Taste Holdings takes bigger bite of QSR market

Taste Holdings reported its annual results to 29 February 2012 on 23 May. CEO Carlo Gonzaga, financial director Evan Tsatsarolakis and their team were in Johannesburg’s Melrose Arch Hotel to present the results and explain the group’s bold plans for continued growth, which include doubling its earnings once again.

Results in summary:

*  Revenue up 13% to R265.3-million

*  EBITDA up 14% to R42.1-million

*  Operating profit up 16% to R35.6-million

*  Headline earnings up 17% to R21.4-million

*  Headline earnings per share up 16% to 12.4 cents

*  System-wide sales up 21% to R909-million

*  Total stores up 66% to 543

Branded franchise group Taste Holdings is a true “millennium baby”, with Scooters Pizza launched by a young and entrepreneurial CEO Carlo Gonzaga in 2000. The group has grown through acquisition as well as adopting a vertically integrated business model and is listed on the Johannesburg Stock Exchange.

On 23 May it announced its annual results to 29 February, which saw a profit before tax of R30.3-million, up 20% on last year, and this despite cautious consumer spending. Earlier this year, the group acquired The Fish & Chip Co for R66-million to raise its national restaurant footprint to 543 outlets, compared with 2011′s 329, and provide a valuable vehicle to make inroads into the lower LSM consumer category. Fish is a popular category and the business model is suitably low cost and accessible to both franchisees and consumers.

The group is a South African-based management group invested in franchised, category specialist, with two key divisions: food and jewellery. The group currently has more than 550 outlets nationwide – and growing rapidly – in food brands Scooters Pizza, Maxi’s, St Elmo’s Woodfired Pizza, The Fish & Chip Co, and jewellery brand NWJ.

CEO Carlo Gonzaga says that the latest acquisition of The Fish & Chip Co contributed significant critical mass to the food franchise, accelerating its vertical integration strategy. He expects to open another 50 outlets within the next six months to capitalise on its market leadership position. At R500 000 per outlet, fixed royalty of R500 per week (supplemented through the supply chain) and an ROI within 24-months, it is attractive to entry level franchisees, who can quickly expand to opening several more outlets to boost revenue. They currently have 143 franchisees waiting for stores.

Gonzaga sums up the concept: “Simplicity equals less perceived risk, less room for error, less staff, which equals multiple store ownership. For R1-million you can get two to four outlets in your first year.”

During the period under review, system-wide revenue grew 21% to R909-million, pushing group revenue to R265-million, compared with R234-million in the previous year. Costs as a percentage of revenue improved for the third consecutive year in that they declined to 37% from 39%.

With brands that span the lower LSMs (The Fish & Chip Co) as well as the upper LSMs (St Elmo’s Woodfired Pizza, which has been re-imaged), and Maxi’s having revamped its menu, the food division is set for further growth. A big part of this is the Buon Gusto Food Services division – or “food Ferrari” – which manufactures and supplies a range of sauces, spices, pre-mix ranges and some meat for the various restaurants, and now also the fish franchised restaurants.

Buon Gusto now makes 99% of all sauces for the food brands (from August 2011 onwards), with 99% on-time delivery and order fill rate for the year. Operating profit has increased sevenfold, and this is before the division starts supplying all of the sauces and spices for the fish restaurants.

The engine of the “food Ferrari” currently consists of manufacturing high volumes, with low skills and capex required; warehousing that offers a one-stop shop for franchisees and controls cash; and lotistics which results in a controlled route to market plus expansion.

Gonzaga explains that underpinning each brand are strong value for money propositions, contemporary store designs and convenience either via services or location. The food division has grown system-wide sales by 30% to R660-million. Discounting The Fish & Chip Co contribution, this figure would still have risen by an impressive 25%.

Another feather in its cap on the food division side is that Scooters Pizza has won the annual Franchise Association of Southern Africa’s Brand Builder of the Year Award for the fourth time since its inception in 2000, as well as named a finalist for Franchisor of the Year, an award won by Maxi’s in 2010.

Commenting on future prospects, Gonzaga says that the group remains committed to being a diversified South African franchisor and would continue seeking out opportunities. The short-term focus includes organic growth of the jewellery division and integrating The Fish & Chip Co acquisition to unlock further value within the food services division.