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Tuesday, July 16, 2013 - 08:04
Franchise and finance

The restaurant industry is a notoriously challenging one in which to operate. Yet, despite significant increases in food prices, electricity and gas, coupled with increased pressure on consumer discretionary spending, many of the bigger franchises are showing growth.
The Spur Corporation’s January report indicates that the franchise group’s restaurant sales across its portfolio – which includes Spur, Pannarottis and John Dory’s – increased by 17.5% in the six months leading up to December. This followed similar reports of record turnovers for Steers, Debonairs, Wimpy, Mugg & Bean and Fishaways, released by Famous Brand in December 2012. Compared to sales from December 2011, the turnover generated by these franchises increased Famous Brand’s sales across South Africa and the rest of Africa by 13.2%.
However, this growth is not necessarily representative of the restaurant industry as a whole.
Rey Franco, Chairperson of FEDHASA Cape Restaurant & Catering segment, says of the restaurant industry: “The consumer choice is extensive – so much so that market dilution has long been a challenge for restaurant owners. Coupled with the simultaneous increase in operating costs and food and beverages costs, keeping a restaurant above water has always been a tough challenge. There are those that just have that winning recipe of setting, food, social placement and value proposition. They are however the minority.”
He notes that the primary obstacles faced by restaurant owners include property rentals, payroll costs and the ever rising cost of food and beverage products. “Diligent and critical management of these make or break a business.”
Franco points out that, over the last two decades, FEDHASA has witnessed a consistent trend of restaurant openings towards the onset of summer, and a consistent rate of closures as the season turns to winter. On average, for every one restaurant that closes, two open up. “This rate may seem to be the reverse of what the perception is. However, the lure of the restaurant industry in the Western Cape – more specifically centralised Cape Town and the Seaboard for wealthy corporates from outside of Cape Town – has been a popular trend.”
Over the 2012 period up until the beginning of February 2013 FEDHASA Cape has noted 27 new restaurant openings and just three closures; not all of which are FEDHASA Cape members.
While success in this industry can be an elusive target, this statistic suggests there is enormous potential for success – and a degree of proactive innovation can make all the difference. Lessons from successful franchises can be helpful in determining how to thrive.
At a time when consumers are being careful about what they spend, it’s important to keep up with the times and be on trend in terms of what people look for in a restaurant. Catering for children is a trend that many restaurants are capitalising on, as well as an increasing focus on healthy, organic menu offerings. It is important to keep things fresh by refurbishing and to ensure that restaurants have a unique selling point. Establishments should be marketed creatively. Establishment of loyalty programmes that offer customers value for money at a time when it is most appreciated have often been contributors to the success of major franchises.
Having identified the initiatives that are best suited to managing costs more effectively, growing revenues or improving customer loyalty, the next question is: how do you fund them?
Capitalising on opportunities and implementing initiatives is often a process that needs to happen relatively quickly, which means that speedy access to working capital is crucial. However, dealing with traditional banks is often an onerous, time-consuming and complex process, which often does not result in a positive experience. This gap in the financial market in South Africa was identified by Retail Capital – the pioneer of the business cash advance in this country.
This innovative new alternative funding option has experienced significant growth in South Africa over the past eighteen months, with a combined value of over R100 million advanced to small businesses. Retail Capital operates across all retail sectors with a particular focus on restaurants, sports, food and hardware, as well as the beauty industry. In stark contrast to banks and other traditional lending institutions, Retail Capital has an 80% approval rate of cash advance applications.
The growth of the company is indicative of the demand for fast and flexible access to working capital, especially prevalent in the hospitality industry, and mirrors the growth of small businesses in South Africa, which are the lifeblood of our economy.

Copyright © Insurance Times and Investments® Vol:26.7 1st July, 2013
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