/ 31 October 2013

Trendy restaurant chain in trouble

As part of our Three City Tour we provide a glimpse into Durban's restaurant options. From the finest Italian to tasty Mexican
As part of our <a href="http://www.mg.co.za/3city" target="_blank">Three City Tour</a> we provide a glimpse into Durban's restaurant options. From the finest Italian to tasty Mexican

The Moyo group of restaurants has long been a respected brand, considered as South African as Wimpy and Nandos, and has even made the pages of international magazines.

Therefore, it was a surprise to wake up to the news in October that the group that had given the country its first five-storey underground restaurant and remained a popular local and tourist hang-out, had been placed under business rescue.

What made it all the more unexpected is that the Moyo brand, with its eight restaurants in KwaZulu-Natal, Gauteng and the Western Cape, is well-frequented and, according to Alex Elliot, an insolvency director at the law firm Routledge Modise, it’s “uncommon in the short history of business rescue for a restaurant chain to go down the route of business rescue”.

“The more usual fate of failed restaurants is that customers gradually stop eating there and they just close down. Moreover, Moyo is not just any restaurant but an iconic brand of the new South Africa dining scene.”

Rhapsody’s, a restaurant franchise that was equally popular, was recently placed under business rescue after it emerged the chain was in R85-million debt.

But, in Rhapsody’s case, the franchise owner Michalis Xekalos is under investigation for allegedly defrauding his investors by selling 16 franchises to different owners at the same time.

A unique case
“Moyo is not a franchise, it is owned by one company, which also makes this case unique,” said Elliot.

He said in situations like this, it is generally about costs being greater than revenue.

The Moyo restaurants are in prime locations like Melrose Arch and Zoo Lake in Johannesburg and the Waterfront in Cape Town. The group employs more than 600 people.

“There are salaries, rental, administration that has to be paid, and big corporate structures at the top often cost a lot of money,” Elliot said.

Those conducting the business rescue are also going to need some “culinary skills”, he said, as one of the areas where cost cutting will have to take place will be on the menu.

“If food costs are to be reduced, the menu will have to be revised.”

Three months to come up with a plan
Stefan Smyth and Alison Timme, who were appointed to rescue the business by the Companies and Intellectual Property Commission (CIPC) on October 1 this year, have three months to draw up a plan to turn the struggling Moyo group around. They can ask the courts for a further extension if required.

But their immediate challenge will be to keep the restaurants up and running for the peak holiday season to ensure that the company does not lose any more money.

Gootspa Investments, which trades under the Moyo brand, released a statement saying that it had applied for voluntary business rescue and that “business rescue practitioners, with the assistance of the company, will be assessing each of the entities to determine how it can be restructured”.

It also said a trust fund has been set up to for “accounts and deposits for functions” to reassure creditors and shareholders, as well as customers.

The group has come a long way since the first 120-seater restaurant was opened in Johannesburg’s Norwood in 1998, with the founder Jason Lurie creating a menu based on recipes he had collected while travelling around Africa.

And its success lies not only in its food and decor, which takes a little bit from all African countries, but also small touches like the face painting and entertainment, which makes it an overall dining experience.

Restaurants opened
Based on the success of the first restaurant, Lurie opened several restaurants during the next five years, starting with the 500-seater Melrose Arch restaurant built around massive granite rock in 2002, followed a year later by the Market Theatre venue in the Johannesburg city centre, Spier Estate in 2004 and Zoo Lake.

Restaurants have also been opened in the Waterfront and at uShaka Marine World in Durban. The latter includes an area at the end of a pier where people can order sundowners.

The Mail & Guardian has been reliably told that the voluntary application was the result of pressure from a large shareholder.

Mark Shuttleworth’s company HBD Venture Capital invested R25-million in the chain in 2007.

Gootspa declined to discuss the issue with the media until the rescue process has been completed.

Elliot said in many of the cases he has worked on, cutting costs was not enough and other solutions had to be looked at, such as selling off shares and assets.

The positive side
This could mean that a decision might have to be made to sell some of the restaurants if sufficient savings can’t be found elsewhere.

On the positive side, Elliot said that, generally, there was a greater chance of a successful business rescue when companies applied voluntarily for rescue.

Business rescue as a remedy became available from May 2011. About 90% of the companies under business rescue have been voluntary rather than court appointed.

But the figures suggest that there is only a 20% success rate.

According to the CIPC’s annual results, since 2011 about 195 notices of business rescue were filed and it issued 147 notices to end business rescue proceedings.

A source said Moyo’s financial difficulties appear to be the result of a combination of factors, including a recession that eroded the customer base, “coupled with other issues like costs”.