These days, nothing seems to get Simbisa Brands more excited than the sight of an empty piece of land. The country’s biggest fast-food company is on its most aggressive expansion streak ever, hatching new outlets rapidly. It opened 31 new outlets in 2023 and plans another 27 more by June. But some are wondering; is the company now overtrading? Is it now really a real estate company disguised as a fried chicken joint? The company’s FD and acting CEO Baldwin Guchu, has been speaking on strategy.
Expanding too fast, too much?
In expanding, Simbisa is doing what any business dreams of; shut out the competition, both current and any that may dare enter the market. But, could Simbisa also inevitably hit a plateau, especially as disposable incomes and customer counts fall? Is the company overtrading?
These are questions Guchu was asked at a recent analysts’ briefing. He pointed out that the market still has room left to grow, and the company is in a strong financial position to keep ruling the roost. To fund the store rollout, Simbisa is using supplier credit, and not the more expensive bank loans.
“When we open a new store, a lot of the equipment we install is on credit. We start trading without paying for it, and the cashflows generated by that store pay off the debt,” Guchu explains. “We’re not struggling to raise cash.”
Of the US$146.8 million revenue made by the group, US$106.7 million, or 72%, came from Zimbabwe operations. Capital expenditure increased by 61% to US$19.1 million in the half year to December.
Is Simbisa becoming a ‘property company’?
The rapid expansion means Simbisa has had to buy multiple properties. So, is this now, in a way, a property company? Guchu says: “If we find a really good location where we believe we will be slowed down by developers, we will buy it. We will develop it ourselves, and dispose of it if the opportunity comes.”
He said Simbisa was willing to sell such properties to investors, such as pension funds, so that it could unlock value and use the proceeds to fund future expansion while giving shareholders a good return.
Why Simbisa is pushing harder on deliveries
Simbisa plans to step up its delivery business. When people order deliveries, they tend to spend more, Guchu says. The average spend on deliveries is US$18, more than that what walk-in customers spend.
“We are working on cutting delivery times to a maximum of 30 minutes,” Guchu says, adding that deliveries also help Simbisa to measure consumer demand in an area.
Making people with less money buy more
On average, a customer who walks into the company’s fast-food outlets spends US$4.65. As costs rise, Simbisa has to play a balancing act – it doesn’t want the average costs of its popular meals to go over US$5. But instead of slashing prices, it gives value propositions, such as adding a free drink to a meal, says Guchu.
Which is the biggest Simbisa brand?
By revenue contribution, Chicken Inn is the biggest of Simbisa’s brands. It accounts for 38% of revenue. It is followed by Pizza Inn (24%), Nando’s (7%) and Galitos (4%).
Rising power costs
One of Simbisa’s biggest cost drivers is power. Electricity charges went up 45% in the last half of 2023. The company is using more diesel; generator fuel usage rose by 38%. The company used US$1.2 million on diesel in the last half-year, 17% more than the same period in the previous year. The company is responding by using alternative energy where possible, and optimising trading hours.
Source: NewZwire
