Retail news. Semester 1 of 2014 table of contents

Innscor faces stiff competition. October 26, 2012. Report by Taurai Mangudhla

INNSCOR Africa Limited (Innscor)’s fast food division is facing potentially stiff competition from global brands such as the United States of America’s KFC, with information indicating the two have taken up space for drive-in outlets at Ken Sharpe’s proposed US$100 million Mall of Zimbabwe to be constructed in the plush Borrowdale area.
In an interview, the manager of West Properties — owners of the property — Mike van Blerk told businessdigest the two will join major brands like Pick‘n’ Pay at the new mall, now expected to be completed by October 2014.

This comes as market information has linked KFC to a partnership with a local company, where it will open outlets at strategic points across the country.

In the past two years, the local fast food industry has seen the emergence of new outlets in major towns, prominent ones being Tawanda Mutyebere’s Chicken Slice and Tawanda Nyambirai’s TN Grill. In September TN expanded its fast food division with the addition of ice cream and pizza outlets across its network.

The growing competition has seen players reducing prices, with consumers now buying a two-piece chicken and-chips combo for as little as US$3,50 compared to US$4,50 previously.

Chicken Inn launched its dollar meal promotion which has seen pieces of chicken or a standard size of chips going for US$1 from the previous US$2.

At Innscor’s full year results briefing for the year ended June 30 2012, group chief executive Tom Brown admitted the group was feeling the heat coming from competitors in the fast food division.

To maintain an edge, he said, shareholders had approved a US$50million investment to facelift their products and improve the branch network.

“About US$38 million of that will be spent on our bakeries, fast foods, poultry business, Colcom and some on Capri,” Brown said. “We are going to continue with our expansion, improve efficiencies and hope to maintain revenue growth of 15%,” he added.

Innscor finance director Julian Schonken said the investment will see the company expand by adding 33 fast food outlets this year comprising Chicken Inn, Pizza Inn and Nandos.

An additional bakery production line with a capacity of 100 000 loaves per day is on schedule for installation this month, to bring capacity to 500 000 loaves per day.

Innscor has emerged as the biggest confectionery company after the collapse of its major competitor Lobels which faced operational challenges at the height of hyperinflation and economic stagnation.

In its financial statements, Innscor reported a 44% growth in operating profit to US$68,5 million after a 21% revenue growth from 2011 to US$627,1 million.

The group’s bakeries and fast foods division in Zimbabwe and across the continent recorded a 53% growth in bakery volumes in the period under review. Customer counts in its fast foods operations grew 11% after 13 counters were added to the store network across Zimbabwe in the period under review — eight in Harare, three in Marondera and two in Mutare.

Schonken said the company generated US$48 million in cash from operating activities.

KFC eyes return to Zim. January 17, 2013. Report by BDlive

YUM! Restaurants International continues to expand the footprint of its KFC brand on the African continent, with plans to add stores in Tanzania, Uganda and Zimbabwe this year, the company said on Monday.

“Africa is undoubtedly one of the fastest-growing regions globally and KFC is fully committed to harnessing this opportunity and building a sustainable business model on the continent,” said Bruce Layzell, KFC general manager of new African markets.

Global brands are progressively looking to emerging markets to offset sluggish growth in traditional economies‚ and Africa presents a compelling investment case for retailers. The Economist Intelligence Unit predicts that by 2030‚ Africa’s top 18 cities could have a combined spending power of $1,3-trillion.

One of the main drivers of Africa’s growth spurt is the increasing pace of urbanisation and consumerisation.

The number of KFC restaurants in new African markets grew to 63 at the end of last year, in countries such as Angola, Nigeria, Malawi and Ghana. The figure excludes South Africa, Egypt, Morocco and Mauritius, which, if included, brings the total number of KFC restaurants on the continent to almost 900 outlets.

Local company Famous Brands, whose portfolio includes Wimpy, Debonairs Pizza and Steers, said heightened interest from prospective franchisees continued in the rest of Africa. The company has outlets in more than 15 African countries including Nigeria, Ghana and Zambia.

There is a caveat: Africa is not an easy place to do business. Key risks include the lack of real estate‚ currency volatility‚ high taxes‚ corruption and red tape. According to Spur Corporation CEO Pierre van Tonder, African expansion is made out to sound like it’s a pot of gold.

“But whatever you think is going to take 12 months there actually takes you 24 months. You need to be a facilitator in developing Africa‚ you need to be flexible‚ and you cannot take your corporate governance baggage out of South Africa and expect to develop in Africa‚” Van Tonder said last year.

Famous Brands CEO Kevin Hedderwick said: “We’ve been in Africa for 12 years, we are not like those guys who just started there yesterday. We’ve paid our school fees — it’s a tough place to trade.”

Location still key in selection of business premises. 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.