South African private supermarket chain Food Lover’s Group expects to spend up to R200 million on diesel alone to light up its Food Lover’s Market branded stores in the coming year.
There are other costs as it strives to keep up with daily power cuts, including the purchase of additional generators, the maintenance of generators and refrigerators, and the impact of boundless food waste resulting from disruptions to the cold chain.
“The cost of energy at the moment is exceptionally high,” CEO and co-founder of the group Brian Coppin tells Moneyweb.
“The cost of our generator diesel next year will be anywhere between R150 million and R200 million for our franchisees and ourselves.”
“We will probably spend in excess of between R40 million and R50 million buying new generators and adding capacity to the stores. We are a fresh business, and our fridges have to keep the food cold all the time.”
What the group cannot budget for is the loss of sales that come as a direct consequence of the power cuts, which often deter consumers from cooking, redirecting them to quick-service food outlets or sit-down dining restaurants.
“One of our biggest challenges in the last year was consumers who actually couldn’t cook at home between 16:00 and 20:00 when they had load shedding,” says Coppin.
“Further, some of our stores are on main arterial roads, so when robots [traffic lights] are down, consumers struggle to get to the shops. So [load shedding] is a huge cost for the retailer at the moment and it is going to be a tough year, without a doubt,” he adds.
Coppin started the Food Lover’s business with his brother Mike Coppin 30 years ago, with the first Fruit & Veg City store in Cape Town.
The siblings have grown the business to over 100 Food Lover’s Market stores across the country, with 60% owned by the group and delivering up to 70% of turnover. The rest of the stores are franchise businesses.
The larger format Food Lover’s Market store in 2010 paved the way for the smaller American deli-inspired brand Food Lover’s Eatery, which currently has 10 locations split between Cape Town and Johannesburg.
Over the years the pair have also brought new brands like convenience store Fresh Stop (with 250 locations) into the fold, as well as South African coffee brand Seattle Coffee Company and liquor store outlets Market Liquors and Diamond Discount Liquor stores.
Looking to the next 30 years, the group says it has plans to increase its footprint by opening more locations across all brands. Currently the Market Liquor and Diamond Discount Liquor stores as well as Seattle Coffee have the strongest case for growth in the short term according to Coppin.
“We’ve got the Diamond Liquors and Market Liquors brands that sit alongside Food Lover’s so we believe there’s lots of runway for that. So we will open as many bottle stores as we can get, but [this is] obviously licence-dependent.
“Seattle, we think is the most exciting brand out there – we could grow anything between 20 and 40 Seattle stores a year,” says Coppin.
Due to the cost of running the Food Lover’s stores in the current energy crisis environment, Coppin believes the majority of growth for the brand will emanate from the group as franchisees might find the cost of doing so too steep.
“A new store at a best in-store community is a costly business, like R20 million give or take, depending on the size, and it’s hard at the moment for retail, especially with the cost of energy. So I don’t know how many franchisees are out there that are willing to invest that kind of money with us.
“So I would imagine that the growth will come more out of corporate than out of franchisees in the immediate future.”
No delivery
Despite the on-demand delivery wars intensifying among grocery retail giants like Shoprite, Pick n Pay and Woolworths – with Shoprite’s Checkers Sixty60 comfortably in the lead – Food Lover’s says it has no interest in joining the race.
For the retailer, the joy still lies in attracting customers to its many locations around the country, and delivery contradicts its goal of being the best store in the community.
“We spend millions on building durable stores and on the theatre of food for our customers to come in and see it and experience that,” says Coppin.
“We also don’t know about the profitability of delivering fresh. I think online certainly has a place for general merchandise, without a doubt. I don’t know how much of a place it’s got for delivery of food, particularly fresh food.
“I think we’ve had tremendous transaction growth and customer growth without it [on-demand delivery]. So we are not going down that route yet.”
This story first appeared in Moneyweb and is republished with permission.
