South African giant taking on the world

International food services group Bidcorp is set to grow strongly in the coming years. It is well-positioned to benefit from a global rise in dining out. 

Bidcorp was ‘born’ in 2016 when trading and distribution conglomerate Bidvest decided to list its international food services assets separately on the JSE. 

The group of companies operates through 21 individual businesses in 35 countries. It operates in both developed and emerging markets, but most of its profits come from Australasia, Europe and the UK.

It is the largest food services group outside of the United States. 

Sanlam Private Wealth investment analyst Dumisani Chiume said these are high-quality profits, with around 90% of all its earnings coming in hard foreign currency. 

This makes the company an almost pure rand hedge stock, providing investors with protection from the volatility of the local currency. 

Chiane explained that while the barriers to entry into the food service industry are relatively low, there is still the potential for sizeable returns and profit margins. 

Bidcorp has a track record of steadily compounding earnings and carving out a niche in the market where it can build healthy profit margins. 

It focuses on countries with large populations, a fair amount of disposable income, and a tendency towards dining out.

One reason why Chiane is bullish regarding Bidcorp is the looming consolidation of the food services industry. 

“At some point, achieving scale becomes essential for meaningful competition, and the market’s inherent fragmentation presents opportunities as consolidation increases,” he said. 

In this regard, Bidcorp has a significant balance sheet advantage. The group is careful not to rush the purchase of companies, adopting a measured strategy and maintaining a strong balance sheet.  

During the last big recession brought about by the Covid-19 pandemic, Bidcorp never posted a loss – its diversification and strong balance sheet provided a buffer against these headwinds. 

Another crucial element of Bidcorp’s business that makes it attractive to Chiane is its entrepreneurial culture. 

Chiane said this culture does not come at the expense of experience and high-quality leadership, with all divisional managers having been at the company for at least five years. 

Bidcorp, crucially, looks to decentralise management as much as possible by giving power to the ‘man on the spot’ and avoiding daily interference from the executive level. 

This ensures the company remains agile and can respond to shifting consumer trends in its key markets relatively quickly. 

At the top level, the management team meets a few times a year to discuss key strategic objectives and incorporate global best practices into the business. 

However, accountability lies with the local management, with full transparency, since the clusters are benchmarked against each other. Notably, Bidcorp emphasises that the company culture allows room for failure.

Furthermore, incentives are well-aligned, with managers retaining a minority stake in the underlying businesses. Management incentives are tied to growth in headline earnings per share, flexed in real terms to account for inflation.

This leaves Bidcorp well-positioned to capitalise on the resurgence of dining-out globally and the growth of the industry above the levels seen in 2019. 

Chiane believes the trend of increased eating out is here to stay, with people having less time to cook at home and searching for memorable experiences after the pandemic-era lockdowns. 

Among younger generations, there is a clear shift towards eating out. Posting food photos on social media has become a must – if you don’t take a picture, it’s as if the meal didn’t happen, Chiane said.  

This is a structural trend globally.

Chiane also explained there is a common misconception that the number of restaurant failures is high globally, but that is not typically the case. 

Restaurants are more resilient than perceived, mainly because food costs account for a relatively small portion of total operating expenses. 

Restaurants apply high markups on food and beverages. This means that when consumers face financial pressure, there’s significant menu flexibility, allowing restaurants to adjust prices and maintain customer loyalty.

Chiane said that Bidcorp’s positive attributes mentioned above make it a core portfolio holding. 

The group has decent upside potential across all its regions, which, given the growing dining-out trend in these economies, provides the company with a strong growth runway.