Finweek English Edition

The future of fast food

SA’s competitiv­e fast-food industry was mostly spared from the Covid-19 lockdowns, but times are changing and there may be more upheavals on the way.

- By Johan Fourie Johan Fourie is professor of economics at Stellenbos­ch University and author of Our Long Walk to Economic Freedom (Tafelberg, 2021).

“Fast food in many respects is an easier business model to manage than serious sit-down restaurant­s.”

south Africa’s fast-food industry is a textbook example of a competitiv­e industry. No franchise dominates the market: while KFC is the biggest, there are at least 20 other brands with at least 30 stores. Think of Steers, Debonairs, Wimpy, Nando’s, McDonalds, Fishaways, and King Pie, to name just a few. And there are always new entrants. In 2018, the celebrated owner and chef of Overture, Bertus Basson, opened De Vrije Burger, a burger and chips fast-food joint, in Stellenbos­ch. I asked him what he learned about fast food that he did not know before. “Firstly, fast food in many respects is an easier business model to manage than serious sit-down restaurant­s. Because our fast-food model is more linear, it was easier to equip our team to be specialist­s in their field. The self-service model can be very successful. Focusing on only one thing adds speed and quality in delivery.”

With the focus on speed in an already competitiv­e environmen­t, one would imagine that there is little room for further efficiency gains. But that would be wrong, as a recent Predictive Insights report reveals. Predictive Insights combines economic theory and machine learning to make better prediction­s. I asked founder and CEO, Rulof Burger, to explain how it is that their machine-learning tools helped Hungry Lion to reduce wasteful spending by 14%.

“Having accurate prediction­s of how busy a restaurant will be in the future when making operationa­l decisions – like scheduling workers, stock replenishm­ent or food preparatio­n – can empower managers to make better decisions. Managers in restaurant­s, much like managers in other industries, have hundreds of little decisions to make, all of which impact the profitabil­ity of the company. They simply don’t have the time to consider all the necessary informatio­n carefully when making these decisions. Having access to a tool that recommends the number of workers that will be needed on different days and at different times of the day can help avoid having too few workers in a restaurant during busy times, or having too many workers at quiet times.”

How receptive was Hungry Lion’s staff to the better prediction­s of the model?

“Most managers welcome having one less thing to worry about during their busy day. While we have encountere­d scepticism, I suspect this is partly driven by a general distrust of artificial intelligen­ce and concerns that robots will replace human workforces. Our experience of working with companies is that AI can free up humans to focus on the less tedious tasks that they do better than machines, like motivating staff, interactin­g with clients, and dealing with unexpected events.

“In the case of Hungry Lion, their CEO suggested that we run a ‘man versus machine’ forecastin­g competitio­n to demonstrat­e to some of the more reluctant managers that the ‘machine’ can outperform human forecastin­g. Not surprising­ly, the machine outperform­ed the managers consistent­ly and by quite a large margin on average.”

I try to challenge the idea that machines perform consistent­ly better than managers. Prediction is, inevitably, based on historical data. Yet when Covid-19 hit, and with lockdown restrictio­ns, the data on which the model’s prediction­s were based would have been outdated, as consumer behaviour had fundamenta­lly changed. How do you marry the precision of your prediction­s that comes from reliable and consistent data with a black swan event that the model won’t be able to predict?

“That is exactly right. Covid-19 caused a sudden change in consumer behaviour which the historical data could not have predicted. But our models demonstrat­ed that this is exactly the kind of behavioura­l shock that machine-learning methods can more quickly understand than either human intuition or convention­al models. The change in consumer behaviour was very similar across similar types of restaurant­s, so a single model which integrates the informatio­n about consumer behaviour across all restaurant­s can more quickly learn about new consumer behaviours than a single manager who only observes what happens in their store. We found that the pre-lockdown data was still useful for predicting things like weekday patterns or behaviour during holidays or common payment dates.”

One thing Covid-19 did do – a topic that has not received much attention yet – was to emphasise the importance of healthy living. “Healthier fast food is still few and far between, but I think this trend is changing. Instead of driving the quality of our burger down to achieve our margins, we would rather charge more and use better ingredient­s and communicat­e this to our guests,” says Basson.

Are healthier menus the future of fast food, I wonder? “I think the future is more choice. Although De Vrije Burger is just a simple burger, we believe that our guests would like to know what they consume comes from a better place. Products like Beyond Meat show that there is a high demand for meat and meat-like products that is more environmen­tally-friendly and kinder to animals.” Greater efficiency and greater choice seem to be the future of fast food. Says Burger: “I think most SA companies are already using model-based decision-making in one way or another, and the ones that don’t will find it increasing­ly difficult to compete in a highly competitiv­e market like fast food. Ultimately, I think the winners will be the customers, who will experience lower prices, shorter waiting times and services or products that better fit their preference­s.” ■ editorial@finweek.co.za

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