FAST FOOD na­tion

Af­ter years of strong growth, the take­away in­dus­try is slow­ing down, but af­ford­abil­ity means it still comes out tops

CityPress - - Business - DE­WALD VAN RENS­BURG de­wald.vrens­burg@city­

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.

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