2024 was an interesting year for the food industry. For consumers, the year brought new foods to taste, new menu introductions from franchises such as McDonald’s and innovations such as KFC’s concept store in Johannesburg (Braamfontein).
For food store owners, 2024 provided a tough environment; for some more than others. One of the cases to look at is that of Famous Brands. Last year, the company announced that it would be closing some of its poor-performing fast-food restaurants. These included Steers, Debonairs Pizza and Fishaways outlets.
The closure of these restaurants can be put down to a few challenges such as inflation, consumer spending and behaviour and competition from rivals and emerging threats in the technology sector such as food delivery services.
In this article, we look at Famous Brands’ restaurant closures and look at how you can navigate the bankruptcy of franchises.
What is Famous Brands?
Famous Brands defines itself as a branded food services business. The company specialises in franchising, and master licensing and has its own restaurants. Some of the notable food brands owned by Famous Brands include Steers, Wimpy, Mugg n Bean and Debonairs Pizza.
With its restaurants, the company operates in Africa and the Middle East. Its portfolio is segmented into leading brands (Steers, Fishaways etc.) and signature brands (Mythos, Lupa Osteria etc.).
Famous Brands Supply Chain
The company has a varied supply chain. Its supply chain refers to its manufacturing, logistics and retail operations. The primary goal of the supply chain is to offer franchisees a competitive edge using efficient supply, price certainty, product development and margin management.
Under manufacturing, the company has eleven manufacturing plants, and its logistics footprint consists of six distribution centres and ninety-seven trucks. Its retail department includes over a hundred and eighty products such as sauces, frozen meat products and coffee (ground and beans).
Challenges for Famous Brands
Although the company had to shut down some of its restaurants, its revenue showed strong growth. According to the latest financial report, Famous Brands’ revenue grew by 8% to R8 billion in 2024. Revenue was R7,4 billion in 2023.
Revenue from franchise fees increased by 7% to R1,2 billion. In comparison, revenue was R1,1 billion in 2023.
As positive as it is to see revenue growth, the company outlined the challenges it faced which forced it to make closures. The challenges outlined by Famous Brands include:
Worsening Economic Conditions
Famous Brands’ business model is highly dependent on consumer spending in its restaurants. As economic conditions in South Africa become more uncertain, it impacts profitability and key decisions on capital investment.
Additionally, the prevalence of economic challenges such as persistent low growth, high inflation, increased load shedding and expanding unemployment gap. Indirect economic challenges include delayed food deliveries, higher costs for ingredients and local food inflation has put a strain on franchise partners.
Competitive Market
As with many other industries, the restaurant industry has also been experiencing a digital transformation. With technology changing how businesses operate, customers expect a seamless user experience (UI) when interacting with restaurants.
This digital age brings expectations of convenience for customers. Restaurants must integrate technology to ensure that customers can find them easily, order seamlessly and pay for food online through secure gateways.
Consumer Behaviour
The introduction of e-commerce channels, returning to office work and budget constraints have drastically changed the way consumers spend. This change in behaviour and spending has put a strain on restaurants.
Additionally, most restaurants are experiencing earlier bookings due to customers fearing crime and the prevalence of load shedding.
Although these challenges are ongoing, there is hope for Famous Brands. The company has outlined solutions it will implement to respond to these challenges.
Solutions
Economic Challenges Response
In response to the above economic challenges, the company has implemented the following:
- Making all offerings accessible across various formats and channels.
- Diversifying all offerings across the value spectrum.
- Enhanced loyalty programmes to attract and retain customers.
- Higher inventory to lock in better pricing and exploration of alternative suppliers.
- Increased provision of alternative power solutions to combat load shedding.
Competitive Market Response
To innovate better and keep up in a competitive market, the company has implemented the following:
- Plans to scale its delivery model in 2025 in the franchise offering.
- Increased investments in consumer-facing technologies.
- Implementation of self-ordering terminals, digital menu boards and digital payment solutions.
Consumer Behaviour Response
To keep up with ever-changing customer spending and behaviour, the company has implemented the following:
- Expanded delivery services (own delivery and with third-party partnerships).
- Roll-out smaller restaurant formats in convenient locations.
- Menu and packaging redesign to fit in consumer in-home dining experiences.
- Catering to various consumer tastes and needs with a range of menu items including plant-based meals.
- Expanding social media presence and offering free Wi-Fi to attract younger patrons.
These solutions have been developed by Famous Brands to ensure that 2025 is a better year financially for the company and its franchise partners.
Now that we have looked through Famous Brands and why the company decided to close down some of its restaurants. Let’s look at how franchisees can respond when this is happening to them.
What to do When Your Franchisor is in Crisis
Let’s say in this scenario, you own a Fishaways that is not doing great (compared to others) and there is a possibility it might be shut down, what will you do? There are a number of options to consider if you still want to keep your business open.
Option 1: Buy Out the Business
If you (the franchisee) have enough capital, you can buy out the business and step into the position of the franchisor. You need to do this quickly before the company starts to break up or there is external interest.
Make sure you assess the liabilities that you will take on. This can include training new staff, putting in money for new equipment and creating your own expansion plan and menu changes. If need be, consult with an experienced advisor.
Option 2: Close Down the Franchise
This is probably the one option most people do not want to consider. If you are in a position where your franchise is not performing and can no longer meet the financial requirements set out by the franchisor, you might need to close the business.
Option 3: Sell the Business
The final option to consider is selling your business to someone else. This takes away the financial burden you may have and can provide job security for your employees. Also, selling the franchise might give the business a chance at surviving and prevent closure from the franchisor.
Before you sell your franchise, look at your franchise agreement to see if it’s possible. If not, speak to the franchisor to see if there is any way to come up with a solution that ends with you selling the business.
This in-depth dive will help you navigate the challenges that you may be facing with your franchise. Remember to always read your franchise agreement properly so you are aware of your options in case of a crisis.
For those who have franchises with Famous Brands, this is not a panic alert. The company is still profitable and will continue to support its franchises.
Darren Hele, CEO of Famous Brands said, “Our success and future growth lie in ensuring our franchise partners can continue to prosper despite difficult operating conditions.”
For more information on franchising, visit SME South Africa’s Guide to Franchising.
Discussion about this post