Appetites grow for online meals
Tech is changing the way restaurants do business
● Whether it’s music streaming taking over CD sales or medicine being delivered to remote areas by drones, technology has shaken up many business models in recent years — and it shows no signs of slowing.
With cellphone penetration approaching 100% in SA, according to GSMA Intelligence, the market is ripe for businesses that are willing and able to innovate through technology.
Similar to the retail clothing industry, online food trading is changing the way restaurants and fast-food outlets are doing business.
But this could cost jobs and put further pressure on the owners of shopping centres, where retailers are already reducing, closing or consolidating their stores.
Famous Brands acknowledged in its most recent financial results that “across all our markets, delivery and online ordering remained key drivers of growth in the industry”.
Famous Brands, which owns 25 brands including Steers, Debonairs Pizza, Wimpy, Fishaways and Tashas, is the largest branded food-service franchisor in Africa.
Embracing technology and creating a viable online and delivery platform is no easy feat and requires significant capital expenditure.
Famous Brands CEO Darren Hele says: “We have focused on and invested significantly in our delivery and online capability and are experiencing pleasing growth.”
With 2,346 outlets in SA, Famous Brands is a significant tenant for property companies. Likewise, it is a big employer in SA, with about 2,156 people directly employed by the group and 75,000 people in its franchise network. This means that if an increased focus on food deliveries results in some store closures, property companies and employment could be hit hard.
Technological disruption tends to open up markets to more players.
But Anthony Clarke, an analyst at Vunani Securities, explains that, though online retail has done much to reduce the barriers to entry for entrepreneurs in the food industry, the cost of scaling up and growing such operations is very high.
Naspers has invested more than R1bn in developing its internet retail capacity through its Takealot online shopping platform and its food-delivery service Mr Delivery. In the food space, Naspers plays second fiddle to Uber with its Uber Eats platform.
With only two years in SA, Uber Eats in the past 12 months has increased the number of customers using its app from 500,000 to 1-million, according to App Annie.
As it stands, Famous Brands has mobile apps for Steers, Debonairs Pizza and Fishaways on Android and iOS.
Competing brands — including Nando’s, Domino’s Pizza, KFC Delivery and McDonald’s with McDelivery — have jumped on the bandwagon.
The biggest challenge facing online ordering and delivery is fulfilment: getting orders from the shop to the customer.
This problem is especially acute for food outlets, as time and distance are big concerns. Unlike with clothing, food ordered from, say, Steers has to get to the customer quickly enough to ensure that it is still sufficiently warm, in the case of a burger, or sufficiently cold, in the case of a milkshake.
The time and geographic constraints of food delivery are apparent in Uber Eats’ service. Users of the app can usually see only food offerings that are available within their immediate area.
Developing systems for online ordering and delivery is quite an undertaking for any company as it requires an engaged customer base, a strong computing backbone and an efficient delivery network.
Even as a large player, Hele says, “Famous Brands does see value in partnering with third-party vendors and we currently work with both Uber Eats and Mr Delivery across a range of our brands”.
Despite all this growth potential, online food retail makes up a relatively small part of the overall online retail segment.
Arthur Goldstuck, head of hi-tech market research consultancy World Wide Worx, revealed that online retail makes up only 1.4% of the total retail pie in SA.
According to the “Online Retail in SA 2019” report released this week by World Wide Worx with Platinum Seed, local online retail is set to pass the R14bn mark this year, with the big players in the market being Pick n Pay, Mr Price and Woolworths.
Kitchen and homeware, alcohol and clothing are said to be the largest categories in the online retail segment in SA.
Significant growth is expected for online food retail in the future.
The rise of online ordering and delivery services poses a threat to the traditional brick-and-mortar way of doing business. Globally, this has been the trend in places such as the UK, where clothing retailers have closed many stores in the past few years, says Clarke.
But online food deliveries may not have the same impact.
“It is highly unlikely that online deliveries will replace physical restaurants over the long term. A blended model of online and physical stores is optimal,” says Hele.
Famous Brands is likely to be paying close attention to global trends, particularly in the UK, where its Gourmet Burger Kitchen chain has sunk into a financial black hole in the past two years.
Clarke said with the GBK business “contributing to weak earnings”, it is likely Famous Brands is looking at new trends, including online food sales, to drive growth.
Using technology and collecting data have allowed businesses such as Uber Eats, which operates in Johannesburg, Pretoria, Durban, Cape Town and Stellenbosch, to expand beyond food deliveries.
By making use of its massive database of clients, drivers, riders and restaurants, the company is using its position in the market to gain insights to help its operations and those of its restaurant partners.
For example, Uber Eats can tell you that 55% of people in SA celebrate an occasion with ice cream or that 68% of South Africans prefer treating themselves to fast food over healthier options.
The growth potential of this area is clear. But it depends on changing customer habits and the ability of food retailers to innovate.
The South African consumer faces a tough macroeconomic environment with high unemployment and rising prices, which generally lead to lower disposable incomes.
The average fast-food meal served in SA costs less than R30, which cuts deep into the margins of food-delivery services for lowerincome customers.
Most consumers of fast food are in the lower living-standards measure, whereas consumers who order food via online apps are generally middle- to upper-income consumers, says Clarke.
For the sector to grow, SA’s economy needs to improve. Businesses also need awareness campaigns for their online services to gain potential customers’ trust.
Companies such as Famous Brands would benefit from continuing to monitor the global scene. In the US, some restaurants are not even bothering to put up counters or tables or hire waiters. The owners are simply renting out kitchen space for online orders.
These “cloud kitchens” or “virtual restaurants” could provide a new franchising opportunity.
But South Africans, with our great climate, still like to be out and about.
Spur-owned RocoMamas, known for its “smash-burgers”, is said to be the fastestgrowing restaurant chain in the local market. As Clarke puts it, “the consumer is now looking for a different eating experience”.
Given the right experience in-store, online food sales could enjoy a rise in custom from those who might not always be able to visit the locale but who still want a taste of the experience.