A constrained consumer and a competitive environment mean we must fight even harder for a share of the consumer wallet. The impact of load shedding was felt across our all our divisions.
The local and global inflation picture remains elevated, and consumers worldwide face rising inflation, higher interest rates, and fuel and electricity price hikes. South Africa has country-specific challenges, including persistent load shedding, weak economic growth and high unemployment. A high level of bureaucracy and service delivery failures has made doing business more difficult for Famous Brands and our franchise partners.
2023 was characterised by the following:
- Challenging macro-economic conditions and local and global uncertainty.
- High levels of inflation and spiralling food costs.
- A fierce competitive landscape of established restaurant chains.
- The removal of all COVID-19 restrictions across all markets.
- Continued consumer embrace of technology.
- South African-specific challenges including flooding in KwaZulu-Natal, load shedding, increasing localised civil protest and deteriorating infrastructure.
Read more about our operating context.
Important definitions
System-wide sales refer to sales reported by all restaurants across the network, including new restaurants opened during the year.
Like-for-like sales refer to sales reported by all restaurants across the network, excluding restaurants opened or closed during the year.
Leading Brands’ sales refer to sales of the Leading Brands trading in SA.
Signature Brands’ sales refer to franchises and Company-owned store sales in SA as well as cross-border sales where the AME management team does not manage the brand.
Brands
Our Brands portfolio consists of Leading Brands and Signature Brands. The Leading (mainstream) Brands portfolio is segmented into Quick Service Restaurants and Casual Dining Restaurants brands. Our brands are represented through a network of 2799 franchised and 88 Company-owned restaurants in SA, AME and the UK.
Our global footprint
SA
Trading conditions
The lifting of COVID-19 trading restrictions in June 2022 supported a recovery in spending on restaurants, travel and entertainment. Foot counts and dwell times in shopping centres have improved, positively impacting restaurants in these locations. South Africa welcomed more international tourists, although this recovery lags behind pre-pandemic levels due to the poor availability and cost of flights.
The Rand Merchant Bank/Bureau for Economic Research Business Confidence Index plunged to -23% in March 2023 from -8% in December 2022. This is the lowest consumer confidence on record since 1994 and reveals the consumers’ extreme concerns about South Africa’s economic prospects and household finances. This drop can be attributed to severe load shedding, hampering businesses and economic growth.
According to data from Statistics South Africa, the country’s inflation eased slightly to 6.9% in January 2023, down from 7.2% in December 2022. Food inflation continued to accelerate throughout 2023. However, inflation for food and non-alcoholic beverages remains persistent, as this form of inflation climbed to 13.4% in January 2023. This is the highest reading since April 2009, when the rate was 13.6%. The biggest increases were experienced in bread and cereals (21.8%), fish (13%) and meat (11.2%). These increases, alongside transport inflation at 11.1% year-on-year, are hitting consumers hard, especially felt by lower-income groups.
South African consumers continue to search for affordable and trusted products. In response to a challenging environment, competitors in the Quick Service and Casual Dining Restaurant industry fight for market share by offering consumers value through bundle deals, competitions, and loyalty programmes. Our marketing campaigns reinforce key quality perceptions.
In April 2022, the severe floods in parts of KwaZulu-Natal negatively impacted restaurants for several weeks. In total, 99 restaurants were closed due to damage or poor accessibility to the locations. The floods also resulted in a poor Easter holiday season as holidaymakers cancelled their trips to KwaZulu-Natal. Then, in December 2022, the KwaZulu-Natal holiday season was negatively affected by beach closures due to high levels of bacteria.
Mitigating the impact of load shedding
According to an analysis from the Council for Scientific and Industrial Research (CSIR), 2022 overtook 2021 as the most intensive load shedding year yet, concentrated in the latter half of the year, which comprised over 80% of the annual total. December 2022 was the highest load shedding month ever. This was the first year that most load shedding was not at Stage 2, having been overtaken by Stage 4. Stage 6 load shedding has surpassed that experienced in 2019, the only other year with Stage 6.
The restaurant industry is highly exposed to load shedding. The impacts include lost revenue, increased operating costs and increased food waste. Higher levels of load shedding also increase the incidence of generator breakdowns, which can lead to business disruptions. Generators are also smelly, noisy and messy.
Load shedding influences the restaurant industry in countless other ways. Orders from suppliers, who may not be set up to cope with increased load shedding, may fail to meet orders or deliver on time. Laundromats, which use significant electricity to run their washers, may be unable to launder table cloths for restaurants. Employees may be delayed in getting to work or cannot wash and dry their uniforms.
At the beginning of 2023, approximately 50% of Leading Brands restaurants had alternative power (generators, inverters, batteries, solar). In 2023, Famous Brands encouraged its franchise partners to invest in alternative power, and at year-end, 81% of Leading Brands restaurants had some access to alternative power. This includes 58% of our franchise partners operating a standalone generator.
In 2024, Famous Brands will continue to explore alternative power sources in consultation with internal and external role players. As part of sustainable energy management, Famous Brands will consider the following:
- Restaurant design and configuration to reduce energy usage.
- A move to gas-supplied equipment (ovens, grill, flat tops, fryers and coffee machines).
- Smart restaurants start-up during peak demand periods.
- Core equipment usage for energy efficiency.
- Menu management.
In 2024, Famous Brands will roll out a specific load shedding report to monitor load shedding levels per municipality provided by the Eskom SePush application. This report will detail the following information to inform decision making:
- Famous Brands South African restaurant sales in 30-minute time slots.
- Match 30-minute time slots to load shedding based on the restaurants’ locations.
- Align turnover to restaurants’ opening hours.
- Menu management.
The aim of this report is to provide targeted relief to our franchise partners where the problem of generating power is most severe.
