We operate in a vibrant but highly competitive industry with strong growth prospects.
According to Euromonitor data, the size of the South African consumer food service market is estimated at R102 billion. The sector is expected to exhibit a five-year CAGR to 2026 of 14% to a market size of R155 billion, with much of this growth expected in the Quick Service Restaurant category.
The food services industry constantly evolves, and staying ahead of trends helps restaurant brands remain competitive. From embracing sustainability practices to offering incredible value or creating unique dining experiences, brands have several opportunities to win over consumers.
Turbulent economic conditions
South Africa faces several economic headwinds, including low growth, persistently high inflation, increased load shedding and growing unemployment and inequality. The prices of certain ingredients continue to drive up food prices while packaging pricing is also rising.
Consumers have felt a deeper punch in their pockets. They have less disposable income, eat at home to save money and expect more for their spend. With less consumer spending, competition has become more concentrated. The branded food market remains competitive as brands seek to attract and retain a financially constrained consumer.
Load shedding impacts consumer sentiment and results in lost sales and higher operating costs for restaurants. Load shedding also increases costs for our Manufacturing and Logistics operations. There are further indirect costs related to delayed deliveries to restaurants.
The market for potential franchise partners has shrunk due to economic conditions. The restaurant industry is highly exposed to load shedding, which reduces franchise demand for restaurant brands.
According to a TransUnion Fourth Quarterly report released in February 2023, 67% of consumers surveyed have reduced their discretionary spending, including dining out and entertainment.
Key economic indicators
Unemployment
South Africa’s official unemployment rate is 32.7%, according to the Stats SA Quarterly Labour Force Survey for Q4 2022. Almost four out of five (78.3%) unemployed persons have been looking for work for a year or longer.
Economic growth
According to Stats South Africa, the South African economy expanded by 2.0% between 2021 and 2022, from R4.50 trillion to R4.60 trillion. The economy has only grown 0.3% from the 2019 pre-pandemic reading of R4.58 trillion.
Inflation
In a report published by Stats South Africa, South Africa’s headline consumer inflation rose to 7.0% year-on-year in February 2023 from 6.9% in January 2023. Prices for food and non-alcoholic beverages increased by 13.6% over 2022. This reading is the highest since April 2009, which was also 13.6%. Annual inflation for bread and cereals was 20.5%.
How we respond
We deliver an unbeatable offering that meets consumer quality, service and price requirements. Our offerings are accessible across every format and channel. As the tough economic environment affects consumer spending, we will diversify our offerings across the value/price spectrum. We continue to grow our delivery services as consumers gravitate towards eating at home. Our Retail brands are ideally placed to give consumers a taste of their favourite brands at home.
Our procurement team negotiates the best pricing on bulk food items. They investigate alternative suppliers and options should an item become unaffordable.
Wherever practical and possible, generators are installed in restaurants by the franchise partner. We also consider energy efficiency and alternative sources of power in restaurant design. Our Manufacturing and Logistics divisions rely on generators, negatively impacting the Group’s carbon footprint. We are investing in solar installations at some Logistics and Manufacturing operations to reduce our dependence on Eskom.
We work hard to ensure our value proposition is highly attractive to potential franchise partners. We remain committed to assisting our franchise partners in weathering the current economic conditions.
Read more about how we manage the franchise partner relationship.
Shifts in consumer behaviour
Unemployment
South Africa’s official unemployment rate is 32.7%, according to the Stats SA Quarterly Labour Force Survey for Q4 2022. Almost four out of five (78.3%) unemployed persons have been looking for work for a year or longer.
Economic growth
According to Stats South Africa, the South African economy expanded by 2.0% between 2021 and 2022, from R4.50 trillion to R4.60 trillion. The economy has only grown 0.3% from the 2019 pre-pandemic reading of R4.58 trillion.
Inflation
In a report published by Stats South Africa, South Africa’s headline consumer inflation rose to 7.0% year-on-year in February 2023 from 6.9% in January 2023. Prices for food and non-alcoholic beverages increased by 13.6% over 2022. This reading is the highest since April 2009, which was also 13.6%. Annual inflation for bread and cereals was 20.5%.
How we respond
We deliver an unbeatable offering that meets consumer quality, service and price requirements. Our offerings are accessible across every format and channel. As the tough economic environment affects consumer spending, we will diversify our offerings across the value/price spectrum. We continue to grow our delivery services as consumers gravitate towards eating at home. Our Retail brands are ideally placed to give consumers a taste of their favourite brands at home.
Our procurement team negotiates the best pricing on bulk food items. They investigate alternative suppliers and options should an item become unaffordable.
Wherever practical and possible, generators are installed in restaurants by the franchise partner. We also consider energy efficiency and alternative sources of power in restaurant design. Our Manufacturing and Logistics divisions rely on generators, negatively impacting the Group’s carbon footprint. We are investing in solar installations at some Logistics and Manufacturing operations to reduce our dependence on Eskom.
We work hard to ensure our value proposition is highly attractive to potential franchise partners. We remain committed to assisting our franchise partners in weathering the current economic conditions.
Read more about how we manage the franchise partner relationship.
While consumers have returned to dining out post the pandemic, many have become accustomed to home-cooked meals or ordering-in. With many consumers working in hybrid and remote jobs, mealtimes have become more flexible and spread across the day. This can be seen by the increased demand for snacking, sandwiches and all-day breakfasts. Evening sit-down trade has not recovered to pre-pandemic levels, and those who venture out tend to make earlier bookings.
| Mega trends | |||
Flexitarianism on the riseRestaurants will continue to add plant-based options to their menus and veganise recipes or take a dish that traditionally contains meat or dairy and find a plant-based substitute. |
Chicken is a star performerChicken represents the largest fast-food category in South African and other African markets. South Africans consume about 28 million chickens per week. |
Eating for healthMore consumers are health conscious and want to eat fresher, healthier food. For many, healthy eating means reducing the consumption of processed food, sugar, fat, salt, and for some, red meat. |
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Consumers and the planetSustainability is an increasingly consumer issue, as they use their spending power to support brands that align with their values. Consumers are more likely to shop sustainably if doing so requires no changes to their lifestyle and no additional costs. |
Local shopping is lekkerTime-poor consumers demand convenience. Smaller and more accessible local shopping centres have enjoyed increased foot traffic while the delivery channel continues to grow. Brands offer consumers convenient and safe experiences by evolving dining into drive-thru formats. |
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How we respond
With the shift from restaurant dining to home-dining, we will amplify our delivery services (both own delivery and through third-party food aggregators) to extend our footprint. We continue to roll out smaller formats at convenient locations and grow our drive-thru restaurant footprint. Our menus and packaging are designed to meet the needs of an at-home dining experience in taste and presentation.
In 2023, we acquired a majority shareholding in Lexi’s Healthy Eatery, a Casual Dining plant-based Restaurant brand. There is potential to grow the brand by developing plant-based Retail products that leverage the Group’s well-established route -to-market. We will include more plant-based options on our menus.
We provide easy-to-understand information about ingredients and kilojoules across our Leading Brands’ menus to accommodate health-conscious consumers. We comply with industry legislation regarding salt and sugar consumption and continuously monitor it. Some menus provide low-kilojoule meal offerings.
While we do not have an exclusive chicken brand in our portfolio, we offer many chicken options on most menus. We are also trialling a Steers Fried Chicken brand, and if successful, we will roll out this concept further.
From a sustainability perspective, we are introducing more environment-friendly packaging, reducing single-use plastic use and minimising food wastage.
Read more about our sustainability journey.
The technology evolution continues
Consumer expectations are always changing. Magnified by the COVID-pandemic, the digital experience is an integral part of consumers’ decision-making process. This includes how consumers find restaurants, order food, and pay for it. The advent of appealing, user-friendly apps, coupled with changing consumer expectations, has unlocked food delivery as a major category.
The digital consumer is looking for convenience, options and simplicity, and the industry is leveraging data to create a holistic and interactive digital experience for consumers. Younger consumers are fast-paced and on the move, and their biggest currency is time. They may prefer to pre-order a meal to skip the queues, view the menu on a brand’s website or app, use food services apps to order from multiple eateries and prefer alternative payment methods.
This pressure on traditional restaurants could be tightened further by the proliferation of “dark kitchens”, a restaurant with no front of house for consumers, and other delivery-first and delivery-only restaurant models.
Social media is increasingly used to complain about or criticise brands that do not meet expectations. Additionally, consumers are looking for a dining experience. Interesting décor and backgrounds make for shareable content.
According to McKinsey, the global food delivery market in 2021 was worth more than $150 billion, having more than tripled since 2017.
How we respond
We design restaurants to attract more foot traffic from younger consumers. This includes free Wi-Fi where appropriate, offering various ways to order and growing our presence on social media platforms. Our brand campaigns drive sales and increase consumer engagement. We use online monitoring tools to track our brands’ reviews and other social media activity.
We will continue investing in consumer-facing technology, ensuring we make the right choices. Famous Brands is rolling out digital menu boards, digital payment options and self-ordering terminals at its restaurants. We are always exploring technology as an avenue to enhance the overall consumer experience at restaurants and through delivery.
Read more about our investments in consumer-facing technology.
