Impact Partner Content: Absa

In spite of social and economic difficulties before the COVID-19 pandemic, the South African prepared food market remained resilient. However, as the pressure of the pandemic is felt heavily in the restaurant and quick-service industry; the shift to food delivery becomes more important as an option for these businesses to get to their consumers.

The restaurant and quick-service restaurant (R+QSR) industry will see substantial shifts due to the COVID-19 pandemic. According to a FASA survey conducted in 2017, the estimated turnover for the franchise market was close to R600 billion (13.3% of South Africa’s GDP), with 25% of this generated in the fast-food and restaurant sector. The R+QSR industry is a significant contributor to the economy, but it is clear that post-lockdown, restaurants will not continue to operate in the same way. As consumers increasingly emphasise safety, hygiene and social distancing, their desire to stand in queues or sit down in public spaces will diminish. Thus, food delivery becomes a logical response, as it offers an alternative by serving consumers in their homes and reducing social contact.

It is against this backdrop that we have assessed trends that will continue post-lockdown and options that are available for business owners in food delivery, and make recommendations for pursuing this route.

Three consumer behaviours post-lockdown

Social distancing: Social distancing will continue to be part of society for some time and anxious consumers need alternative ways of getting their meals while ensuring the safety and wellbeing of their loved ones.
Hygiene first: Strict hygiene regimes by both business owners and consumers are the new normal. Products that enable this will become part of the weekly order.
Contactless payments: A high adoption rate of contactless payment mechanisms is already being seen and good eCommerce platforms need to be integrated with mobile phones.

Opportunities for business owners

We see opportunities for businesses in both the manufacturing and distribution of the offering that will not only speak to the trends mentioned above, but also to the need for greater efficiencies and cost reduction, while ensuring that consumers get what they want.

The first opportunity relates to the manufacturing component of R+QSR, called a dark kitchen. It may sound ominous, but essentially, a dark kitchen is a “virtual restaurant that consists only of a kitchen, where food is prepared and produced according to delivery orders that were received online.” The dark kitchen is an attractive option for brands that want to aggressively cut costs, but still offer a wide choice to consumers. In the United Kingdom, various brands have partnered and shared their recipes with dark kitchens, from which the consumer can order different dishes that arrive as a single delivery. Brands participating in the dark kitchen benefit from economies of scale while saving on overhead costs such as staff, rental and consumer-facing facilities. Large groups managing different brands can have an independent dark kitchen where they serve meals that are only offered at their stores. It will be interesting to monitor whether the South African R+QSR industry will follow the United Kingdom model or not.

Another opportunity is to put in place new ways of getting your meals to consumers, as they may no longer want to come to you, and that relates to food delivery. The local food delivery industry is dominated by third-party operators, including Mr D Foods and Uber Eats, representing approximately 90% of the market. According to Business Insider 2, only 10% of food is delivered by fast food establishments themselves. Partnering with a third-party delivery company or doing it in-house depends on each business’s specific circumstances, such as the customer base, business location and type of offering. A third-party delivery partner can augment an in-house delivery strategy until the business owner has a good understanding of what works best in terms of customer satisfaction, profitability and internal efficiency. For example, for restaurants that offer corporate catering, in-house delivery works best, but for individual consumers, a third party that is set up to manage end-to-end digital ordering through an app and can deliver higher volumes quicker is preferable.

Another option is the in-store pick-up method that has been driven by the likes of Takealot. We predict that this approach will grow in future, not only due to trends relating to social distancing, but also due to the sprawling nature of our cities, towns and rural areas. This option also serves consumers who have not adapted to technology and prefer to use the telephone to place orders. It will undoubtedly serve many more industries, including R+QSR.

Business checklist

In conclusion, if you are considering food delivery in your R+QSR business, you need to make sure that you have thought through some important elements to make it a success. Answer the following questions as a check to your business readiness to implement food delivery:

How will food delivery benefit my business? What are the potential downsides?
Do I understand the buying patterns and behaviours of my customers? Will they adopt this option?
Is my product and packaging suitable for this approach?
How can I pool resources with others to achieve synergy and reduce costs?
Do I need a mobile ordering app, backed by a reputable eCommerce platform?
How do I make fees relating to delivery transparent to consumers?

To find out more about the Restaurant and Quick Service Restaurant industry and available financing solutions, contact Abigail Makhubele on Abigail.makhubele@absa.co.za, or: