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Send  Share  RSS  Twitter  10 Sep 2012

VENTURES: Brimstone's Taste For Seafood

 



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EMPOWERMENT group Brimstone’s participation in the local fishing sector is well known through its anchor investment in hake specialist Sea Harvest and strategic shareholding in Oceana.

But recently Brimstone has added a third leg to its fishing endeavours via an investment in Taste Holdings, which holds the franchise for the fast growing Fish & Chip Co takeaway concept.

Initially there was some surprise that Brimstone tilted at Taste, which is one of the smaller food franchising groups. Indeed numerous observers have felt Brimstone might be more suited to the regular returns from a sector stalwart like Spur Corporation. But the Taste deal may turn out to be a very clever transaction…

Taste (founded on its Scooters and Maxis fast food and restaurant brands) is well known in Cape Town food circles after its acquired the iconic Cape Town-based restaurant group St Elmos, which has 28 pizza outlets.

Ironically the Fish & Chip Co is woefully under-represented in the Western Cape – a region where the bulk of its hake is sourced. Taste also – rather conveniently – has one of its central kitchens and distribution centres (where the big money will be made in future) in Cape Town.

No doubt Brimstone – well known as an industrious empowerment partner – will help secure more sites for the Fish & Chip Co stores in and around Cape Town. But more importantly you can bet your bottom dollar that Sea Harvest will be supplying the bulk of the hake to the local outlets.

The Fish and Chip Co currently comprises around 250 stores, but Taste forecast that the chain can be grown to over 400 in the medium term. No doubt much of that expansion will be in the Western Cape.

Taste MD Carlo Gonzaga noted in the company’s annual report that Taste Holdings took over 202 Fish & Chip Co outlets in February 2012 and in July 2012 there were 248 outlets trading. “That translates into opening 10 new stores a month and the aim is to open 50 new stores in the first six months of the new financial year.”

He said there was significant opportunity for expansion of the brand within SA. “Taste believes that it is a 400-store system in the current store formats. The current footprint does not include any meaningful penetration into the Western Cape or Kwazulu-Natal provinces…”

The concept is simple. The brand competes in the same category as the old fish and ‘slap chips’ shop – offering a 600g protein-based meal for R25.

The low set-up costs have made the brand the fastest growing mainstream franchise in SA. The franchise buy-in costs R437 000 (excluding VAT) and has an estimated return on investment of 24 months. Fixed royalties are low at R500 per week.

The market seems enamoured by the concept. In fact, Brimstone has already doubled its profit on its Taste investment. The company paid R37 million for 24 million shares in Taste, a stake that is now worth over R75 million.

The big long-term gains for Taste (and Brimstone) won’t only come from expanding the Fish & Chip Co outlets. Rather the high margin profits will come (as it does at Spur and Famous Brands) from Taste’s food services division, which manufactures all pizza sauces, bastings and table sauces.

This manufacturing is done from a SABS HACCP2 accredited facility located in Cape Town.

Gonzaga noted, that with the Fish & Chip Co onboard the manufacturing facilities (which had been producing for Scooters and Maxis since August last year) would double the current sauce and spice volumes from next month.

The Cape Town facility currently includes a warehousing capability, which Gonzaga said would be expanded in the future.

In 2012 we were warehousing only the St Elmo’s Woodfired Pizza brand in the Cape Town facility.”

With the acquisition of The Fish and Chip Co, which included warehousing and distribution capability, we are currently assessing national warehousing opportunities for Scooters Pizza and Maxi’s.”

No real surprise then that the acquisition of The Fish and Chip Co has prompted Taste to predict that it could double headline earnings to 21.4c/share by February 2014.

All in all, it looks like Brimstone has landed another great catch – not to mention an opportunity to scale up revenue lines at Sea Harvest with a hefty chunk of annuity business.


 
 
 
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