FORMATIVE ASSESSMENT 1 [100 Marks]

How an ex-Nando's franchisee grew a small Mbombela chicken shop to 160 franchised stores Galito's started as a single store in Mbombela in the mid-1990s. Owner Louis Germishuys perfected a recipe in his father's garage before opening his first store opposite a Nando's. Although he never intended to franchise the brand, today Galito's has 160 stores across four continents. The brand is still looking to grow by taking on new franchisees - with fees lower than some competitors. Several fast-food brands are fighting for dominance of the chicken sector of the market in South Africa. Given that South Africans eat an average of 42 kilograms of chicken meat per year, it's hardly surprising that there are more than enough chicken shops to go around. Several fast-food chicken franchises also represent some of the best business success stories to emerge from South Africa. Nando's may be the most mainstream of these brands, but a once-small standalone takeaway chicken store from Mbombela is now one of the country's most prolific. Galito's Casa Da Galinha started in a small garage in Mbombela in the early 90s when ex-Nando's joint venture holder Louis Germishuys and family employee Felix Mokoena started tinkering with sauces and marinades. These sauces would go on to form the foundation of Galito's flame-grilled chicken recipes. And with a flavour profile in the bank, Germishuys used his knowledge of and passion for the flame-grilled chicken industry to open the first Galito's store - proactively located opposite the local Nando's in Mbombela. "Flame-grilled chicken is what I know," Germishuys told Business Insider South Africa. "There was never really another option for me. From the time I was first introduced to it by my friend Francisco Pereira, who today is a Galito's franchisee, as a kid, I've always loved the Mozambique-style flavours." After the success of the first branch, Germishuys opened a second store at then Nelspruit Taxi Plaza in 1999 and a third in White River a year later - both franchised to family and friends. Although further expansion wasn't in the original plans, the Galito's franchise now includes 160 stores in 17 countries across four continents - and there are still plans for more stores. Germishuys says they plan to more than triple their store footprint in the next five years, with a particular focus on international markets. "Our core business offering has great flexibility, which allows us to localise and expand into international markets with a fair amount of ease. We have our sights set on expansion into the West, as well as growing our existing footprint within the regions we've established," says Germishuys. Two "major players" in large international territories have also reached out to Galito's to partner with them in this expansion, Germishuys told Business Insider. "I never originally intended to franchise the brand, but everybody just loved the concept and the chicken so much that I eventually gave in and agreed to assist in opening more stores," says Germishuys. "We've been very lucky in that initially this growth was organic." The success of the product, Germishuys says, is primarily down to the people he's surrounded himself with - which includes another ex-Nando's employee and now Galito's Managing Director Francois Rousseau. "Most of our staff have been with us long-term, the longest of whom is Felix, who is now one of our senior trainers, clocking in at 26 years of service. Our head of operations, Gerhard le Roux, has been involved with Galito's since 2012, and some of our franchisees have been with us for 20 years," says Germishuys. If employees and franchisees don't have the same objectives and values at heart, he says, "the odds of having a successful partnership are slim". When Germishuys started to see the brand's growth potential, he and the team started identifying key new areas to expand to, beginning with Cape Town and Gauteng, while keeping an eye on their most obvious competitor, Nando's. "When we opened the first store in Brown Street, it was less than 100m from the Nando's. I listened to his customers and offered them something Nando's didn't pap. To this day, our Brown Street store still outsells the Nando's next door," Germishuys says. "We pride ourselves on being an international brand, but with a focus on community and local customers. We listen to what our customers want, and we deliver." Although owning a franchise isn't for everyone, Germishuys believes it's a good option for those who want guidance, support, and a known business model. And he believes their growth shows that the fast-food chicken space is still one that's particularly lucrative. He says margins in the chicken business "aren't bad", "but what really is a motivating factor is the demand for chicken in South Africa and the rest of the world. South Africa is one of the largest consumers of chicken - it's one of our staple meals, so already the door is open for entrepreneurs to leverage this". Despite the rapid growth, Galito's is still looking to expand its store footprint, and they welcome applications from any interested parties. Opening a Galito's chicken restaurant is also more affordable than several other chicken franchises currently available in South Africa. The store charges a franchise fee of R130,000 excluding VAT and an administrative fee of R3,000. An average store build costs around R1.75 million to build, depending on location and size, and the group charges a monthly royalty fee of 5% and a marketing fee of 4% of turnover. At a glance, Germishuys says there are similarities between Galito's and other local chicken success stories. However, he also believes that when you dig deeper, there are also stark contrasts. "Our brand is built on a core principle of great product at a great price. We are value-driven," says Germishuys. "There will always be competition within the quick-service industry. People will always need to eat," says Germishuys. "Ultimately, what makes a franchise attractive is the return on investment. If a customer feels like they are getting a great meal, at a great price, in a great environment, they are happy to spend their money and return. Likewise, if a franchisee is profitable, he is a happy customer."

Answer ALL the questions in this section.

1 Using the resource based view approach, critically analyse Galitos resources, capabilities and core competencies in order to gain an informed understanding of its current situation. (25 Marks)

2 Critically assess the growth strategy(ies) that Galitos has adopted. (25 Marks)

3 Critically analyse the role of Louis Germishuys in implementing the strategy that Galitos has chosen. (25 Marks)

4 The fast food industry in South Africa is stable and mature with large and small companies competing on the basis of price, quality, and service. Galitos and other firms in this industries require a specific approach to strategy development and choice. In light of this statement and the article above, discuss the characteristics and the strategic options and the mistakes Galitos can make in these markets. (25 Marks)