A new corporate recipe appears to be simmering in Cape Town following the recent link up between community rooted empowerment company Grand Parade Investments (GPI) and iconic food franchising company Spur Corporation.
This is the second Cape-based empowerment company to take a bite of a JSE-listed food franchising operation. Two years ago Brimstone Investment Corporation took a slice of Taste Holdings, which franchises pizza, convenience foods and seafood outlets under the Scooters, St Elmo’s, Maxi’s and Fish and Chips brands. It was well known that the perennially profitable Spur has long sought an empowerment partner at equity level, following the dismantling of original BEE partner, Sam Montsi’s Siphumelele Investments, over 12 years ago.
But GPI’s participation is so much more than just an empowerment deal. GPI has recently off-loaded most of its core gaming assets – including its share in the Grandwest Casino and a major stake in its limited payout machine business Grandslots – and is now intent on focussing its efforts on expanding its master franchise agreement with fast food brand Burger King in southern Africa. The deal sees cash flush GPI snapping up a 10% stake in Spur for R295m. On a practical level the deal has significant mutual benefits – Spur receives a sizeable cash injection (after providing a portion of the deal’s funding) and GPI snags solid dividend flows from a proven franchising model. Alan Keet, CEO of GPI, said the transaction was in line with GPI’s strategy of leveraging its strong balance sheet and empowerment credentials to invest in valueenhancing opportunities. But more intriguingly Keet admitted the transaction “ties in with GPI’s plans to grow its presence in the food and hospitality industry.” He argued that GPI and Spur shared similar values of operating excellence and a passion for the food industry.
Spur is best known for its Spur Steak Ranch franchise, which continues to generate the bulk of the company’s profits. But Spur has struggled somewhat to diversify away from its flagship brand with Panarottis Pizza Pasta, John Dory’s Fish Grill Sushi and more recently Captain Dorego’s and small steakhouse chain The Hussar Grill - yet to really impress with its profit servings. GPI, on the other hand, is enjoying remarkable early successes in rolling out its Burger King chain (which is company owned not franchised.) Although only acquiring the rights to Burger King in March last year GPI has opened 20 outlets – mostly in the Western Cape although presences have recently been established in Gauteng and Durban. GPI chairman Hassen Adams confirmed both companies were keen to unlock operating synergies. “A partnership with the leading restaurant operator is going to significantly strengthen our ability to achieve the ambitious targets that we have set in the food industry and related sectors.” Adams said GPI’s plans to accelerate growth in Burger King remained a priority and were a key part of the company’s strategy.
Interestingly both Spur and GPI have recently made investments in ‘back-office’ services – where so much money is made in the convenience restaurant/fast food sector. GPI took a majority stake in Mac Brothers Catering Equipment and Spur bought 30% of Braviz Fine Foods, a meat processing business. Spur CEO Pierre van Tonder said the company intended using the transaction proceeds to enhance its African support structure and to pursue strategic acquisition opportunities.
He said the focus would fall on related businesses with a focus on vertical integration of manufacturing facilities related to core products used in Spur’s restaurant operations. “We also plan to fund the land and building costs of an extension to our head office, and to accelerate the upgrading of some of our production facilities.” Looking past the diplomatic utterances by the respective executives around the deal, the big question is whether the longer- -term relationship will entail a full blown merger between GPI’s Burger King into Spur. This would seeGPI free to pursue other ventures in its official guise as an empowerment investment vehicle while holding a more significant stake in an enlarged Spur. Spur would not doubt be delighted to have Burger King onboard, giving the company further leverage in seeking out new deals to expand its brands menu. Of course, GPI and Spur will need to establish in the next few months (perhaps years) how well they can work together before embarking on any ambitious expansion strategies. On paper there appears to be so many opportunities for the two companies to capitalise on operational synergies between Burger King and Spur’s various franchises that it would be surprising if the empowerment arrangement did not release strong new flavours to the respective business models.
It’s early days, and the first tangible benefits of the GPI and Spur tie up will only probably be evident in 12 to 18 months. Still the arrangement should provide plenty food for thought in the meantime …
By Jenni McCann