TALK of Zimbabwean companies that have managed to raise the local flag in the region and on the continent, and I can almost guarantee you that Simbisa Brands' name will pop up.
The quick-service restaurant chain has challenged the inward-looking status quo and in pursuit of growth, spread its wings across the continent. Just like any venture, this has had a mixture of successes and a fair share of shortcomings.
Considering Zimbabwe’s contribution to the continent’s metrics, Sambisa’s efforts should at least be celebrated. Of the 1,4 billion people on the African continent, Zimbabwe contributes only 16 million and if you ask the International Monetary Fund (IMF), Zimbabwe's Gross Domestic Product (GDP) is slightly above 1% of Africa’s entire continent’s GDP.
Nevertheless, Simbisa felt it could penetrate the continent and make it in other markets.
The Victoria Falls Stock Exchange listed restaurant chain’s origins can be traced back to 1987 when the first Chicken Inn branch was opened in Harare.
For some time, it operated under the Innscor banner, until it was unbundled into a stand-alone company in 2015. For some time, it only also operated in Zimbabwe before beginning to branch out.
The company divides its stores into two categories, that is, the company-owned and operated stores, and the franchised stores. The brands include the flagship Chicken Inn, Pizza Inn, Creamy Inn and Bakers Inn together with other more premium brands like Roco Mamas and Ocean Basket.
It also runs other franchise brands like Nando’s in other markets on the continent. The company serves pretty much the entire market although segmenting them and targeting with different brands from low to high-income earners.
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Simbisa is currently serving nine markets with Zimbabwe being the biggest in terms of both store counts and contribution to top and bottom lines. Using FY23 numbers, for the 578 owned and operated stores, 280 stores of those were in Zimbabwe and two-thirds of the total revenue came from Zimbabwe.
Simbisa opened 73 new counters throughout FY24 of which 52 were opened in Zimbabwe. This begs the question of whether Simbisa should be expanding into the region in the first place or should be focused on the Zimbabwean market.
Kenya is also another key market for the group, and it follows Zimbabwe, and then Zambia, Ghana and Mauritius. These three markets historically fell under the owned and operated category, but the latest news is that Simbisa divested out of them and going forward they will continue as franchise markets, like Malawi, DRC and Namibia.
According to the FY24 results, Simbisa pocketed US$8,7 million from this transaction.
You might be wondering what the rationale of these restructuring exercises is and why they are important.
Well, according to Simbisa’s latest financial statements, the company highlighted that the rationale to sell was due to their underperformance and to allow management to focus on maximising shareholder returns in the core markets.
The currency volatilities in these markets were also resulting in exchange losses that were pressuring the bottom line. I also opine that Simbisa in some of these markets does not have the market share and control as it has in Zimbabwe and suffers stiffer competition from other well-established brands.
In Zambia for example, where Simbisa owned and operated 25 counters as of F23, they face stiff competition from the likes of Hungry Lion. The competition in Zimbabwe hasn’t been strong for the most part, it is only now when the likes of KFC are aggressively expanding that we can talk about competition.
On the other hand, Simbisa purchased the Eswatini operations, which previously operated as a franchise. This restructuring means Simbisa core, owned and operated markets are now Zimbabwe, Kenya and the recently acquired Eswatini.
According to the FY24 results, the company paid US$1,2 million for the Eswatini business.
Currency issues in most of the markets that the company do business in, across the continent have continued to put pressure on business. In Kenya, the shilling only stabilised in March 2024 but faced its challenges for the greater part of the financial year. In Eswatini, whose currency is pegged to the South African Rand, the currency volatility pressured the cost of doing business. Markets like Zambia also experienced currency depreciation.
From an overall performance overview, Simbisa’s top line grew up 5,9% year on year to US$286 million. This growth was a combination of growth in customer count and their spending. Selected markets like Zimbabwe, Kenya and Eswatini reported 4%, 10% and 9% in average spending respectively.
The bottom line, although positive at US$15,6 million, dropped 19% year-on-year. The drop can be attributed to the change in how the company accounted for depreciation on property, plant and equipment.
The change from a 5% to a 10% depreciation rate, increased the depreciation expense leading to a lower bottom line.
Analyst’s comment
As much as we want Simbisa to increase its presence across the continent, it can only do so as long as it makes financial sense. At the moment, it appears that most of the markets are experiencing their challenges, most of which are currency or exchange rate related.
So, divesting out of non-performing markets might be a well-calculated move. However, it is interesting to understand the rationale behind buying the Eswatini operations when it is plagued by similar challenges.
The growth agenda in Zimbabwe and Kenya seems to be in overdrive. Since being unbundled from Innscor, Simbisa has been growing its store count by an average of 6% per year.
My greatest fear and concern are that at some point Zimbabwe and Kenya might be saturated and I do not think that Eswatini does much from a diversification perspective, judging by the amount the company invested to buy the operations and the size of the economy in general.
In conclusion, I think the divestment given the current circumstances made sense but in the long run, perhaps the company might need to explore other markets to expand into as they diversify.
Hozheri is an investment analyst with an interest in sharing opinions on capital markets performance, the economy and international trade, among other areas. He holds a B. Com in Finance and is progressing well with the CFA programme. — 0784 707 653 and Rufaro Hozheri is his username for all social media platforms.
