Food for thought from SA's original franchiser
The Steers Group is expanding fast locally and internationally. CIARAN RYAN looks at its success story
IT SEEMS fitting that the group which introduced food franchising to South Africa in the 1960s should retain its lead as the fastest growing franchise chain in the country.
Milky Lane, Spur, Black Steer and Burger Ranch - food franchising chains which have since become household names - all originated out of the original Steers in the 60s and 70s. After a visit to the US in the 60s, group founder George Halamandres returned to open SA's first steak house. On his return from the US, George opened the first Milky Lane, followed by a Golden Spur in Rosebank, and later a Seven Steer and Black Steer, also in Johannesburg.
A burger cost just 35c and a cold drink 5c in those days: "At the outset, the business was built on the concept of value for money, and that hasn't changed," says John Halamandres, managing director of Steers and son of the late George Halamandres.
"No one knew what a steakhouse was in those days. It took a long time for the food franchising concept to catch on in SA. But when it did, business blossomed."
George also brought back from the US a range of recipes which formed the basis of its original menus: "In those days you could walk into a kitchen and ask the chef for his recipes and he would gladly give them to you. You cannot do that today and in any event, we modified our recipes over the years to meet the changing demands of customers," says Halamandres.
By the mid-1970s the group had grown to 35 outlets, including three Burger Ranch outlets in Israel and a Steers outlet in then Rhodesia. The Israeli Burger Ranch chain, now owned independently of Steers, has since grown to become one of the largest food chains in that country.
In the late 70s it was decided to sell the franchised operations to the franchisees, leaving Steers with just a handful of outlets and a central kitchen in Johannesburg. In 1983 the group launched a new franchise programme.
"We placed a single advertisement in a local newspaper inviting franchisees to apply, and from then on the phone never stopped ringing," recalls Halamandres.
The first stores under the relaunched Steers opened in the Johannesburg suburbs of Blackheath, Benoni and Edenvale - all in the same week. In the mid-1980s the company was hard-pushed to cope with five new store openings a year. Now it handles upwards of 30 a year.
The Steers group today comprises 266 stores in South Africa and 14 more beyond our borders. In South Africa, the group comprises 200 Steers outlets, nine Longhorns, 45 Blockbuster video shops and 12 Mighty Pies. There are two outlets in Zimbabwe with two more opening in December, one in Mauritius with an second opening in the New Year, one in Kenya and another opening in January, two in Botswana and one in Namibia. A Steers outlet is also due to open in Cairo early in 1997.
If and when the market becomes saturated with Steers outlets, the group has several other plans up its sleeve to ensure continued growth. Earlier this year Steers launched the Mighty Pie chain together with two of its regional licensees. Mighty Pie has already expanded to 12 outlets and has been well received by the market. The 45-store Block Buster Video chain, although owned by the Halamandres family, may eventually be absorbed into the Steers group. Block Buster Video stores are generally located alongside Steers outlets.
"The idea was that when people go out to buy take-aways, they could browse through the video selection and take one home," says Halamandres. "It has been an outstanding success."
Last year it acquired the 26-store Longhorn chain, and rationalised the group by closing take-aways and converting others into Steers outlets. The relaunch of Longhorn as a value-for-money family restaurant with a varied menu represents a significant departure from the steakhouse concept traditionally associated with the brand. The new-look Longhorn has been well received, and is about to be capped by the opening of a flagship restaurant on the Margate beachfront, followed by another new store opening in Bloemfontein.
The last two years have been eventful ones for Steers - the rate of international and local expansion hit all-time highs, new franchises were launched and the Longhorn chain acquired, but a defining moment in the group's history was its listing on the JSE two years ago. The shares hit the boards at 165c and have since appreciated to 400c, a resounding endorsement from the investment community. In its prospectus it promised earnings growth of 35% a year for the next few years, a promise on which it has made good. Financial director Nick Galatis says the group can sustain a strong rate of earnings growth for at least three years.
Steers received the coveted Franchiser of the Year Award in 1993 and 1994 and is regarded by many as a case study in successful franchising. Franchising has evolved from the early days when franchisees acquired a known corporate image, but little in the way of practical business advice. Today Steers' franchisees buy into a tried and tested corporate image, national advertising, market-proven recipes and a complete business format. Group expansion is limited only by the availability of suitable store sites. The beauty of franchising is that franchisees fund your expansion - new store openings represent little or no claim on the group balance sheet.
Franchisees must pass a rigorous pre-qualification test to determine their suitability for the food business: "We insist on the store manager having some equity in the business," says chairman Peter Halamandaris. "Owner-managed businesses always perform better than businesses where the owner is a passive investor or mostly absent from the business."
Many prospective franchisees lack the capital and business experience. It can cost up to R600 000 to open a fully fitted Steers outlet, and the franchisee is expected to provide roughly 25% of the capital, while Steers will assist in drawing up a business plan to raise loan funding for the balance from commercial banks and other financial institutions.
Franchisees and their staff are put through a thorough one month initial training programme in food preparation and presentation procedures, customer relations, marketing, business and financial management.
Proof of the group's success is the low drop-out rate among franchisees - less than 1% over the last three years.