Chesa Nyama chokes as diners lose appetite

21 August 2016 - 02:00 By PALESA VUYOLWETHU TSHANDU and LUTHO MTONGANA

Fast-Food franchise store Chesa Nyama is losing its appeal with South African consumers, having closed 21 stores since last year. Owned by JSE-listed Gold Brands Investments , Chesa Nyama has shut shops in Gauteng, KwaZulu-Natal and the Free State.The group has also bought back seven of its franchise stores in Gauteng since the beginning of this year.Gold Brands chief operating officer Stylianos Nathanael acknowledged that Chesa Nyama's popularity had stalled. "In a five-year cycle, you've got your first two years of growth and the third year it peaks and in the fourth year it declines. We are now in our fourth year."He said the closed outlets represented 7% of its stores in South Africa and neighbouring countries.Gold Brands CEO Praxia Nathanael , his wife, said three of the stores had closed because their leases came to an end. Some had closed because they were not being run by the owners."We now encourage our franchisees to run their own operations, rather than being manager run, and are finding that this is making a big difference," she said.One Chesa Nyama franchisee who did not want to be named said the bank they had been working with to finance the operation, Nedbank, was now reluctant to provide loans because it felt the brand's outlets had a high risk of failure.Nedbank declined to comment in detail but said: "The franchisee has to comply with the Nedbank franchising criteria in order to access funding."Morné Cronjé, head of franchising at FNB, confirmed that the bank did business with Chesa Nyama but said he could not comment on the performance of clients.But in general, "for our business model, the financial performance of the franchisor is extremely important and so is the history of the franchisee", he said."We put emphasis on the performance of the franchisor, because it's safer to fund a franchise than to fund a non-franchise start-up."In franchising you are in business for yourself, but not by yourself, so you've got the support of the franchisee network."This year, Cronjé said, FNB had received about 400 applications from people wanting to run various franchises and had approved close to 75% of them.Stylianos Nathanael said: "We continue to see strong demand from applicants for Chesa Nyama stores. The pace is maybe not as high as one or two years ago, but that is normal because of our higher base of stores."The township-style fast-food brand was a winner with consumers when it opened its first store in 2012 and it then embarked on an expansive growth strategy. But the expansion may have been overambitious.Its rival, Shisa Nyama, started with a single store in Midrand in 2007 and became a franchise operation two years later. The company opened 28 stores, but now has 19.Shisa Nyama operating manager Fathima Cele said the reason for the drop in the number of stores is that people who have come in do not understand the business's different divisions. Shisa Nyama has three divisions: a food trailer truck; an express store, which is the most popular and competes with Chesa Nyama; and a lounge set-up which is more social and has space for a DJ."They [franchisees] get into the lounge set-up and they had to close down because they did not understand the set-up," she said."We don't have as many stores as Chesa Nyama and it's done deliberately; the vision of the brand is not to flourish to a point where we can't service it."Shisa Nyama stores are mostly in KwaZulu-Natal, but there are a few elsewhere in South Africa and in Botswana, Lesotho and Swaziland.According to results for the 12 months to end-February, Gold Brands added 64 Chesa Nyama stores, compared with the target of 84 new stores during the period, which it set when it listed on the JSE in February last year.In its maiden results, Gold Brands reported headline earnings of 10.25c per share, reflecting annual compounded growth of 41% since 2014. Chesa Nyama is the biggest contributor to the group's revenue.Orin Tambo, an investment analyst at Intellidex, said: "Investors are generally concerned that the low-end segment of the market - Gold Brands' key market - is struggling and, in many cases, worsening. Investors must be pricing in antici-pated tougher earnings times ahead for fast-food and restaurant stocks in general."Gold Brands' competitors appealed to middle- and higher-income earners, who tended to be more resilient to economic shocks."Gold Brands lacks the track record. It has to prove itself first to get into that league," said Tambo.But Gold Brands still has plans to expand to the US, to appeal to South Africans living there, a strategy that it hopes will boost profits."It would definitely be good," Stylianos Nathanael said of the US plan. "We've got the look and feel, I'm confident." But he admitted a major marketing drive was needed to restore Chesa Nyama's position in the South African market.He said the group would spend R13-million on a three-month campaign "to take the brand forward [and] get that excitement back into Chesa Nyama".tshandup@sundaytimes.co.za; mtonganal@sundaytimes.co.za..

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