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Taking big bites out of the global restaurant trade South Africa is awash with home-grown ‘quick service’ and ‘family dining’ restaurant franchises. But relatively few, it seems, have been able to combine local success with growth in foreign markets as well. Clearly, strategies that work locally can seldom be transferred directly abroad in the same way as a manufactured product is simply packaged and exported.
Steers, Spur, Nando’s and Mugg & Bean are among the iconic South African brands that have truly woven themselves into the fabric of local life before spreading their wings into Africa, the Middle East and further afield.
Nando’s, in particular, has been an international success story and operates in nearly 30 countries on five continents.
While the others have a smaller international footprint, they are no less ambitious.
Mugg & Bean founder Ben Filmalter, for example, plans a major foray in the potentially hugely lucrative United States market after selling his South African and African business to franchise giant Famous Brands from September this year.
Steers, also part of Famous Brands and one of the largest quick-service franchise chains in South Africa with around 500 outlets, has expanded only into Africa and Mauritius thus far. But it is eyeing the Middle East and continues to seek more African opportunities.
Spur, which defines itself as a ‘family sit-down restaurant’, has 240 local outlets and 29 abroad – including Australia, the United Kingdom, Ireland, Mauritius and several African countries.
It, too, has ambitious international development plans and is in the early stages of establishing a Middle Eastern footprint.
Local success
But the precursor to extending a restaurant brand abroad is a solid track record of local success within South Africa.
Both Steers and Spur can trace their roots back to the 1960s, while Mugg & Bean is a relative newcomer with a history dating back only 13 years.
Notably, in all three cases, either the original founders or members of the founding families remain involved in some capacity.
Mugg & Bean has been much in the news following its sale for R104 million, a good deal for Filmalter, who remains on board until November to assist with the changeover to Famous Brands management.
He and partner Mike Maree are then free to pursue the expansion of the brand in markets outside Africa.
It has been a remarkable ride for Filmalter. An experienced hotelier and restaurateur who once owned four stand-alone restaurants within a block of each other, he opened the first Mugg & Bean at the V&A Waterfront in Cape Town in 1996.
It was a success, but franchising was not in his plans until he was forced to do so due to economic circumstances. “I was a few months away from debtors’ prison,” he recalls.
So he sold his interests in the Waterfront restaurant and used the proceeds to establish a franchise system so that the concept could grow. “I was an unwilling convert to franchising, although I do believe in it now.
“I understand that it has the capacity to grow your brand.”
The rest, as they say, is history. The brand grew at a stellar pace and there are now 96 stores in South Africa, 10 in the United Arab Emirates and Kuwait, and a further three elsewhere in Africa. Almost all are franchised.
‘More’ is the essence of the brand. “More food, more smiles, more friendliness, happiness, comfort and warmth,” says Filmalter.
The concept had unintended beginnings: his plates at the Waterfront outlet were too big, and so extra food had to be put on them to avoid customers thinking they were skimping on food.
The public liked the idea and it became one of the cornerstones of the brand.
But ‘big’ can be ‘too big’. Super-sized sandwiches have been replaced by smaller and cheaper offerings. Cake slices, too, have been reduced in size. “People were daunted by them; it’s possible for portions to be so big that you can’t sell them,” Filmalter explains.
That said, he does believe in value-adding rather than offering something free or following the ubiquitous ‘two for the price of
one’ model.
The other part of the ‘more’ equation relates to what Filmalter calls “the Mugg & Bean experience”.
“You cannot compete on price, and everyone is competing on quality, so you must give a comprehensive package of experience – friendliness, warmth, good service.”
He says one of the challenges of franchising is to implement these intangibles consistently at the customer coalface. “Getting people to actually believe it and carry it out is the crunch,” observes the one-time hotel chef.
Mugg & Bean’s approach is based on that of a coffee shop – and coffee remains one of its hooks and accounts for 28% of sales – although it is perceived by many to be more of a restaurant at the premium end of casual dining.
“At the time Mugg was founded, there were several active coffee shops, like Brazilian and House of Coffees,” explains Filmalter. “We took them as a touchstone and asked how we could make ourselves better.”
Part of the strategy was to create a legacy, albeit mythical, about Mugg & Bean’s origins as an American coffee shop.
With time, though, the legend has become less important and several evolutions of the logo, style and theme have seen ‘The Mugg’ have less of an American slant and become more of a South African or African restaurant.
Patrons are typically shoppers and businesspeople during the week and families on weekends. The customer base is wide ranging: 18 to 65, slightly more likely to be female and white, and likely to visit three times a month.
The family restaurant
Spur Steak Ranches, by contrast, has a far more tightly focused primary audience – the family.
Indeed, its slightly tongue-in-cheek local payoff line is “The Official Restaurant of the South African Family”.
“Our core market is mom, dad and 2.5 kids – that’s our brand essence,” says managing director, Pierre van Tonder. Secondary markets include grandparents, pensioners and teenagers.
The latter has emerged in the past five years and is attracted by the inexpensive price structure.
The brand traces its history back to 1967, when Allen Ambor opened the Golden Spur in Cape Town. Ambor is now executive chairperson of Spur Holdings, which is the franchiser for Spur, Panarottis, Pizza Pasta and John Dory’s Fish & Grill.
A critical element of Spur’s strategy is the emphasis it places on incorporating children into its business. Van Tonder says this is about more than simply play areas, colouring books and a few kiddies’ items on the menu.
“The difference is that kids and families are part of our business. The whole experience, the ambience, how we design and run things… it’s an all-embracing effort to bring families into our business. It’s not just about balloons and colouring books – it’s part of our DNA and brand ethos.”
Affordability is also a key component of the mix. While Van Tonder is not keen on a menu that is purely price driven, he concedes this market is highly price sensitive. “People have always benchmarked Spur on our value. So, as long as food inflation doesn’t run away with itself, we try to keep a lid on the prices.”
One of the tactics to deal with soaring and unpredictable food price inflation has been the replacement of the long-standing traditional wooden boards with a more practical leather-bound menu. This allows menus to be changed quicker than was previously possible in order to adapt to market conditions.
Menu items have also evolved and dishes are regularly updated to keep pace with changing customer tastes.
Chicken has shown phenomenal growth, resulting in the introduction of chicken breasts, wings and kebabs.
At the other end of the scale, meat kebabs and lamb chops have declined in popularity.
Paradoxically, though, the large and meaty Eisbein meal is now more popular.
“Combinations have become big: steak and chicken; rib and chicken,” Van Tonder observes.
“In the last year or two, it has also become evident that people like to share things, so we’ve introduced a starter platter.”
Menu research and development is ongoing. “You have to keep your finger on the pulse of food trends,” he says. “For example, who would have forecast the growth in popularity of sushi 10 years ago?
“Healthier eating will be a bigger issue and therefore the brand must position itself as a healthy eating alternative – and define that according to the customer’s perspective.”
Spur will typically test the market by introducing three or four new menu items to a sample group of about 15 restaurants. Customer opinion and market acceptance is then gauged, and a decision taken on whether to launch nationally.
Burger is king
Steers, meanwhile, is about to cut back on its menu in order to focus on its core offering of burgers and chips.
Managing executive, Graeme Morrison says more and more items were added to the menu over the past five years and the recession has been the catalyst for reducing the menu size to where it was in 2004.
Morrison, who spent many years at the coalface as a franchise restaurant owner, says the brand’s essence is “real food”. “We’re about having the best burger and the best chips – and doing it in the homemade, real authentic way.”
The brand, which has a history dating back more than 40 years, was founded by George Halamandres, a South African of Greek extraction who is widely regarded as the father of franchising in this country and who also introduced the Milky Lane concept here.
His business ultimately grew into the giant Famous Brands franchising group, which now houses Wimpy, Brazilian Café, FishAways and Debonairs Pizza, among others.
The Halamandres family continues to be active in the business via a son and two nephews.
Morrison says there is a distinct “Steers culture” that comes from the founding family. “It’s an absolute passion for food – although not Jamie Oliver food – with massive attention to detail. In many ways, we pioneered good looking franchise businesses in South Africa.
“Steers set the bar very high early on, our outlets are always properly looked after and it’s quite rigid and strict.”
He believes store design and location continue to be a strong point. An in-house team designs each store according to a formula, while location is also chosen according to a strict set of criteria, although in consultation with
the franchisee.
All stores are franchised. Morrison says it was not always so, but Steers management found it was good at franchising and bad at store management. “It’s about focus. Our model is to put an owner in who, because he is looking after his own business, is going to do the very best for it.
“This way we (Steers management) can focus exclusively one on thing, which is expanding the franchise network.”
He is adamant that, from the franchiser perspective, the franchisee relationship is the most important part of the business. “We have a team of 30 plus people whose sole job is to go out there and manage the franchisees and spend time with the network.
“You need to have a hands-on, personal relationship with franchisees. You are selling a guy a business system, you’re selling him an investment, you’re asking him to treat it as more than just a business – you’re asking him to breathe life into the relationship,” he says.
Going abroad
But no matter the track record and historical background, success abroad is not guaranteed, and a cut-and-paste strategy from South Africa may be inadequate.
Mugg & Bean’s Filmalter recalls the brand’s unsuccessful foray into the UK market five years ago. “We got burnt and got out. I wouldn’t advise it to anybody, it’s a tough place to be.
“The UK public loved us, but we couldn’t find the right real estate and our stores weren’t big enough. Plus, the long distance made it difficult to give support from South Africa. If we’d had a local partner, we could have become more dependent on them.”
Filmalter says labour was another difficulty. While staff are available, they are expensive, unwilling, unskilled and did not comply with the brand’s ethos. “We had to re-train a Turk with bad teeth into an South African boy with good manners – a hard task,” he explains.
But he obviously learned something, because Mugg & Bean has established itself in Namibia, Botswana and several parts of the Middle East.
The latter, he believes, continues to have growth potential – not least because South African ownership is more palatable to the locals than an American-owned chain.
Filmalter’s focus now though, is on taking ‘The Mugg’ to the US. He is a big fan of the American restaurant industry and, indeed, it served as the inspiration for the founding of Mugg & Bean.
But he believes he has spotted an opportunity in the market and has found the requisite local partner to help make it happen.
“There’s a sector called ‘casual dining’ – which has chains like T.G.I. Friday’s and Applebee’s – that for 20 years have done nothing except the ‘same old, same old’ and have rested on their laurels. All they’ve done is put up their prices.
“They created nothing new and have not reinvented themselves.
“There’s an opportunity there, ready for the picking. Anybody who comes into that sector and comes with a fresh offer – like we do – will quickly become a meaningful player,” says Filmalter.
UK and Ireland
Spur is not tackling the US market, but it has had better success in the UK and Ireland, where there are nine stores.
Whereas the company’s South African business model is to franchise all outlets, in Europe the strategy is a mixture of franchised and company-owned stores.
Spur’s Van Tonder says company-owned outlets help to create a brand footprint in a foreign market which, in turn, reduces the perceived risk in the minds of potential franchisees.
Similarly, having existing stores in the country helps new franchisees to correctly interpret the brand. “For example, the franchisee could have a perception of creating an atmosphere that is different to the intrinsic values of the mother brand. That’s a risk you always run in foreign markets.”
There is always a fine line between ensuring worldwide brand consistency, while adapting to local conditions. Locally flavoured advertising is one. Menu wording consistent with local norms is another.
Cultural sensitivity in countries such as Australia (where there are three Spurs) is also important. “We do say we’re from South Africa, but Australians are very sensitive to having local content, so our waiters, managers and products are all from Australia,” explains Van Tonder.
African expansion
And what of expansion into Africa? Steers’ international plans are purely focused on Africa and the Indian Ocean islands, with managing executive Morrison being of the view that it can be easier than dealing with first-world markets.
“We’re often first to market, it’s closer to home, costs are lower and we understand the circumstances better.”
But he cautions that the number of outlets which each country can sustain is severely restricted.
“The turnover per store can be high, but you can only have a few stores because there’s a limit to the spread of disposable income. You can go into the capital cities, but not the towns because they don’t have
the money.”
Morrison says the clientele tends to comprise the very top end of the local population, as well as expatriates.
He believes that being a South African brand is a positive, particularly in the anti-American countries, although he has heard reports that Ghana does not take well to South African products.
His priorities now are to focus on a West African expansion, as well as a return to Angola, which Steers exited after a disagreement with the local franchise licencee. ▲
Mike Simpson,
editor of “Strategic Marketing” magazine
Editor’s note: Nando’s was approached to be part of this article, but declined due to senior level management changes.
