Taste Holdings losses halt expansion of Domino’s and Starbucks
The group, which had to be refinanced in February to pay off debt, incurred an operating loss and a drop in revenue
The trouble at Taste Holdings has led it to halt the expansion of its Domino’s pizza chain and Starbucks coffee shops.
The group, which had to be refinanced by its shareholders in February to the tune of R398m to pay off its debt, incurred an operating loss of R87m and revenue dropped 3% to R469m for the half-year to end-August.
It has secured a further R200m in loan financing at an interest rate of 16% from its now majority shareholder, the Sean Riskowitz-backed Riskowitz Value Fund.
The losses and suspension of its store roll-out followed the resignation of its co-founder and CEO, Carlo Gonzaga, in February and CFO Evan Tsatsarolakis in May.
Tyrone Moodley, nonexecutive director and former fund manager, has since become CEO. Bruce Layzell was hired as managing executive of Domino’s and Dylan Pienaar was appointed COO and is now its acting CFO.
The group said it is pausing the expansion of Domino’s and Starbucks to review the operating models and capital required to deliver an acceptable return on investment.
It said its Domino’s corporate stores are incurring operating losses and that Starbucks’ stores are not producing the required return on the store investments.
Fund manager Just One Lap founder Simon Brown said setting up a Starbucks stores is expensive, as it only costs a few hundred thousand rand to set up a coffee shop compared with the R20m bill for rolling out a Starbucks outlet.
Brown said that reading between the lines, it looks as if it had spent too much on its first four Starbucks stores.
Taste has a 25-year exclusive agreement to operate Starbucks in SA and has opened 12 stores so far. It runs and owns 62 Domino’s stores, with the remaining 25 being franchise-owned.
It said stopping the roll-out will also preserve the excess from the rights issue (after paying off its debt) to fund its current operating loss.
The problems at its food operations have been longstanding. Independent analyst Anthony Clark said by his calculation, losses at this division are more than R500m for the past three financial years.
The losses at Taste followed a revolt by minority shareholders in Grand Parade Investments (GPI), the owner of the local rights to Burger King, Dunkin’ (formerly Dunkin’ Donuts) and Baskin Robbins, who wanted people with skills to manage its food operations. GPI has rolled out 80 Burger King outlets but still incurred a R27m loss in its results for the year to end-June.
Moodley said the appointment of Layzell and Pienaar has already made a difference to Taste as “their collective experience changed the level of conversation around the executive table”.
Taste said though the difficult economy is taking its toll, the performance at Domino’s was the largest contributor to its losses in earnings before interest, tax, depreciation and amortisation of R65.5m.
It says it has no plans to sell its luxury-goods division. The group tried to sell it in 2017, but could not get the price it wanted. Luxury-goods sales dropped 13% to R220m, incurred a R13.2m operating loss and its gross margins declined 1.9%.
Update: November 29 2018
A picture of the current CEO of Taste Holdings was added