Burger Fuel Worldwide Limited reported a 4.5 per cent drop in total system sales, which includes sales from franchised stores, in the first half of FY19 to $50.3 million, mainly due to its exit from the Australian market and reduced sales in the Middle Eastern region.
Revenue was down 13.3 per cent in the half, compared to the previous corresponding period, to $11 million, which the company attributed to the sale of its store in Indianapolis, US, and the outsourcing of its packaging distribution.
In a statement to shareholders on Wednesday, Burger Fuel chairman, Peter Brook, and CEO, Josef Roberts, noted that global expansion had become a more expensive and risky proposition since the loss of Franchise Brands as its international partner, and said they would redirect the company’s focus and resources towards expansion in New Zealand, where they are better able to contain costs and understand the market.
The company completed its exit from Australia in early FY19, closing all franchised stores, after finding it too difficult to achieve reasonable operating margins, despite efforts to move towards profit. It has recently closed several sites across the Middle East, where there are currently more than a dozen Burger Fuel stores, and cautioned that further closures are planned.
The company faces several challenges in the United Arab Emirates, where a broader slowdown in retail and increasing competition in the category have led to slower sales. It also faces disproportionately high retail rent costs, which has forced the company to close or relocate stores to reduce overhead. BurgerFuel’s partners in Dubai have also been developing a home delivery service in order to maximise revenue and customer reach.
The company’s licensed business in Saudi Arabia has continued to see satisfactory sales, but is facing high retail rent, increasing labour costs and staff shortages due to work visa changes. Iraq also presents significant challenges due to the volatile political and economic climate, which is having an impact on trade.
Burger Fuel currently has one licenced store in the US, which has experienced a decline in sales in the past 12 months since opening.
In contrast to its global operations, the Burger Fuel brand in New Zealand has continued to perform well overall. The company is focused on maximising the potential of its existing store network, as well as seeking opportunities to franchise any new Burger Fuel locations.
The company is also focused on the development of other brands, like Winner Winner, the chicken concept purchased in FY18, and Shake Out, a new burger concept developed in-house, which opened its first store in late November. If proof of concept is achieved, Burger Fuel will look to further expand the brand in New Zealand.
In the half, Burger Fuel sought input from KPMG on potential opportunities and options that could help accelerate the company beyond its current organic growth strategy. The board has requested a full strategic options review of the business, which is now underway.
Author: Heather McIlvaine
This article first appeared on Inside Retail New Zealand, a sibling publication to Inside Franchise Business.
