Hilton Tarrant
4 minute read
24 Mar 2017
9:26 am

No more free lunch at Spur

Hilton Tarrant

By lunch, we mean burgers on Mondays or steaks on Thursdays as food inflation bites franchisees.

Spur has quietly announced that its popular buy one get one free burger special will end next Monday. The promotion has become somewhat of an institution for the restaurant group over the last five years. Eat-in customers would get a second burger (or hot dog) free with the purchase of any full-priced burger or American Classic Dog on its main menu. Its kids eat free on Wednesdays and buy two get a third steak free special on Thursdays will end in April.

Such (has been the success of this promo and) is Spur’s influence on the market that rivals – both chains and independents – have over time launched carbon copy specials to stimulate trade on traditionally quiet Mondays.

CEO of Spur Corporation, Pierre van Tonder, told Cape Talk that “food inflation played a big role” in this decision: “We simply could not afford it”.

The special meant that patrons could, for example, get two Original Spur Burgers (or chicken burgers) for R72.90 (or two of the more premium burgers with additional toppings at the price of one: R84.90). While increased volumes would’ve certainly helped franchisees on Monday nights, it’s hard to see anything but a knock to margins by (effectively) selling burgers at R36.45 to R42.45 a piece (and double/stacked burgers at around R50).

Van Tonder also told the sister station of Talk Radio 702, that “it was a very heavy decision” to make. “But at the end of the day [it’s about] our franchisee affordability and for them to stay in business is critical as well”.

This “franchisee affordability” is central to this decision. Franchisees are its lifeblood. A big knock to margins from four Monday night promotions could actually mean the difference between a profit and loss for the franchisee.

Spur last refreshed its “Monday burger offering” in the first six months of 2016 and it was one of the cited drivers of turnover growth, alongside strengthening its “breakfast positioning, excellent marketing, nationwide retraining” and “upgrading of menu content” to “aid franchisee profitability”, it described in its results statement at the time.

It is worth looking at the broader context here. Food inflation (and the knock-on to franchisee profitability) are both important. But Spur in its H1 2017 results presentation entitled “Prospects” contextualises the operating environment as one with “rising food, energy and medical costs” with “franchisee profitability and margins” critical. In its results to June 2016 (for FY 2016), it described the market as “highly competitive” with “very aggressive pricing promotions”.



Using restaurant turnover data published by the group, along with the number of restaurants as at the end of the period, it is possible to calculate an average turnover per store per month. Obviously, the July to December half of the year is the seasonal peak for any retailer (including casual dining). There will be smaller restaurants that book far lower turnovers and there will be gorillas that will do many more times the average (such is the nature of crude averages).

The table above only tells one half of the story, however. Costs and margins at a store level are (obviously) not disclosed by the group.

The year-on-year increase in Spur restaurant turnover (from H1 2016 (July-Dec 2015) to H1 2017 (July-Dec 2016)) as disclosed by the group is 4%.

But, it passed a 3.3% average menu price increase in December 2015 and a further 2.1% increase in June 2016, both of which would’ve flowed through to the most recent comparative period. In other words, if a menu item was R69.90 in November 2015, by November 2016 – on an average basis – it would’ve been nearly R74. This is an increase of 5.5%.

Now, compare that 4% turnover growth to the (average) price increases and you’ll realise that sales – after inflation – are in decline.

Average menu price increases at Spur Steak Ranches

  • 4%: November 2013
  • 9%: May 2014
  • 9%: December 2014
  • 6%: June 2015
  • 3%: December 2015
  • 1%: June 2016
  • 5%: December 2016

Spur has arguably battled to contain its menu price inflation (especially when compared to official CPI data). It has used menu item innovation (changing items/portion sizes) as well as efficiencies from central procurement to try and manage price increases.

There is further evidence of the strains that franchisees are under in the results of Spur Corporation’s manufacturing (and distribution) division where it makes and distributes sauces and certain meat products for its franchisees. Its operating margin declined by 80 basis points (nearly one percentage point) between H1 2016 and H1 2017, to 37.7%.

In its sauce manufacturing business, it increased selling prices by 5.7% this month (subs: March 2017) which it has been “unable to pass… onto franchisees”.

Spur says it will replace the Monday special with a R50 burger, along with a sauce at a discounted price. Other promotions and menu items will replace those being removed.

Perhaps the writing is on the wall for rival Steers’ longer-running Wacky Wednesday promotion too (two price burgers for the price of one (R45.90)?

Hilton Tarrant works at immedia. He can still be contacted at hilton@moneyweb.co.za.

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