Selling fish and chips is no plain sailing

Entrepreneurs snap up opportunities in this lucrative sector but find it has particular challenges

Fish and chips franchises are popping up all over South Africa but it can be a slippery business, as many potential franchisees have found, to their cost.

These franchises have become so popular partly because the entry costs are low and partly because they are doing a roaring trade by offering cut-price fast food. A franchisee for the Fish & Chip Co will pay R486456, less than a tenth of the R5.5-million needed to buy a KFC outlet.

Last year, the JSE-listed Taste Holdings splashed out R45-million to buy the Fish & Chip Co and it is now opening three franchises a week - tapping into a tide that has left the established and privately owned Old Fashioned Fish and Chips (OFFC) battling to keep up.

For the man on the street who buys a franchise it has not been all plain sailing.

Complaints have been lodged against OFFC with the industry body, the Franchise Association of South Africa, as well as on websites such as Hello Peter.

These investors complain about paying their R100000 deposit then waiting months or even years to be allocated a site. And when they ask for their deposit back, this starts yet another long waiting period.

Suren Naidoo is one such investor, who said it had been almost a year since he asked for his deposit back.

"I have been forced to go to the lawyers now."

Other complaints on the Hello Peter site mirror Naidoo's and there was even a case by contractor Vincent Gerber, who complained that he did electrical and plumbing work for the group and was not paid.

When asked about this, OFFC said "all of the legitimate complaints have already been addressed, with refunds already being made in 2012, while others are currently being addressed on a legal basis".

It said it was in a legal dispute with Gerber only over "incomplete projects" and he had been paid for everything else he did.

Despite these complaints, the 12-year-old OFFC has still managed to open 400 stores - 300 in the last three years alone.

Ian Jacobsberg, who heads the Franchise Association's disciplinary committee, said the association chose not to renew OFFC's membership because of the numerous complaints.

"With our negotiations with them we got the impression that they became too popular too quickly and they are a small family business that doesn't have the infrastructure and resources to handle the growth that they are experiencing. And because they are privately owned, I suspect they did not have the confidence to turn anybody and their money away," said Jacobsberg.

Taste Holdings's proud new purchase, the Fish & Chip Co, also became popular quickly.

Taste bought the franchise company for R45-million from Praxia Nathanael and her husband Stelio, who had run into trouble with one of his previous business ventures, Propvestor. He was arrested on six counts of fraud but says the case was thrown out of court.

But after the deal was signed, Nathanael has ended up clashing with Taste after the couple decided they no longer wanted to sell. The case is currently tied up in the legal process.

Taste Holdings head of food Christo Calitz said the purchase gave the group a major foothold in the greater South African market, especially since fish is now the fourth largest fast-food category. It is also a big step into the lower LSM consumer market for Taste, which also owns restaurants such as Maxi's, Scooters Pizza and St Elmo's.

"It was evident that the market was ripe for the establishment of a new brand in this fast-growing, lucrative market," said Calitz.

The company will be hoping that the fish business gives Taste's share price a lift. Although the stock has risen a mammoth 590% since 2009, it has gained only 19% in the past year.

Calitz said Taste was opening three new Fish & Chip Co shops a week, significant growth. Rivals OFFC and Jimmy's Killer Fish & Chips (a takeaway sideline of Jimmy's Killer Prawns) are opening about one a week.

Fishaways, another growing fast-food brand that was the brainchild of Famous Brands founder Theofanis Halamandaris and Ocean Basket's Peter Lazarides, has pricier products - but is often favoured as a fish and chips take-out.

Famous Brands spokeswoman Del-Maree English said the fish and chips sector had grown partly because more companies were now selling the product and consumers had a heightened awareness of this option.

Jacobsberg said fish and chips franchises had become popular mainly because they were a cheaper franchise model and the product appealed to the lower end of the food market.

Fish & Chip Co's set-up cost of R486456 is the lowest in the industry. A Jimmy's Killer Fish & Chips franchise costs about R550000 depending on the store size; the fee for an Old Fashioned Fish and Chips business works out at R769000 and a Fishaways costs about R850000.

Pizza, burger or chicken franchises are generally more expensive. Scooters Pizza for instance will cost a prospective franchisee R950000 and a Maxi's start-up will cost R1.5-million.

"Fish and chips is viewed as the cheaper option meal for consumers and there is certainly lots of value in a fish and chips meal compared to a burger or pizza," said Jimmy's group director Aneez Amod.

"Portions are usually large and in some cases two people can share one meal."

The industry is growing but South Africa is still far behind the U K, where the first fish and chips shop opened in London in 1860 and it has since became the stock meal of the working class.