Drive-through dining set to fare best
But businesses with drive-through option will pick up quickest
● The fast-food sector, which employs tens of thousands of people, may take up to two years to recover from the lockdown, but those businesses that offer drive-through collection may pick up quicker.
Small Talk Daily analyst Anthony Clark says fast-food groups with strong drivethrough components are probably best placed to benefit because of the natural social distancing this creates for the customer and staff, as well as the fact that there are no expensive third-party delivery charges.
With people less likely to want to venture into a takeaway outlet, home deliveries, while they do reduce profit margins, will still find a strong customer base because of what Clark describes as the “cocooning” effect of lockdown.
But because the meals were more expensive with third-party delivery charges, they would be ordered less frequently.
Clark says that overall the fast-food sector is going take a long time to recover. He says from speaking to food producers and other companies supplying the fast-food sector there are indications that the “resumption of normality in the fast-food sector might actually take a good year or two, purely because the structural hit to people’s wealth means they now have significantly less disposable income to eat out”.
He says though people in the lower living standards measure segment will still go out for takeaways, their spending power will have rapidly diminished because of rising unemployment or reduced salaries, which will mean fewer trips to stores.
Burger King SA says the fact that more than 50% of its 93 outlets in SA have drivethroughs will stand it in good stead in the coming months.
“Because we have a small base of foodcourt type restaurants versus the rest of the market, we are going to leverage off that drive-through business. People still have to work and they still have to eat and they don’t have time. Fast food is very well placed,” says Burger King SA chief operating officer Juan Klopper.
Under level 4 restrictions the company had adjusted well to home deliveries, which traditionally made up 5% of its business.
“We have run some numbers and forecasts and so far we have exceeded them on home delivery so we’ve done better than we hoped for the month of May.
“On average our restaurants have been doing about 50% of what they would normally do just from home delivery, which is unbelievable.”
Klopper says another factor favouring Burger King is that its customers tend to be from higher LSMs with an average disposable income per family of about R20,000 a month.
“We actually think that within six to 12 months we can be back to growth.”
McDonald’s SA CEO Greg Solomon says the drive-through outlet concept should have been allowed under level 4 because it is a “superior takeaway mechanism to ensure social distancing and ensure the safe transfer of food”.
About 75% of the group’s more than 300 outlets in SA have drive-throughs so, under level 3 restrictions, most of the group’s business will be able to operate again, with a significant number of its 16,000 employees able to return to work, he says.
“Delivery is our smallest and least profitable channel and to be honest I am quite mystified as to why we turned on delivery before drive-through. Effectively it took 100% of our business and pushed it down a channel that is about 10% of the business. The delivery service providers are completely overwhelmed. I don’t think they could have expected this level of volume.
“Yet the delivery transaction is less profitable. Someone has to pay for the delivery charge, be it the food company or be it the customer. And if you split it 50-50, the customer isn’t happy and we aren’t happy, especially in our industry where the margins aren’t that great.”
People still have to work and they still have to eat. Fast food is very well placed Juan Klopper
Burger King SA chief operating officer
But one positive was that home delivery had allowed McDonald’s to “grease our wheels”, Solomon says.
“What delivery allowed us to do is to come back to work with 10% or 12% of our employees and test our processes and procedures. With a little bit of practice we’re there now. ”
KFC Africa’s chief people officer, Akhona Qengqe, also believes drive-throughs will benefit the group as the country moves to level 3 restrictions. A total of 485 of the group’s more than 940 outlets have drivethroughs.
“We’ve got quite a large spread of drivethroughs. We absolutely believe it would benefit us, which is why we’ve been asking the government to allow us to use the drivethrough.
“What it does is it removes the third touch point, as you have the team member in store and you have the customer in the car, and that is the perfect social distancing scenario without having to get someone to come into your house and deliver the food. We are glad because that is definitely going to bring more feet into our stores.”
Under level 4 restrictions, KFC had 218 of its outlets trading as it “prioritised the stores where there was a strong delivery network already”.
Qengqe says though it is still uncertain how big the impact of Covid-19 will be on the group’s business, it hopes the gradual reopening will allow it to “start getting some sales through the system”.
She says this will also help KFC assist in the recovery of struggling outlets. As it stands, only 48 of the group’s stores are corporate-owned, with the rest being run by franchisees.
Qengqe says opening up all the stores will give each of the franchise businesses a “fighting chance”. The plan is to open with a limited menu and then build up from there.
She says though KFC does “expect some store closures”, each franchisee on average owns a number of stores, so it was hoped that if one or two of a franchisee’s outlets struggled, the rest of the business would be strong enough to absorb any losses.
Qengqe says KFC is one of the biggest employers in the quick-service restaurant industry, with 22,600 staff in its outlets.
Darren Hele, CEO of Famous Brands, which owns brands such as Steers, Wimpy and Debonairs Pizza, among others, says that his company estimates it will be able to generate about 35% of its normal revenue under level 3 restrictions, depending on the details of the regulations.
Famous Brands also has drive-throughs but doesn’t disclose the details of its restaurant formats.
“We are very happy with what we have got out of trading under level 4, given the restrictions. Given the curfew and given that it’s only delivery channels, we are happy with the performance,” says Hele.