The Tribune

By NEIL HARTNELL

Tribune Business Editor

nhartnell@tribunemedia.net

AML Foods has decided to “park” the launch of its new hamburger franchise, Carl’s Jr, for six-nine months due to concerns over consumer confidence and the Bahamian economy’s short-term outlook.

The BISX-listed food retail and franchise group will review the move on a quarterly basis, given that it is hoping to “re-engage” the project towards the end of 2013. But Tribune Business can reveal the launch delays stems from worries over whether consumer spending is robust enough to support the new brand.

Speaking to this newspaper after numerous sources suggested the Carl’s Jr launch had been “deferred”, Gavin Watchorn, AML Foods’ chief executive and president, confirmed that the BISX-listed group had decided to “hold off for a couple of quarters”.

Emphasising that AML Foods was “by no means” abandoning plans to launch its second fast food franchise in the Bahamas, he revealed to Tribune Business that the company had invested $200,000 to-date in preparations for Carl’s Jr’s unveiling.

“We’ve been concerned with the short-term outlook of the Bahamian economy,” Mr Watchorn said of the move. “We are concerned with what we see as consumer confidence that is not rebounding or increasing – it’s not comparable to the GDP growth we are seeing.

“Consumers are either tapped out or, for those who have access to credit cards, there is the impact of rising prices, rising energy costs, a rising cost of living which is not matched by pay increases of the same amount.”

As a result, AML Foods had to “consider whether it’s the right time to launch a new brand, a new business in a depressed economy”.

“What we have decided to do,” Mr Watchorn said, “and we made this decision a little earlier this [last] week, was to park the project for six-nine months. We have agreed we will revisit this on a quarterly basis until we are in a position to re-engage the project.

“We will sit down and look at this every quarter. We feel this is something we will re-engage in at the end of this year. We have invested in this brand, and Carl’s Jr has invested, in the tens of hundreds of dollars.

“We feel the brand will be a big long-term success in this country, but we feel it’s better not to take a speculative short-term risk and to hold off for a couple of quarters. It’s just showing a little bit of prudence. It’s something we feel we need to push for a couple of quarters, let the economy catch itself, consumer confidence rebound, then come back at this again. We are very comfortable it’s the right decision.”

Mr Watchorn told Tribune Business that AML Foods had so far invested $150,000 in direct costs into the Carl’s Jr launch, via franchise fees and product inventory, with another $50,000 coming in staff payroll and training.

While only one full-time hire had been made to-date, AML Foods will redeploy that person into other areas of its business, so as not to squander the investment made in them.

And, while Carl’s Jr, as the franchisor, was “disappointed” that the originally agreed Easter target date for launch in the Bahamas will not now be met, it was in agreement with AML Foods’ move.

“They feel we should launch in times when there’s a greater chance of success, rather than launch and face unfavourable conditions,” Mr Watchorn added.

The Carl’s Jr decision is a reflection of the sustained economic pressures Bahamian consumers continue to face. With unemployment still relatively high, incomes down and costs rising, and the overall economy still struggling to move away from recession, consumer spending and confidence remains depressed.

In an economy where College of the Bahamas (COB) surveys show that consumer spending accounts for two-thirds of aggregate demand, that is bad news. Especially for brands such as Carl’s Jr, which are heavily reliant on consumer spending and disposable incomes for their success.

“Maybe the bounce back from Christmas is taking a bit longer,” Mr Watchorn suggested. “What we are seeing is a greater transition than in the past to value and price-sensitive shopping. From speaking to business owners, many of them are feeling the same thing – a continued tightening of consumer spending.

“We feel this is a real consumer confidence issue. It sometimes takes time for a recovery in GDP to trickle down to consumer confidence and consumer spending, and our economy is very much dependent on consumer spending.”

AML Foods had initially been hoping to open its first 3,000 square foot Carl’s Jr outlet by Easter 2013, a project requiring a $1-$1.5 million investment and the creation of 70 jobs. The plan was to open five locations over a five-year period, an expansion creating 200-250 Bahamian jobs and $15-$20 million in annual sales, through a $3-$4 million investment.

Mr Watchorn told Tribune Business that all the “planning and preparation” necessary to launch Carl’s Jr in the Bahamas had been completed. While this plan could be “tweaked” as needed, he said AML Foods would be able to move speedily once the decision to proceed was taken.

While some of the consumer confidence/spending issues might be related to “Christmas burn-out”, the AML chief said he felt they were also symptomatic of more long-term, deeper rooted issues facing the Bahamas.

“The Christmas sales last year were not as strong as previously,” he explained. “I think what we are seeing is a long-term manifestation of energy prices taking a much bigger piece out of a lot of people’s pay packets. Costs are rising. The increase in shipping fees, port fees is all trickling down into the economy.”

Consumers previously reliant on credit were often “maxed out” or unable to get new loans from risk-averse lending institutions, while those with liquid assets were questioning whether they needed to save for “what’s coming around the corner”.

“Until there’s a tangible recovery in jobs and a material reduction in unemployment, I think we’re going to see – at least in the short-term – a period of economic neutrality. Will it get any worse? I hope not, but the general feeling among business owners I’ve spoken to is it’s not going to get any better for a couple of months.”

Carl’s Jr is a US west coast chain well known for its lines of chargrilled burgers, These are complemented by salads and ice creams, while the menu also includes chicken burgers and turkey burgers on a whole wheat bun.

The Bahamian burger market is intensely competitive, with the major players being the likes of Wendy’s, McDonald’s and Burger King.

Tribune Business sources previously suggested the market is estimated to be worth around $70 million in terms of annual sales. The dominant player is thought to be Aetos Holdings’ Wendy’s franchise, sources suggesting that at the time of that company’s $6 million private placement preference share issue - designed to finance the build-out of its Cable Beach and airport stores - it was doing around $40 million in annual turnover.

It is unclear if that figure applies just to Wendy’s, or included Marco’s Pizza, too, but the former chain is understood to be well ahead of both Burger King and McDonald’s in terms of market share.

The addition of Carl’s Jr further bolsters AML Foods’ position as a leading player in the Bahamian fast food franchise market. Its main competitor is Aetos Holdings, the company headed by Chris and Terry Tsavoussis, which operates the Wendy’s and Marco’s Pizza franchises in the Bahamas.

AML Foods and Aetos Holdings are now positioned to go head-to-head for dominance, as both now have a burger and pizza franchise. The other major player is George Myers’ Myers Group, which runs the likes of Kentucky Fried Chicken (KFC).