Niche eateries and shops flourish
Investing in small and medium-sized specialised outlets could be lucrative during these tough economic, says Retail Capital CEO. Small and medium-sized enterprises (SMEs) in the restaurant and retail sector should be funded despite the recession as these businesses will be engines for growth.
This is the view of Retail Capital CEO Karl Westvig, whose optimism about restaurants and retail is backed up by the most recent Statistics SA data. While discretionary spending may be on the decline in SA due to the constrained economic environment, retailers in food, beverages and tobacco in specialised stores are showing positive growth rates.
Boston Consulting Group partner and MD Stefan Salzer said shoppers wanted to feel they were being treated "a bit better" without necessarily paying too much more.
"These stores give specialised attention which differentiates them from one-size-fits-all offerings," said Salzer.
At constant prices, April’s retail data showed a 13.6% year-on-year rise in sales in this category of goods, higher than the overall retail trade rise of 1.5%.
Retail Capital provides working capital to small businesses based on real-time information on credit card transactions. "Banks and lenders are often more wary to extend credit to SMEs; this is worsened during recession," said Westvig.
"But it can be lucrative to lend to these businesses in restaurants and retailing as there is scope for growth," he said.
A large portion of Retail Capital’s funds is disbursed to black-and women-owned businesses. Concepts range from pop-up to traditional stores.
"Certainly, there is always risk in lending but we see prospects especially in those sectors. We have built our business in identifying trends, threats and opportunities in retail and restaurants. We model for seasonal changes and customer tastes," said Westvig.
However, JSE-listed companies are increasingly saying it is difficult to grow sales. "Since March, the restaurant industry has had a very sharp turndown in activity across the board," Spur Corporation CE Pierre van Tonder said earlier in June.
In the six months to December 2016, Spur’s group sales from continuing operations rose by 10.4% to R3.8bn, while existing restaurant sales rose 4.1%.
Taste, which holds the Starbucks and Domino’s Pizza brands, reported a R101m headline loss (-25c a share) from a 3% increase in core turnover to R1.1bn in the year to end-February. In its full-year results, Famous Brands reported consolidated revenue of R4bn, an 18% increase on the previous year, while operating profit rose 31% to R455m. Famous Brands owns Wimpy, Mugg & Bean, Europa, Fishaways, Tashas, Steers, Debonairs Pizza, Milky Lane and The Bread Basket.
Over the past year, Spur’s share price has declined 8.84%. Taste Holdings has shed 38.3%, while Famous Brands is up 3.47% in the same time frame.