The consumption boom has tapered off as increasing living costs and poor employment prospects damp confidence, but this has done little to deter consumers from rewarding themselves with small treats.
If the snaking queues at rival Krispy Kreme’s local store are anything to go by, Dunkin’ Donuts will also appeal to South Africans looking for some respite amid a dwindling economy.
Global brands continue to expand into SA, driven by an aspirant middle-class. Starbucks is due to open in March, following the recent launched of Pizza Hut and Domino’s Pizza.
Grand Parade Investments (GPI), which has signed a franchise agreement with Nasdaq-listed Dunkin’ Brands to bring the coffee and doughnut chain, as well as ice cream offering Baskin-Robbins to SA, also holds the country’s Burger King licence.
While the group builds critical mass, the products will be imported, with “finishing” done in stores.
“Our plan is to localise product as soon as we can,” GPI CEO Alan Keet said on Wednesday.
The company has localised 95% of inputs to Burger King already.
With a target of 250 Dunkin’ Donuts and 70 Baskin-Robbins stores, GPI was eyeing mostly high revenue-generating forecourt stores for its roll-out, Mr Keet said.
Time-poor consumers are becoming accustomed to getting their coffee and snack fix from filling stations, with retailers using the platform to grow brand awareness.
Shell and local coffee brand Vida e Caffé, whose joint-venture began in 2013, recently announced the opening of their 100th forecourt store in SA, signalling the rapid emergence of the country’s coffee culture.
“Dunkin’ Donuts, despite its name, is internationally seen as more of a coffee offering,” Mr Keet said. “The coffee market is growing and it has a very aspirational element. You see people in New York walking with their coffee cups – its very trendy and it’s on TV too. Our population are in a rush because of time pressure and commuting, so they are really in a grab-and-go mode.”
Dunkin’ Brands other consumer offering Baskin-Robbins has a presence in more than 50 countries outside the US including India, China and Russia. The speciality ice-cream shops also sell custom ice cream cakes, frozen beverages and ice cream sundaes. Since it was founded in 1945, it has introduced more than 1,000 ice-cream flavours including Strawberry Millefeuille, Wild ‘n Reckless Sherbert and Peppermint Fudge Ribbon.
“The local ice-cream market is big but in the hard scoop category there aren’t too many competitors. The local consumer, especially at the lower end is buying stick and soft serve ice-cream,” Mr Keet said.
GPI, whose long-term margin for Burger King was about 60%, has trimmed back the chain’s expansion plans.
Dirk van Vlaanderen, investment analyst at Kagiso Asset Management, said GPI had gained a lot of valuable experience from the Burger King expansion.
“They will have a much clearer outlook on the speed and location of Dunkin’ Donuts store roll-out. The much smaller size of the Dunkin’ Donuts stores suggests that set-up costs per store should be significantly lower than Burger King stores – several of which are large, drive-throughs,” he said.
“This, combined with the fact we also expect the Dunkin’ Donuts brand to have a significant portion of franchised stores, suggests an overall more prudent and capital-light approach is likely to be employed to the Dunkin’ Donuts roll-out.”
There are 51 Burger King stores – well off the initial target of 100, with the revised target now 85 by the end of June.
“Undoubtedly, 2016 will be a tough year for consumer-facing companies in South Africa but the large number of international QSR brands that have recently began to get a foothold in the South African market are clearly looking to the long-term opportunity of a large emerging and aspirant middle-class in SA,” Mr Van Vlaanderen.