Quick service restaurant (QSR) business has nose dived in the North East as a result of insurgency and the Southern market was dealt a heavy blow in mid-year by Ebola.
But in this interview with Senior Correspondent, GODDIE OFOSE, UAC Restaurant Managing Director, Derrick van Houten, says even with the hurdles, Nigeria remains the biggest food market on the continent.
UAC Restaurant is the owner of Mr Bigg’s.
Assessment of QSR in 2014
2014 hasn’t been too different from 2013. It has been very tough and market condition has been very difficult.
I don’t want emphasis about security and Ebola but those conditions have not gone away. In fact, security actually got worse, especially for those who operate national businesses.
So, our businesses in the North, the franchises, have taken a real knock in terms of sales and some of them had to close. It has been a tough year and the outspend which we expected in terms of the coming election we have not seen that yet. In fact, we have seen a bigger decline in the rainy season.
The rainy season always goes quiet because people will go on holiday, but with Ebola scare the hotels are empty, airlines are empty, and there is a knock on sales because people are not coming in. Nobody eats in restaurants.
So, it has been a difficult year not only for our business but also for the food industry generally.
Justifying bad business against number of diners
I don’t know how you justify a food house but if you look at trends, the number of people going to restaurants is down. That is not just my business but quick service restaurant across the board. There are fewer people going to shops every day than they were last year.
The second factor is what we call average spend. People used to spend an X amount every time they went in but they are now spending Y. It tells me that every consumer who has money in his pocket spends it wisely on home needs such as rent, power, school fees; and then if the money is left he may go out to eat.
Slow business in the South even without security threat
The North used to be a growing market for us. Abuja, Jos, Kano, and Kaduna were growth points for us and we were investing in the North adding new restaurants because Lagos was pretty saturated.
The pattern used to be a bomb scare here and there and people got used to it. For instance, if there was a bomb in Jos it didn’t really affect Abuja and Kaduna so people were still eating out because it was just an explosion. But the situation has changed.
Moving down to the South, you could normally rely on Lagos and the surrounding areas to still produce fairly reasonable sales because you have the volume. But with Ebola, Lagos went quiet, hotel occupancy is down, airlines coming in are not full.
When you put that together you will find out that QSR business has been really knocked.
Mr. Bigg’s relationship with South African firm
It is a joint venture (JV), which means that it is more than just a back to back agreement. Famous Brand is our joint venture partner and has an extremely strong process and structure. They manage over 20,000 restaurants worldwide and to do that you have to have the business pretty good in terms of brand management and structures.
After the JV in October 2013, we realised that Mr. Bigg’s needed a lot of infrastructure change. Last year was spent to fix the back end but consumers have not seen it yet. That is getting all our practices in line with world class standard.
That gives you a foundation to bring in different products and brands to your consumers. It has been very good for our staff because it is a big learning curve.
There has been a lot of training, and interaction between people of both countries and business has been extremely good. We are very happy with the joint venture.
Is foreign competition reason behind JV?
UAC has a strategy to possibly entice international brands in JV, so within the UAC group we have similar relationships with companies outside Nigeria. The sole aim is that where we have a very strong brand but lack some expertise in certain areas we bring that expertise to our brands and strengthen them.
There is a spinoff in the JV with Famous Brands because they have so many other brands we can make use of in Nigeria. But the sole purpose of the JV is to strengthen our current business and compete with the international brands coming in.
Strategy of expansion in terms of outlet
We are only in the franchise business; we do not own any restaurant, that is the model we run. And when you talk about growth, we are not in a space where we want to open as many restaurants as possible. That is not our strategy.
Our strategy is to consolidate what we have got, to fix what we have got and to compete with any other brand and even better than any other brand. Where there are opportunities, we take them to grow.
Plans for the Northern market despite insecurity
We are going to change the way we grow the North, because it is not the same North that we were used to. We will grow in the North, but we are going to be more careful the way we go. Maybe the pace of growth will change but not the model to grow.
The north is just one of our growth areas. Growth will be to be strategically placed in shopping malls; they are of high visibility and a consumer profile that suits us. That is really our growth plan for the next few years. But we first want to fix what we have got and we call it our consolidation plan; fix slowly and grow.
Local QSR brands’ phobia against other countries
Nigerians are not afraid of anything; you must understand that Nigeria is a very specific market. To have a successful brand in Nigeria is very different from having a successful brand anywhere else. So, you cannot just copy and paste Nigerian brands around the world, and that is not our strategy at all.
To operate in Nigeria, you know the difficulty we face in terms of legislation, power and so. That is very different around the world; the model we build here may not necessarily work elsewhere.
Even our menus are specifically for Nigerians, and I think that is why we have been successful; because Mr. Bigg’s cater for Nigerian consumers. When we took Mr. Bigg’s to Ghana for example, it was not the same.
So, for us right now, we don’t see that as an international brand. It is an African brand. But Famous Brands have brands that they use internationally in the United Kingdom and the Middle East.
There are models that work in any country but the Nigerian brand is very specific; it does not work anywhere else.
Can Mr. Bigg’s adopt Chinese restaurant model?
It is not in our strategy yet to move Mr. Bigg’s out of Nigeria. We have not looked at the complications of taking Mr. Bigg’s to America.
Firstly, it’s not our plan to do that and secondly, if you are looking at Nigerians around the world, they spread all over. Nigerians are in almost every country, but do not have the mass to take to Chinese restaurants.
China has a huge population and carries mass worldwide, so Chinese restaurants work almost everywhere in the world. They have also developed the menu that Europeans and others like.
That is a Chinese model, but with Mr. Bigg’s we are very focus on the Nigerian market and that is where we want to be successful.
Influence of legislation on QSR
There are positives and negatives. On the positive side, the authorities have really stepped up their game in terms of managing QSR, health and safety. I think that is good, we want regulations in those areas.
On the negative side, the cost of doing business in Nigeria is very high in terms of taxation. We currently seat with additional consumption tax in Lagos, and that is very burdening on any food or hospitality business.
Those are the kinds of regulation that make it least profitable for you to be in business in Nigeria.
The importation arena is a very tricky one and the government has laws that prohibit us from bringing in certain items, which makes things difficult and costly. Sometimes you have to substitute that with a local product that maybe more expensive or not the quality you are looking for.
Mr. Bigg’s menu
The whole sector has changed in the last few years. Nigerians have become unbelievably health conscious in terms of what they eat, so we have had to adapt as well.
We have just re-manufactured our whole menu to look at menu items that were not healthy, items that needed re-manufacturing or re-development. We are constantly doing that.
Nigerians are very aware of which menu items are healthy and not healthy. And it has become a new ball game for all of us.
Unwholesome meat experience in China and Nigeria
You are talking about McDonald’s, right? It is a vast international group with 32,000 restaurants. The tolerance is very small. If a specification is not exactly what is prescribed the brand will have to stop until it is right.
That is very good; that is the kind of competition you want. In Africa, we cannot meet that 100 per cent all the time, and I am not talking about bad food, but specifications.
You have got to have a tolerance where raw materials do not always meet your specifications. Don’t get me wrong, I am not saying we allow bad food, I am just saying that the tolerance has to be a little bit bigger on raw material products than maybe elsewhere in the world.
Why QSR shies away from stock market
I cannot comment for others. We are part of two very big groups Famous Brands and UAC. They are both listed as a group on the stock market, and they use those vehicles to manage funding and growth.
It is not necessary for us as a subsidiary to chase after stock market and it will be of very little benefit for us as a business to be listed.
All the benefits that go with listing on the stock exchange we get by being part of two listed groups.
Where Mr. Bigg’s is going
We have always had the biggest number of outlets, the biggest share of the market, and we have always had the most top of mind awareness as a brand in the QSR sector. That is a given, and we are working to even make it better.
Where we have grown, which is not always evident to consumers, is fixing the internal areas, growing the structures and processes.
Competition
AFFCON has done a great job bringing some sort of normality to the industry. It is handling the consumption tax issue for us as an industry. It has added a huge value to the business. It has brought in structures the industry needs.
A word for young entrepreneurs
Do not come in to QSR. QSR next to the hotel business is probably one of the most difficult businesses to manage in terms of margins, profitability, cash. It is just a very difficult place to be in.
Do not come into QSR. You can do anything else, but do not come into QSR. It is a very difficult space.
Greatest strength in the Nigerian market
In Nigeria, there is always one standout, which is Lagos. Lagos is a country on its own. There are countries in Africa that do not have as many people as Lagos. So, Lagos always competes hands down with the rest of Nigeria.
We are starting to see growth come back in Port Harcourt a little bit, starting to see Kano come back, despite all its problems; and mall culture springing up. But Lagos, hands down, is the winner.
