It appears that upper middle-class households in South Africa are doing less well than thought. With financial stress being particularly acute in the lower income and broad middle-class segments, there are stark indicators that wealthier consumers are also under pressure, and are tightening their belts.
Buried in Famous Brands’s interim results to August 31, is the news that “trading conditions proved extremely difficult for the niche brands” in its “Signature” portfolio. These include darling tashas, steakhouse Turn ’n Tender, Greek restaurant chain Mythos, new seafood chain Catch, Salsa Mexican Grill and (mostly KZN-based) Italian ‘Osteria’, Lupa.
Same-store sales declined at all of these brands. Now, certain of them are either very new (like Catch) or trade out of a handful of outlets (like Lupa Osteria and Salsa), and therefore can’t be used as a bellwether for the upper end of the market.
However, the fact that same-store sales declined at tashas and Turn ’n Tender and Mythos is very concerning indeed. Anecdotally, tashas stores (I’ve been to a handful in recent months) seem quieter than usual and the brand hasn’t put through a menu price increase in some time. In certain Signature brands, including Europa, The Breadbasket and Vovo Telo, both same-store and system-wide sales dropped, due to store closures.
It is – obviously – not just the casual dining segment that is being hit.
Woolworths, which plays squarely in the upper-middle to upper-end of the market, saw annual same-store sales in its clothing and general merchandise business drop by 0.9%. Its Food business, which was growing sales by double-digits as recently as three years ago, reported an 8.6% increase in sales for the year to June 25, with 4.6% same-store sales growth.
Strip out inflation of 6.6% for clothing and general merchandise and 8.4% for food, and same-store sales declined by 7.5% and 3.8%, respectively.
It must be noted that at the half-year mark (post-Christmas), comparable clothing sales were up 1.2%. It’s the same story in food, where sales were up 9.5% at the half-year mark, but just 8.6% for the full-year. So far, 2017 has been brutal and there are no clear signs of improvement.
Even education, arguably the last thing households would cut back on, is taking a knock.
Private education group ADvTECH, in August said the “difficult economic climate and unsettled socio-political environment had a more significant effect on enrolment numbers than had been anticipated”. The group said it has “seen an increase in withdrawals and exclusions as a result of financial pressures” in its schools division and that a “consistent rise in the number of families emigrating [has] had a particularly negative effect on enrolled numbers as we lose students in grades where it is difficult to replace”.
In three of its school groups, including Crawford, Centurus (Pecanwood College, Southdowns College and Tyger Valley College), as well as its Junior Colleges pre-schools, over 40% of leavers were due to emigration. It lost a higher than expected 1 210 students between December 2016 and July 2017 which, after enrolment, meant a net gain of 578.
Competitor Curro has in recent months also cited financial pressures and fees as a reason for what it terms “learner attrition”. Its Meridian and Academy schools which service lower-fee rural markets have been particularly hard hit. Bad debts have practically doubled to 1.6% in 2017, from 0.9% in 2016 (and just 0.4% in 2014).
Beyond results of listed companies serving the upper-end of the market, one need only look around to see extraordinary levels of discounting and far quieter than usual malls (Famous Brands reports a “general downturn in foot count in medium and major malls”).
Major golf and cycling retailers which held a handful of sales events a year are discounting nearly permanently (one chain is starting its annual Christmas promotion this week). My “local” was busy for its October beer festival on Friday after work but last year, it was overflowing.
There is noticeably more accommodation and package holiday discounting than normal. In some cases, accommodation packages for the country’s top hotels and resorts (many owned and operated by the listed leisure players) are quietly being sold for the whole of next year at 50% of the normal room rate.
Walking around Rosebank on Saturday afternoon, I was struck at how “quiet” it was. Many of the more specialist apparel stores were completely empty. This was month-end weekend?