Famous Brands, the JSE listed chain restaurants group, is set to become the largest Quick Service Restaurant (QSR) operator on the African continent, if not the largest restaurant operator, after concluding a bold venture into the massive Nigerian market.
The company which runs well known brands like Wimpy, Steers and Debonairs and with revenue topping R2.5bn, announced yesterday that it was set to acquire a 49% stake in UAC Restaurants (UACR). The West African operator UACR is owned by UAC of Nigeria PLC (UAC), a diversified conglomerate with operations in foods, paints, logistics and real estate.
Famous Brands said it has reached an agreement with UAC to make the deal effective at the beginning of next month (October). This can be seen as part of a broader scramble for rising income within the sub Saharan region. In addition to northwards moves from South Africa this has seen global retailers, like Carrefour and Walmart shift attention to the region.
Malcolm Horne, the CEO of property services company Broll Property Group, said the trend of retailers entering new markets will continue to accelerate as Africa develops. “Increasing economic participation in African countries has the potential to springboard further growth and positive demand to invest in infrastructure. Early entrants into this trading space have proved that they can dominate markets and that smaller retailers follow them into these markets”.
The Famous Brand statement said UACR manages the Quick Service Restaurant (QSR) component of UAC’s business and houses the flagship Mr Bigg’s brand which was described as the single largest food franchise brand in Africa, north of the South African border.
UACR comprises 165 franchised restaurants across Nigeria, 57 of which are in Lagos and 14 in Abuja. 45% of the company’s franchised restaurants and 40% of its revenues are concentrated in Nigeria’s three key commercial centres. UACR also has a small logistics and manufacturing component.
Famous Brands Chief Executive, Kevin Hedderwick said “We are enormously excited about this transaction, which boosts the Group’s strategy to expand its presence in the broader African QSR market”.
Famous Brands has operated in African countries north of South Africa’s borders for 15 years and we have a good grasp of doing business in those territories; prudent expansion in a select range of key markets in the region has always been part of our programme.”
“Whilst we have traded in Nigeria for the past 11 years through a combination of Master License and Franchise Agreements, this transaction catapults us to a completely different level, enabling us to meaningfully expand our presence in this burgeoning, currently low consumption per capita organised food service market”.
It also underlines our ambitious and deliberate plans to grow our business outside of South Africa. Trading in Africa is inevitably about being ‘first to market’ and we believe that this transaction represents a significant step change through which we will further entrench our leadership position within the branded food service industry in Africa.”
“This joint venture delivers compelling benefits for both parties: UACR will be vending in a formidable brand (Mr Bigg’s), local expertise and existing franchisees, as well as a nationwide distribution network and Lagos-based manufacturing infrastructure. In exchange, Famous Brands will add value to the business through our expertise in managing intellectual property, growing brands and optimising supply chain operations and efficiencies,” said Hedderwick.
Hedderwick added that “Historically one of the key challenges of expanding into the rest of Africa has been to source suitable local partners. This acquisition surmounts that obstacle and enables us to not only acquire a substantial stake in an existing leading home-grown brand in Nigeria with opportunities to unlock value in that market, but also to export the format to other markets. We foresee our operations in the rest of Africa becoming increasingly significant to the Group over time.”
Larry Ettah, UAC Group Managing Director and CEO, said “This is a transformative transaction which ensures UACR has the necessary strategic partner to unlock the considerable value potential in the QSR landscape which Mr Bigg’s defined 25 years ago and in which it still maintains a leadership position”.
UACR will be availed of Famous Brands’ tested and highly successful brandstewardship to enhance and reinforce the Mr Bigg’s brand franchise market power.”
Ettah added that “Nigeria is an attractive destination for QSRs and the country has seen an influx of international brands recently”.
Future consumer expenditure is underpinned by a range of key drivers, including higher monthly income levels resulting from GDP expansion, an increase in the minimum wage (from N7500 to N18000), and a shift in social class demographics, with the middle class (the business’s core target market) expected to increase to 35% of the population in 2015 compared to 30% in 2009. Significantly, this middle class comprises a large, young population with an average age of 18″