The people aspect of the business overwhelmed me at first. Working in the store taught me a lot about people and empathy. At varsity I had decided that I would become a hardened capitalist who would make more money than could be counted. But my first year at that franchise adjusted my thinking and changed my motivation for doing things. One day, I had to drive to the home of a young female employee who had been assaulted in the store and ask her mother to let her return. This woman supported several family members and I realised then the responsibilities one has as a business owner.
Law had given me a sense of justice and fairness, as well as insight into the good and bad about humanity that no other form of education can do. But I was young and I also made many mistakes in those early years. I seemed to have a knack for spending lots of money and the amount I poured into advertising remains a standing joke to this day. The first person I employed was lucky enough to be paid about five times the going rate. Fortunately none of those blunders broke the business. Our Debonairs store soon had the highest turnover and we bought another three in the Durban area.
I saved R650 000 in those first four years and took the decision to stay in South Africa and build my own business so that I could make a difference by providing training and employment for people. Of all the managers that I employed back then, 50% are still working with us 14 years later. I left Debonairs with an idea for a new franchise. Like all young people who have a business idea, I had unflinching certainty that my new venture would annihilate the competition. I roped in my father, and a partner who was an attorney, and approached Nando’s with a business plan for Scooters. We all put our money into the pot and raised R7 million because I had what the people at Nando’s called a kooky glint in my eye. What we put in represented our shareholding in the business, of which Nando’s took 33%. It meant that we did not need to find finance. Nando’s has remained involved as a shareholder and has an 18% stake in the business currently.
Choosing the right partners is the single most important consideration. The wrong partners will tear you apart with fear if you lose money and greed if you succeed. Find shareholders you trust, who are aligned with your business and who have the same expectation of returns. We ran at a loss for the first four years, but the shareholders had decided to back the people first and the idea second. Whether it was buying Maxi’s, listing, or acquiring NWJ, the shareholders have always supported management. I went to the World Pizza Fair in Las Vegas in March 2000. The first Scooters Pizza store opened in September 2000 and made R180 000 turnover in that month. By the end of the year we had seven stores in KwaZulu Natal and the Eastern Cape. The first franchisee was my father – he was the test case. Our growth was purposefully rapid, because we needed to base our proof of concept on the success of those seven stores. It was more important for us to get revenue from royalties and pump that into the business, than to take a slower and more measured approach.
39 minutes or your order is free. That’s the promise on which we built the business. Scooters Pizza had 100 stores by 2006, it has 120 today and it’s the second largest pizza delivery chain in the country by both units and turnover. In 2009, our internal revenue was R363 million and we achieved R567 million in sales. All we did was build a better mousetrap. In a sector as commoditised as the food industry, it’s hard to do something that is truly innovative. We just believed that we could make a better pizza at a better price, faster than our competitors. A lot of people go into franchising without understanding the downsides. It’s a very personal business. You take people’s lifesavings and they trust that you will show them how to create and run a successful business. It’s a massive obligation.
If your franchise model cannot support 100 stores, it won’t work. Small-scale franchising is simply not profitable. All you are getting is around 7% of turnover, with which you must service and support your franchisees. You can’t do that without a sufficient number of stores. Every day, Taste Holdings transfers skills, trains people and gives them the ability to earn an income and continue do so even after they leave us. We employ 200 staff directly, while the group provides employment for about 5 000 people. We pay up to R50 million in salaries annually. Rupert Murdoch said: “The world is changing very fast. Big will not beat small anymore. It will be the fast beating the slow.” A small business is able to outmanoeuvre its bigger competitors because it has speed on its side. We also exploited that early advantage that a new business has of being the underdog. I called the team “the dirty dozen” and we had all the energy that comes with the start of a new venture.
For every four weeks that the competition put in, we worked five-and-a-half. It’s a force that we struggle to sustain in the organisation today. A major milestone was the purchase of Maxi’s in April 2005. We needed to buy another brand to achieve critical mass, and Maxi’s was the one we could afford. That’s pivotal – we hocked everything and even asked Nando’s to stand surety – which it did – but the only way to achieve growth was by acquisition. We also wanted to prove that our franchise model was strong enough to be applied to more than just pizza. We have grown Maxi’s from 28 stores to 60, so we know it does. It’s a brand firmly positioned as an affordable family restaurant that appeals to the mass market and it’s built on a simple formula. A good franchise must have a formula that can be bottled and given to the franchisee so that they can make a success of the business without knowing anything about it.
The Maxi’s experience showed us that we were not invincible and that the banks were not falling over themselves to lend us money. It was very difficult for us to raise finance as a private company. In franchising, all you own are the brands, and banks cannot do anything with brands. Listing on the AltX in June 2006 gave us access to capital – R22,5 million – which we would be able to use to make further acquisitions in line with the strategy to become one of the largest integrated franchise companies in Africa. Another reason to list is that as a private company you have to consider that your shareholders may have a different timeframe in mind when it comes to taking their money out of the business. It’s an important consideration to bear in mind once you’ve popped the champagne and people’s expectations change. It happened to us, and it’s a destructive force. Listing meant that shareholders could come and go without impacting the business.
Many businesses have to undergo a huge clean-up when they list, but I always knew that this would be a big company and I ran it like one from the very beginning. Although we had only one store, we set up audit and remuneration committees. As a result, it took us a mere three months to list from the day we made the decision. Not everybody is suited to be the face of a listed company. Listing gives you responsibilities to people other than yourselves as the founders; it can enforce a level of transparency you are not used to. You have to justify why you get paid what you do. You also have to be able to communicate with stakeholders, bearing in mind that this is a tightly regulated process. A lot of founding owners could not be bothered with the non-value add that listing brings. They want to run the business for the long-term as opposed to six-monthly reporting periods.
We have always had a performance-based culture and our people are incentivised through cash and shares. Our share incentive schemes have not generated value yet, which is largely the result of being a small company in a down economy. Nonetheless, we are happy with the listing because we did it for the right reasons. As a result of the listing, we were able to buy NWJ Holdings for R100 million. We raised R50 million with an extra R30 million facility. Everyone asked why we would want a retail jewellery chain. They asked similar questions when we moved from takeaway pizza into quick service restaurants, but the value we bring is that we now have a property portfolio of over 260 sites, all situated in similar types of shopping centres. In addition, NWJ is a well established brand with a track record of success that has expanded our national footprint. The deal has turned us into a diversified franchise organisation in line with our strategy to own multiple brands, be region specific and category differentiated. Our three brands are very different from one another, but they all target the same type of consumer, LSM 6 – 10. We know how to market to those consumers. In the current economic climate, it pays to focus on containing costs, forecasting cash flow and getting money from your debtors. Constantly re-check and recalibrate your expectations – if sales drop, cut costs more. Sustaining the finances of the company is in everybody’s best interests and you owe it to your employees.” n
The business journey
- Scooters Pizza opens in September
- By December there are seven stores
- Maxi’s is acquired and Taste Holdings is formed
- Taste Holdings lists on the AltX
- Scooters Pizza wins FASA Brand Builder of the Year award
- Maxi’s is repositioned with a new corporate identity, menu design, national promotions and a new store image
- BJ sites are converted to Maxi’s growing the brand to over 60 outlets nationally
- Revenue increases by 15% to R33,8 million
- Headline earnings increase by 28% to R10 million
- System-wide sales increase to R373 million
- The total number of Taste outlets grows to 161 by financial year-end
- Taste Holdings buys NWJ Holdings for R100 million, bringing the total number of Taste outlets to 240
- Revenue increases 303% to R136,3 million
- Headline earnings grow 55% to R15,4 million
- Total number of outlets increases to 260
- System-wide sales grow 52% to R567 million
- Taste has two of the four companies chosen as finalists for the FASA Franchisor of the Year 2009 award
- Buying Maxi’s and NWJ gave the company the opportunity to expand through successful acquisition of strong brands. In the words of Carlo Gonzaga, “We could have completely stuffed it up, but instead we took advantage of the opportunities that arose.
- It’s something that is built into the DNA of the business.”
- The organisation has perfected the art of creating a powerful brand that can be “bottled” and rolled out quickly and easily.
- Gonzaga believes that you can manage income statements
- and expenses, but people have to be led. His approach is built
- on consensus.
- Having a stable leadership is a great advantage. Many of the top managers have been with the company for the long haul.
- Taste Holdings believes in growing people along with the business to ensure they are ready to take on bigger challenges.
- As a franchisor, the company views franchisees as the most important stakeholders in the business.