look at its menu, pricing and promotional ability and is well aware it can grow in the current environment to take market share away from competitors.”

Clark says Spur should benefit from the many public holidays in the next few months, which is when people tend to eat out.

“Overall, the group is doing well; it has done a superb job in repositioning what was becoming a very tired company … It has reinvigorated the brand to make it relevant.” He retains his view of the stock as a “buy”.