We've had our chips, say Taste Holdings' fish franchisees

17 January 2016 - 02:00 By NOMPUMELELO MAGWAZA

Thabiso Kobue's dream was to own at least three The Fish & Chip Co franchises, so that he could leave his job and run his own business. But his dreams were dashed: his first franchise, in Dube Village in Soweto, failed to make a profit.Kobue, who still owes the bank part of a R450 000 loan he took in 2011 to finance the fish shop, is also forced to pay his 11 employees daily.He said this was "unfair", "but I have to or else their salaries would be used to buy the next stock. I wanted to reinvest and buy a second franchise, but now I can't even pay my workers' monthly salaries."Kobue spends about R10 000 a month on electricity, R5 500 on royalty and marketing fees and R2 500 for leasing the "point of sale equipment" (a till).story_article_left1Electricity is one of his major expenses, because the fish and chips are deep-fried in two different fryers.But all his other costs have risen as well. "The price of hake has doubled in the past few months," said Kobue.He also complained that he didn't get enough support from the franchisor, The Fish & Chip Co, which is owned by JSE-listed Taste Holdings."The general feeling among other franchisees is that Taste Holdings is too busy opening new stores and not taking care of existing franchisees," said Kobue.Taste has been juggling several big internationaldeals, such as rolling out Domino's Pizza - the US brand for which it has the master licence in seven Southern African countries - and preparing to open Starbucks stores - for which it also has a master licence - across South Africa.But Taste Holdings CEO Carlo Gonzaga said that in the past three years, the group had invested in research on how lower-income customers saw the fast-food fish category. This research has been shared with franchisees."I would say that we can always improve the support we offer and we strive to do this," said Gonzaga, adding that Taste had helped relocate 20 struggling outlets.Operational support includes monthly store audits and store visits by the regional manager every four to six weeks.But The Fish & Chip Co outlets posted a 20% decline in same-store sales for the 12 months ended February 2015.Kobue said he would soon join other entrepreneurs - such as soccer star and businessman Siphiwe Tshabalala - who have cut ties with the franchise.Tshabalala's agent, Jazzman Mahlakgane, said the soccer player had owned a number of the stores, but had decided to pull out because the business was not viable."It took too long to see profits from the two franchises he owned and even longer to open the two others," he said.And the costs of running the outlets had escalated, destroying any profits that might have been made."It was a business decision," Mahlakgane said. "After six months of running the two shops, we realised that we were going to drown in debt. We sold the franchises back to Taste Holdings; we just had to cut our losses."The Fish & Chip Co's store footprint stands at more than 240 stores.story_article_right2Gonzaga blamed the closure of 75 The Fish & Chip Co stores in the past two years on the rise in the price of hake by more than 50% against inflation since 2013."Beef and chicken prices have only risen by a fraction of that," he said. "Consumers are under huge financial pressure and with the price of fish increasing more than the price of the alternative, they are looking at more affordable alternatives."Hake now costs between R45 and R50 a kilogram, according to those in the industry.Said Gonzaga: "An average The Fish & Chip Co [outlet] spends about R12 500 per month on electricity. The average rent amount is R18 000, depending on the location of the store."A former Durban franchise owner, who declined to be named, said his sales were heavily affected by head office changing the menu."They started introducing offerings such as a half- and quarter-loaf of bread filled with chips and Russian sausages."Gonzaga said it was odd that some franchisees had complained about the menu, as Russians had been on the menu since the brand's inception and was one of its best sellers.He said Taste reviewed its menus twice a year and made adjustments to products, categories and portion size in response to franchisee feedback, sales and profitability.An example was the addition of chicken drumsticks, wings, and larger to-share meals.Chris Gilmour, an investment analyst at Absa Wealth and Investment Management, said that although chicken still topped the list of preferred fast foods, fish and chips were becoming popular. "The problem is that the market is saturated and has been for a while. There is a huge competition there."Gilmour said The Fish & Chip Co's low price points made it impossible for franchisees "to make profits. In such an environment one has to have huge volumes and be in the right area to attract foot traffic."Consolidation was necessary, he said. "There is a need for a shake-up in that market. This is problematic for a lot of people and not just Taste Holdings."However, Kevin Hedderwick, group CEO at Famous Brands, which owns Steers, Wimpy, Debonairs and Fishaways, said it was tough for the takeaway seafood category to break into the lower LSM market.story_article_left3"Pizza makes a better offering, much better than fish, and nothing can compete with chicken in that market," he said."What we have always done in the take away seafood category is to try and make sure that our brand is perceived to be premier in relation to The Fish & Chip Co."The model of placing three different restaurants next to each other also means that franchisees can share electricity and labour costs."Fishaways has 214 stores and opens at least 17 more a year.Vera Valasis, executive director of the Franchise Association of South Africa, said the trading environment for most franchisees was challenging."Rentals remain high, electricity and fuel take up a disproportionate slice of costs and the exchange rate plays havoc with controlling supply costs."Valasis advised investors to scrutinise the franchise concept they were considering and to ensure the franchisor had a long-term vision for the brand.magwazan@sundaytimes.co.za..

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