Taste Holdings: Curse of the honeymoon
Taste’s mistakes were a ‘carbon copy’ of everything Grand Parade had done wrong in its rollout of US chain Burger King
With a new(ish) CEO and R132m in the bank from a February rights offer, Taste Holdings has had a busy year.
It’s been hard to keep up with management changes at the upstart food franchise business, which, despite its (loss-making) minnow status, is the SA partner to two of the world’s biggest fast-food brands — Domino’s Pizza and Starbucks.
The FM’s meeting with CEO Dylan Pienaar and former caretaker CEO Tyrone Moodley — now a nonexecutive at the company — is something of a peace-pipe ceremony, given Taste’s reluctance to speak to the media last year. Pienaar, a former FD at Grand Parade Investments (GPI), says: "We had to figure out what we needed to do to Taste and [when] the press was asking us to engage with them, we knew we didn’t have the answer."
Still, he says it was "obvious" that Taste’s strategy was broken. "There wasn’t any focus. It was just all over the show."
For example, Taste was still grappling with its luxury goods business NWJ, trying to become the next Famous Brands with an integrated supply chain, working on the conversion of some of its local brands to Domino’s stores as well as rolling out Starbucks.
But "there was no accountability at the coalface within each of the brands", he says. Instead, Taste had executives running shared functions across its different brands.
This led to "wrong decisions, and slow decisions".
For Pienaar, Taste’s mistakes were a "carbon copy" of everything that GPI had done wrong in its rollout of US chain Burger King, including over-spending on stores and flying blind on store locations. He calls it the curse of the honeymoon period.
You have "queues of people, and the sales just don’t drop, they continue growing, and that can last the better part of a year, maybe even two years … and that’s where the big mistakes happen", he says, like thinking you can spend millions on a store because you’ll "pay it back in three years".
Taste is set to release results this week and it's still not going to be pretty
In fact, Taste spent just over R10m on its flagship Rosebank store in Joburg.
But the drop in sales once the novelty has gone is "brutal", says Pienaar. "You don’t want to be around for that and that’s where I stepped in last year."
Taste has now ring-fenced its luxury business and closed down its own jewellery manufacturing operations, preferring to use a third-party. It says that division needs no further funding.
But the real work was in the food division, particularly its supply chain, which Pienaar describes as the "big black hole" where many of Taste’s problems lay. Pienaar says Taste simply didn’t have the capital the business would need to get it right. It has now outsourced the division’s supply chain activities.
One of the biggest shifts the company has made in the past year is to use the know-how of its global brands. "They might say, wait a minute, India had this problem three years ago; speak to so and so and we’ll connect the two of you."
Despite the fanfare that accompanied Taste’s announcement that it had secured partnerships with two of the biggest food franchises, the company didn’t have an especially strong relationship with either Domino’s or Starbucks.
"It was nerve-racking," says Moodley of his first call to the Domino’s and Starbucks head offices. "The first step was going to them and saying: ‘We know you’re successful in 86 countries with Domino’s but we’re not seeing that on the ground here — there’s something broken about our model and strategy and we’re asking for help.’ And they said: ‘We were waiting for somebody to ask.’"
Visits to Domino’s head office in Ann Arbor, Michigan, and Starbucks HQ in Seattle ensued. It included learning how to make a pizza and pour a decent flat white.
Taste is set to release results this week and it’s still not going to be pretty: the company expects to make a headline loss of between 24.8c and 26.4c a share, against the loss of 41.8c reported last year.
At least the company has a firm grip on what it is. Pienaar says: "We operate and franchise retail operations; all the distractions of the other businesses have been taken away."