Fast food and casual dining restaurants are among the few sectors in South Africa to derive any benefit from load-shedding as consumers escape their bleak homes for a hot meal elsewhere. Little wonder that Spur has scooped up the Doppio Group.
But, increasingly, the costs of serving these customers means there’s little to take home at the end of the month.
Doug Place, chief marketing officer of Nando’s, says while the company sees an increase in the number of people dining at its restaurants during high levels of load-shedding, “the costs wipe out any benefit to the business”.
Just think of the disruptions to suppliers and the challenge of getting stock to restaurants in gridlocked traffic (“We run on fresh, never frozen, chicken”, says Nando’s). Like retailers, “we have also been forced to spend hundreds of millions of rand on generators and diesel just to stay open”.
Place says Nando’s has more than recovered from the pandemic, with sales and restaurant foot count at record levels. Despite the horrendous cost of load-shedding, he’s cautiously optimistic about prospects for the industry. “Eating out is a discretionary purchase for most, but it’s still the primary form of out-of-home entertainment.”
While Place acknowledges the strain of being in an almost permanent state of recession, not to mention that of last year’s higher than normal food inflation, he says: “Our brand, franchisees and company-owned stores are in a sound position and continue to grow”.
Quick-service restaurants were the least affected by the pandemic, and have far exceeded pre-pandemic levels, unlike independents. Casual dining and catering services still lag
Quick service restaurants (QSR) were the least affected by the pandemic, and have far exceeded pre-pandemic levels, unlike independents. Casual dining and catering services still lag. “We foresee that quick service restaurants will maintain their momentum,” says a report from SBG Securities on Famous Brands published in March this year.
The size of the entire South African consumer food service sector is estimated at R102bn annually, according to Euromonitor, and has grown 24% year on year. Historically, QSRs have been the highest contributor (estimated at R43bn in 2022), and this is expected to continue as a result of current consumer trends, according to the SBG report. Take-outs form nearly 60% of the QSR market value.
The data is backed up by figures from Stats SA that show the food and beverages sector increased 7.4% year on year in April this year, driven mainly by takeaway and fast food outlets (up 11%).
Breaking it down further, Famous Brands holds the second-highest market share (7.4%, according to a report by SBG Securities) in the South African consumer food service sector after Yum! Brands, which owns KFC and Pizza Hut.
This week the Wimpy owner said sales across the group were 11% higher this June than a year ago, with its leading brands, such as Steers, enjoying a boost from load-shedding. But power cuts have also led to more food waste, lost revenue, increased risk, higher capital costs and a ballooning diesel bill.
Eating out is a discretionary purchase for most, but it’s still the primary form of out-of-home entertainment
— Doug Place
Anchor Capital’s view is that load-shedding-related costs will hamper Famous Brands’s margins for the 2024 financial year, with “high forecast risk”.
That’s clear from the share price performance of Famous Brands this year — down 2.7% to date, though Spur is up over 10.5%, dividends included.
Over three years, from their pandemic lows, both shares have staged a remarkable recovery, however: including dividends, Spur has returned 76% while Famous Brands has rallied a not inconsiderable 51%.
Ocean Basket CEO Grace Harding says the pressure of load-shedding is greater than the benefit of it. “The consumer does not have a bottomless pit of cash, and eating out will not be sustainable.”
Yet she also sees sit-down restaurants holding their own, though weather plays a big part: “Our winters are not our strong months,” she says.
Another issue for the sector is rent. Harding says it’s a “huge challenge”, as there is outstanding debt due to landlords from the pandemic days.
“It is almost impossible to fund this debt and keep up to date with current rental demands, which now include contributions to diesel bills, especially in the bigger centres,” she says.
Harding says there is still much work to be done “to get closer to” the company’s landlords. “This relationship has not sufficiently evolved over the years, and both of us — landlord and restaurant tenant — have been hit by ongoing blows since March 2020. The only way to make sustainable improvements is through driving the shift from ‘them and us’ to ‘we’.”
During the peak of Covid, Ocean Basket’s franchisees paid no fees to the group, which adjusted fees as Covid restrictions were lifted to suit various restaurants’ trading patterns.
As far as its expansion is concerned, Ocean Basket is looking for smaller spaces than it used to occupy. About six years ago, it was normal for the size of a restaurant to be about 400m² . Now the company wants about half that: in other words, simpler spaces to manage, with fewer staff.
Investment analyst and market commentator Chris Gilmour says South Africa’s QSR groups have done well out of takeaways, “but you have to ask: which is the more profitable — takeaway or casual dining? It’s undoubtedly casual dining, and that hasn’t come back to pre-pandemic levels.”
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