South Africa’s Famous Brands Looks to Smaller Format Stores for Growth

Already the largest foodservice operator in South Africa by some margin, Famous Brands continues to press the advantage, with a range of new outlet formats designed to spur further penetration into rural and low-income areas.

The company has launched new smaller-footprint outlet formats for both its Mugg & Bean specialist coffee shop brand as well as Debonairs Pizza. As seen in other markets, the strategy serves two purposes—growing share among lower-income consumers in both second-tier cities and rural areas that account for a significant percentage of consumer demand, while also allowing further expansion into non-traditional locations, above all convenience stores and travel outlets. Going forward, this should further strengthen Famous Brands’ already-dominant presence in its home market, while also underscoring the importance of an effective, differentiated outlet strategy to achieving maximum market coverage.

Forecourt retail drives expansion

Forecourt retailers figure prominently in Famous Brands’ forward outlet strategy, with the company entering a flurry of new partnerships in 2010. Coffee chain Mugg & Bean, for instance, launched its “Mini” concept in Sandton, Gauteng in partnership with Total Petroleum, part of an exclusive agreement with Total to expand this concept further into the forecourt market. A similar strategic alliance between the company’s Brazilian Café brand and Shell Petroleum has resulted in massive expansion for the brand in 2010, with outlets more than doubling. Overall, forecourt retailers are primed for further expansion as car ownership continues to rise in South Africa, with the category expected to add nearly 2,000 outlets over the next five years, representing better than 50% growth. As competition grows, more retailers are expected to look to Famous Brands and its strong brand portfolio as a manes of driving further traffic.

Outlet strategy key going forward

As in many other emerging markets, incomes in South Africa are highly stratified; there is a significant gap between a small group of high-income consumers with consumption patterns similar to those in any developed market and a much-larger group of lower-income consumers for whom fast food, for instance, remains something of an aspirational purchase. The key to effectively targeting both groups is diversity, in terms of both concepts and outlet design—in the case of Famous Brands, this can be seen in both the company’s broad, differentiated brand portfolio, incorporating both niche brands for more affluent consumers, like cafe chain tasha’s, as well as more mass market concepts like Debonairs Pizza.

Even within mass market brands, however, it is increasingly necessary to go one step further, combining standard outlets with smaller, cheaper-to-operate formats with lower priced menus designed to appeal to lower-income consumers in both major cities and more regional centres. The trick, of course, is to find ways to strip down the format and the concept without losing the qualities that made the brand work in the first place—in the case of Debonair’s Pizza, the philosophy has been one of simplification—a smaller menu in a quick-service format, introducing new consumers to the brand in an accessible way. Going forward, this type of outlet strategy is expected to become an indispensible part of overall strategy in both South Africa and other emerging markets, as the purchasing power of low-income consumers continues to rise.