Ongoing and intensified load-shedding has led to a boom in the takeaway and fast food sectors. However, sit-down restaurants, coffee shops, and catering services are struggling to return to pre-pandemic levels.
Property Sector Strategist at FNB Commercial Property Finance, John Loos, told 702’s The Money Show that South Africa’s food and beverages sector grew 15.5% nominally year-on-year as of March and 7.4% in real terms.
Loos said that while recent sales growth may look positive, the sector never fully recovered from the Covid-19 pandemic lockdowns.
“It took a hell of a beating then, and it comes off a very low base,” he said. “It’s still a sector battling from a sales point of view just to return to 2019 levels.”
However, the subsector of takeaways and fast food has grown.
In real terms, March 2023 sales from restaurants and coffee shops are down 35.1% compared to March 2019, and catering services are down 39.2%, said Loos.
However, sales from takeaways and fast-food outlets are up 33.1% in real terms compared to March 2019.
Loos ascribes this shift from traditional sit-down restaurants to takeaways to convenience, speed, and greater affordability.
Another important reason for this shift was revealed in a study conducted by Discovery Bank and Visa, which analysed South African consumer habits from 2019 to 2022.
This study showed that South Africans post-pandemic are eating out more across all income segments and regions, and this trend increases as load-shedding stages are raised.
Spending on eating out increases in lockstep with increases in load-shedding stages, peaking at stages 5 and 6.
Therefore, companies that offer takeaway or fast food options have benefited from this trend.
Protea Capital Management’ Jean Pierre Verster recently selected Famous Brands as his stock pick of the day on Business Day TV.
Famous Brands owns well-loved local brands such as Steers, Debonairs, Wimpy, and House of Coffees.
The company has 2,470 restaurants across South Africa and recently reported a massive jump in revenue in 2022.
In its annual report for the year ended 28 February, Famous Brands reported a 15% increase in revenue which is “materially higher” than its pre-Covid levels.
The company also saw its operating profit rise 37%, and headline earnings per share were up 37%.
Verster said of the results, “You can see from the very strong cash generation that they can very comfortably both service their debt and pay out very attractive dividends plus reinvest into the business.”
Famous Brands’ good results allowed the company to increase its dividends per share by more than 80%.
Verster said Famous Brands’ structure as a franchise business works in its favour. This is because many of the costs associated with load-shedding that cripple other companies are placed on the franchisee rather than the franchisor.
“And they are supporting many of their franchisees through this, but they won’t be in as much pain as some of their franchisees,” he said.
In addition, the company’s cost control has been “very good”, Verster added.