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McDonald's to open 25 outlets a year in SA. 15 Sep 2011

As competition in the fast-food sector increases locally, McDonald's SA plans to open 25 new restaurants a year and double revenue in the next four years, MD Greg Solomon said yesterday, 14 September 2011.

"The business is well positioned for growth, the past three years from a business performance perspective have been the best. We have even bigger dreams for the company," Solomon said.

The company had a "beady eye" on African expansion, but would not be first off the mark, he said. "We have strong growth prospects in SA, this would prevent us from entering the African market within the next two years. We do not have an extensive local footprint yet and believe there are still strong growth prospects in SA.

"It is a brave move to not follow the tsunami into Africa, but we need to capitalise on this business first," he said.

Nothing had changed since businessman Cyril Ramaphosa's company, Shanduka, acquired the 20-year master franchise earlier this year to run all McDonald's restaurants in SA, he said.

On the emergence of new players on the scene such as Burger King, Solomon said McDonald's was "studious".

"The South African market is already quite competitive and our existing brands are already strong. We will be watching the competition, but we will also be focused on what is happening in our business.

"McDonald's has always been a trailblazer, from bringing the drive-through model and 24-hour stores to serving breakfast. Now about 10% of our revenue is from the breakfast offering."

Last week, Spur Corporation MD Pierre van Tonder said Spur's breakfast offering had positively affected the business as the company increased revenue 15.9% to R403,4m in the year ended June 2011. It planned to open 15 more stores in the 2012 financial year.

Meanwhile, Famous Brands has embarked on a rebranding exercise for its flagship, Steers. With about 520 outlets across the country, Steers grew sales 6.5% in the year to February, and said it planned to open 20 more stores this year.

As for the bad press that often plagues McDonald's, Solomon said the size of the company made it a target.

"It is about educating our customers. Our food is not unhealthy. The beef patties are made from 100% beef, and so are the chicken burgers.

"It is about giving consumers the choice. We do serve salad you can substitute a Coke with a fruit juice, or corn for chips," he said.

McDonald's SA eyes 8 million customers in December. By: Zeenat Moorad. 24 Nov 2011

Value will be McDonald's SA's competitive edge this festive season, as it sets its sights on serving as many as 8 million customers during December. Analysts predict that South African consumers will shy away from splurging on big-ticket items this Christmas, opting instead for bargain-buys and spending on durable goods like clothing and food.

Consumer sentiment has been dampened by trepidation over the effect Europe's debt crisis will have on the local economy. Local debt levels are also at historic highs.

According to McDonald's SA's MD, Greg Solomon, times are tough.

"The economic challenges are there - you can definitely feel it in the market," he told I-Net Bridge/BusinessLIVE on Tuesday.

The restaurant chain, known for its Big Macs and McMuffins touts the festive season as a "massive" trading period.

"December revenues can be just over 50% over those of a normal month. We really gear up for the season. It's all hands on deck - out of the boardrooms and into the restaurants," Solomon said.

In June, McDonald's SA shifted from a franchise structure to Cyril Ramaphosa, backed by Shanduka Group, becoming the master franchisee.

Under this structure, Shanduka has a master franchise licence for 20 years to run and operate the entire business - which consists of a 60/40 split between franchises and wholly owned businesses.

The company has ambitious plans to double its footprint over the next five years, as it takes its famous burgers and shakes to urban areas and smaller towns.

McDonald's SA will open between 20 and 30 new outlets in 2012.



Franchise proves winning formula. 20 Jul 2010

Richemont opened nine more franchises last year. The world's largest producer of luxury products, with brands such as Cartier, Jaeger LeCoultre and Montblanc, also opened 20 more company-owned retail outlets.

The move, which brings the company's total of franchises to 582 and stores to 817, came as it cut sale agreements with third-party retailers in an effort to gain better control over the sale of its goods, a spokesman said last week.

Franchise works well in retail, whether the product is a high-end watch or a basic burger. It works in any operation where a formula can be replicated easily. As with Richemont - which has seven franchised stores in SA and one company-owned store - many companies have a mix.

All of Famous Brands' 1779 stores - including Wimpy, Steers and Mugg & Bean - are franchised.

About 60% of McDonald's 135 stores in SA are franchised and 40% are corporate-owned.

Scope for growth

Companies change the mix according to their needs. Franchising carries its risks, but offers rewards. In SA today, however, it remains small. Just 12% of retail sales here go through franchises. In the UK, the figure is 30% and in the US, 52%.

"We obviously still have scope for growth," says Anita du Toit, of First National Bank's franchise lending division.

Franchising allows cheap expansion. Franchisees, rather than companies, bear the costs of new stores. Companies often go for franchises in marginal areas, opting for a lower, but guaranteed return from franchise fees, rather than a return on the store itself.

Supermarket chain Pick n Pay opens its first store in Zambia, a franchise, on Thursday. It has signed up franchise partners for its planned expansion into Mozambique and will expand into Mauritius in the same way.

Profitability

Taste Holdings, the listed company behind Scooters Pizza and Maxi's restaurants, owns just four of its 190 food outlets. The mix has changed from the early days, when Taste owned 13 of its 40 stores. Back then, it needed the store revenue.

"Franchising is only profitable when there are a number of stores. If you only have franchise royalty, the breakeven is a good two to three years away," Taste CEO Carlo Gonzaga says.

Importance of marketing

In the food business, marketing is crucial. An advantage of franchising, Gonzaga says, is that the marketing fee each store pays allows a bigger promotional spend than would otherwise be possible. It does not just apply to food. Taste also owns 21 of SA's 80 NWJ jewellery stores, while the rest in the chain it controls are franchised.

"We are the only franchised jewellery chain. We spend more than double our nearest competitor in marketing, because we've got more money," says Gonzaga.

Still, his goal is to reduce the overall proportion of franchises.

"We will probably in a couple of years start buying back stores."

Different strategies

McDonald's is going in the opposite direction. The McDonald's pattern in the US and Australia is 70% franchise, 30% corporate and as the number of stores in SA grows - with a 10%-15% increase in store numbers a year - that ratio will change, McDonald's SA MD Greg Solomon says.

There is a different pattern at Roman's Pizza, a Centurion-based family company with 116 stores. MD John Nicolakakis says 8% of stores are corporate, 48% are franchised and 35% are joint ventures between the company and partners.

These hybrids give head office more control in an operation that is strategically important, or run by someone who may not have had the necessary start-up capital. This model, rather than franchise, is Nicolakakis's preferred way of growing.

Brand damage

While a good franchise is the biggest asset to a business, a bad one is the worst asset you can have. "It can do a lot of damage to your brand," he says.

The quest for control in the food industry, where the potential for damage is great, leads to much tweaking of the ownership model. Another Roman's strategy is to have stores run by "operational partners". These are managers who benefit directly from the store's profit but do not have equity. Taking a different line, Taste, in an effort to retain control of key sites, keeps the leases and sublets the site to the franchisee.

"I don't think there's one right answer," Gonzaga says. "It depends on your strategy."

Location still key in selection of business premises. By: David Reid. 12 Dec 2012

The physical location of a business is extremely important, because critical to the success of any company is the ability to effectively reach its desired target market. In turn, this involves supply and demand - whether this relates to products or services. Suppliers need to be able to supply with ease, and markets need to be accessible in order to meet demand. In selecting a suitable location for a business, rising transportation costs, including fuel and the proposed e-tolling, traffic congestion and the need for ease of access are just some of the relevant factors that are important.

Supply and demand are influenced by many factors, including awareness of the product or service on offer. However, location has a major impact on all these, even to the extent whereby having good exposure or visibility to passing traffic provides an ideal marketing opportunity that can save on advertising costs. Being in an acceptable location close to suppliers and customers or clients, having ease of access to highways and key transport routes, close proximity to public transport - particularly for staff, good overall security and having sufficient secure parking, all play a significant role in the choice of location.

Depending on the type of business and its target market, comfort factors such as general aesthetics and quality of the building may be relevant. Furthermore, it may be advantageous to be situated close to destinations that have synergies or something in common with the business, eg businesses offering financial services tend to be within easy reach of each other, in well-known nodes. Some businesses may prefer to be close to their competitors because of these nodal factors, such as retailers in high-traffic zones. Consideration should also be given to whether competitors situated close by can be bypassed by customers, so ease of communication with target markets is an important factor.

Restaurants and distribution centres are good examples of businesses that need to be in the right location.

Poor locations affect all business aspects

The immediate and long-term consequences of being situated in the wrong location should be considered. It can result in customers reviewing their source of supply ie going elsewhere, staff may experience transport problems or there may be a lack of suitability on the part of the new location, resulting in low morale and a danger that not all the factors that affect the feasibility of the business are taken care of.

In the end, if the business location proves over time to be a bad one, sound advice is to rather get out sooner than later - if one is an owner-occupier, put the property on the market even if it means a loss and do what is right for the business and its long term sustainability. If one is renting, consider the length of the lease and what the options for relocation are. Some businesses prefer to rent rather than purchase, as it affords them far greater flexibility should their business expand or if their requirements may change in the future. A courier company, for example, may well prefer to rent space - a factor that gives them the flexibility in order to relocate if needed.

If a business is situated in an area that has become run down owing to a lack of service delivery, one needs to try to mitigate the problem. If service delivery is poor, get together with other businesses in the area and be pro-active in trying to find a solution. In rejuvenating a location, one may find a number of landlords in an area or precinct are willing to join forces and perhaps set aside some of their proceeds from rentals for rejuvenation. Good examples of this are The Main Street precinct in Johannesburg and Braamfontein and the successful creation of pedestrian access and rejuvenation of Cape Town's central city.

Human DNA in meat samples. 27 Mar 2013

Scientists have found traces of human tissue in meat meant for public consumption, but this poses "no threat" to the consumers who eat it. They also been found that only 15% of meat being sold in SA has been correctly labelled, which means 85% of the meat in the market is questionable. The findings were presented in parliament on Tuesday (26 March) at a briefing on meat inspections.

University of Stellenbosch scientist Louw Hoffman said his team had conducted a microbial food analysis, a "snapshot" which sometimes picked up human DNA on meat samples. He said, however, this was not indicative of risk. He said that workers in an abattoir or butchery may cut themselves while working with meat and this could account for the traces of human DNA.

"If I walked into a factory and the sample I randomly selected to test was a meat sample of which the person de-boning the meat had just picked his nose and then touched the meat, I would get a totally different microbial reading," he said.

Hoffman said the products examined were mostly sausages and mince, and that 95 out of 139 products which were sampled were incorrectly labelled.

But Hoffman said though the meat was incorrectly labelled, there were no health risks to consumers.

Labelled as game but really beef

Briefing parliament's portfolio committee on agriculture, forestry and fisheries, University of Western Cape forensic scientist Dr Eugenia D'Amato said nearly 43% of samples she had tested which were labelled as game, were, in fact, beef.

D'Amato said horse meat had also been used as a substitute for springbok in biltong, and pork was found in ostrich sausages.

There was also a smaller proportion of kangaroo in samples.

The health department's Mandisa Hlela said though the department's own sampling had found that only 15% of meat products had been correctly labelled. She added that DNA testing was "quite expensive" and was mainly a municipal function. The department paid about R30,000 for 20 samples tested.

"However, we've gone to the municipalities and the deadline for their responses was the 24th [of March]. We've not received responses from all of them," said Hlela.

She said, however, that not all municipalities in the nine provinces were able to conduct food tests.

MPs have now called for increased policing of local and imported meat products to prevent mislabelling.

The ANC's Eugene Ngcobo said labelling had to be "fair and straight" so that consumers knew what they were buying - whether it was beef, pork, lamb, horse or donkey.

"We should know, and have a choice," said Ngcobo.

Hoffman said what was also worrying was that allergens were not listed and that up to 20% of consumers risked allergic reactions to the plant allergens which were found in some of the meat products.

"In the labelling regulations it clearly states that allergens have to be mentioned and noted," said Hoffman.

Benefits of franchising as a business model. By: Manny Nichas [bizcommunity.com]

4 Apr 2013 12:26

Many people wishing to start a business could choose between beginning something from scratch or purchasing a franchise. With the group's business model, which began as a mix of owned and franchised stores and then elected to continue only as a franchise model, there are useful pointers for would-be owners.

Owner-model

Most people starting their businesses from scratch tend not to think at first of a franchise - usually they have skills they are keen to leverage and typically want to be their own boss. What such people often fail to appreciate is that these desires can be entirely accommodated by buying a franchise.

Being an independent business owner means you have to contend with franchise heavyweights that have a lot more resources for advertising and marketing and ready-made brand recognition. When creating a start-up business, most entrepreneurs have little time and less capital for getting their name out, especially in cutthroat markets such as food service, hospitality and retail.

Therefore, there are things to consider if you are starting a new business and most likely putting all of your energy into operations.

• 
  Who will drive the sales?
  
• 
  What product or service will you be offering?
  
• 
  How will you draw up a business plan for raising finance?
  
• 
  Is your location already crowded with businesses of the type you want to start?
  
• 
  How will you deal with all of the hard decisions that come up in business and the stakeholders such as customers, staff, banks and investors?
  

Start-up realities

Owning your own business can be incredibly lucrative, especially if it is a 'blue sky' type venture, but it can take years for such a business to turn a profit. It is for all these reasons that the idea of buying and owning a franchise has taken the retail market by storm as the preferred business model for many entrepreneurs.

There are many other reasons too. For instance, there is a higher failure rate among new business ventures than among those who buy a franchise. This is because they enjoy no management support or franchise community to go to for advice or to bounce ideas off. If you start your own business, it is often more difficult to get financing for a company that does not already have a track record. There are also no economies of scale in terms of purchasing and real estate, no brand recognition, and higher costs for things like advertising and design - costs that are shared in a franchise system.

Franchise model

A franchise is based on a proven business model. There is very little trial and error to owning a franchise. When you buy a franchise, many of the mundane decisions are made for you.

Unlike starting your own business from scratch, franchising gives you a recognised brand identity. Your start-up business already has the benefit of having had years of advertising done for it, before you even open your doors.

Perhaps the biggest perceived drawback to owning a franchise is the royalties and other fees paid to the franchisor. However, this has to be seen as a trade-off against the many negatives of starting your own business from scratch, which are mitigated or eliminated.

Franchises charge fees for the very good reason they went through the pain of developing products, systems, and a successful brand image, which the franchisee is now leveraging off. This substantially lowers the failure rate for franchise systems compared to most new businesses.

Apart from the advantages already described, franchisees benefit from purchasing power, research and development costs, real estate, legal help and construction assistance. Therefore, franchise fees and royalty payments (usually a percentage of what you have made) are good value for money, compared to the learning curve the individual would have to go through on his own. To reassure yourself on this point, speak to people who have already bought their own franchise.

Rules vs autonomy

Obviously, franchising is not for everybody and not everyone fits into the mould of being a franchisee. There are rules and systems that constrain some people's unbridled entrepreneurial flair and need for autonomy.

However, most entrepreneurs find they are prepared to sacrifice autonomy for the instant brand recognition they enjoy. To open your doors with a customer base from day one, get preferred pricing on equipment and supplies and have a network of support is a powerful motivator.

It is however critical to understand that operating a franchise requires a franchisee's complete commitment, hard work and dedication to ensure its ultimate success. Together with the franchisor, your risk of failure is minimised.

Choosing a franchise as a way of starting your own business requires your own personal research and questioning of franchisees in similar markets to help you to gather the information you need to make the right decision.

Electronic copy of this paper is available at: http://ssrn.com/abstract=664962

Food retailing: fast food industry

Submitted

By

Khurshid Anwar Warsi

Sales Officer

Nestle India Ltd.

New Delhi

e-mail:[e-mail]

Syeedun nisa

Lecturer

Rai university,

New delhi

e-mail:[e-mail] Electronic copy of this paper is available at: http://ssrn.com/abstract=664962

FOOD RETAILING: FAST FOOD INDUSTRY [papers.ssrn.com] Feb 2005. [16/3/11]

INTODUCTION

The concept of fast food isn't new. Early in the 19th century, at the start of the Industrial Age when people had to work 12 to 14 hours a day, there was scarcely any time for long breaks for eating. The first snack bars and kiosks arose in front of factories. Today, quick meals outside the home have become an essential part of our lifestyle.

What is fast food?

The term "fast food" means just that. However, the boundary between fast foods and traditional dishes is fluid. In particular, it's difficult to provide a qualitative distinction because fast foods can also include salads and fruit in addition to classic offerings such as hamburgers, hot dogs, sandwiches, patties, French-fries, fish and chips, etc. The best way to distinguish fast foods is to use formal characteristics:

Time required - those who eat fast foods do not want to spend a lot of time selecting and eating, and if necessary will eat standing or walking, on the bus, park bench, or at work.

The variety of foods and beverages is usually very limited

Fast food frequently does not come with knives and forks, making it "finger food."

When silverware, cups and plates are necessary, they are disposable.

The characteristics of fast food, therefore, are that they require little time, offer a limited selection, are finger food, and the silverware and plates are disposable. These characteristics readily illustrate the difference from traditional dining culture.

Many people equate fast foods with convenience foods. This is incorrect since convenience products are often eaten at home. They require active participation because they must be heated, stirred, baked, thawed, etc., and are supplemented with other foods.

There are three general categories of fast food businesses:

Self-service restaurants with a fast-food palette like McDonalds, Wendy's, Burger King, Pizza Hut, etc. Take-out (or take-away) businesses that sell ready-to-eat foods and beverages "on the street corner" Hot-dog stands and snack stands with counters or a pair of stand-up tables.