FAST FOOD nation
After years of strong growth, the takeaway industry is slowing down, but affordability means it still comes out tops
The growth in the fast-food sector is stumbling after years of seemingly recession-proof expansion. However, consumption through quick-service restaurants is still growing at 9% a year, according to Morné Cronjé, head of FNB financing. That’s not quite as impressive as growth rates of higher than 12% in 2011 and 2012, but it is still indicative of an industry that will become an ever-larger part of the South African landscape.
Most people agree that the trend is driven by economic pressures that lead people to “migrate” to more affordable fare at takeaway joints.
The growth in outlets also tracks a major ongoing transformation of urban space in the form of malls.
“There is still huge growth in mall developments in South Africa, and also regional malls. The tenant spread will always have a food entry as part of the tenant list,” said Cronjé.
“The trend is also convenience, thus the opening of outlets at fuel sites and cinemas,” he added.
Within the world of fast food, there has been a proliferation of new brands.
However, the trend over time seems to tilt towards larger franchise systems and large, branded chains rather than independent shops.
This month, the JSE welcomed another fast-food listing, with Gold Brands, the owner of the Chesa Nyama chain, joining the AltX.
The network of Chesa Nyama stores has swelled from 18 in 2013 to nearly 300 by the end of last year, rivalling the footprint of major, long-established systems.
Gold Brands is a small player compared with Famous Brands, Taste Holdings, Spur Corporation or Grand Parade Investments, which is responsible for Burger King’s South African operations.
This is Gold Brands CEO Praxia Nathanael’s second stab at creating a large franchise system. She also created the Fish & Chip Co, which she subsequently sold to larger rival Taste Holdings.
“We’ve been very good at creating brands,” said Nathanael.
However, after selling Fish & Chip Co, she learnt a key lesson – that the actual heart of franchising was the underlying distribution system.
Fish & Chip Co had not had its own distribution system and the work of supplying its restaurants had been largely outsourced, said Nathanael.
“It is the heart and soul of the business. We see our operators as our customers.”
Chesa Nyama franchises cost R3 500 a month in fees and royalties, plus a start-up fee of “just over R500 000” to pay for setting up a restaurant and doing training.
Gold Brands’ distribution centre in Centurion accounts for more than 80% of the company’s income – the balance being the fees from franchisees.
About 5 000 chickens are delivered there every day – along with several tons of brisket that move through the centre per week, said Nathanael. That excludes the other cuts and the boerewors. Listing on the AltX is meant to facilitate the expansion and upgrading of the distribution system behind the franchise brands.
While takeaway restaurants have proven remarkably impervious to the economic downturn, Nathanael noted that their franchisees were starting to require more bank financing than they had before.
“In the first three years, we were selling franchises for cash,” she said.
The phenomenal growth of takeaway restaurants is reflected in numbers from Stats SA. Ten years ago, sitdown restaurants had 40% higher sales than takeaways.
By 2012, the takeaway industry overtook sit-down establishments in terms of sales and, by November 2015, they were outdoing their traditional counterparts by a margin of 5% – if you exclude alcohol sales.
Back in 2004, South Africa had 5 989 “fast-food” outlets, with about 52% of them falling under one or other branded chain.
The trend since then has been for more of the sector to move into the chains, and, by 2010, about 57% of 8 661 outlets nationwide were part of branded chains, according to international research firm Euromonitor.
A steady stream of additional US superfranchises are setting up shop in South Africa, granting master licences to major franchise holding companies.
KFC has consistently defended its position as the single-largest fast-food brand, with 22% of the market, although Famous Brands has a larger share when you add its various brands into the mix.