Fresh risks for Africa’s fast food firms

While fast food companies in Africa have raked in the money over the past three years, they are facing fresh risks. These range from looming high prices and a potential shortage of meat to job losses in key markets such as Zimbabwe as well as other constraints, such as food imports and rising infrastructure costs.

Average regional sales growth for quick serve businesses such as those running fast food counters for KFC, Nando’s, Chicken Inn and pizza restaurants stands at around 20%, according to experts at Lynton Edwards Stockbrokers.

However, the industry is facing mounting concerns including health fears, with a study carried out by the World Action on Salt and Health saying in December that KFC South Africa’s children burger has the highest amount of salt at 2.91 grams.

The study surveyed about 387 popular children’s meals and said this is only one of the health issues raised over fast foods, which also include concerns over high fat content.

The industry is also set to suffer the impact of dry weather conditions currently impacting sub-Saharan Africa. Low and late rainfall is set to affect livestock productivity, with prices for feed stocks likely to be in short supply set to rise.

“Infrastructure costs, food imports and meat shortages might lead to high prices at many quick serve restaurants across Africa, and in the process affect customer count to restaurants as prices become higher than what most people can afford,” Lynton Edwards said in a report released on Tuesday.

Zimbabwe’s Simbisa Brands – which runs Chicken Inn, Steers, Nando’s and Pizza Inn quick serve restaurants – has earmarked acquisitions in the sector, riding on a net cash position of US$3.7m and sales growth of 9% in 2015. Lynton Edwards however said Simbisa Brands “offers a diversified product mix… reducing product concentration risk and maintaining margins”.

However, the forecast for disposable income growth in the year ahead is “conservative” amid continued uncertainty in Zimbabwe’s economy, while “political and labour environments will weigh further on consumer confidence”.

Simbisa has raised its counters to 388 across 11 countries in sub-Saharan Africa. KFC and McDonald’s have also made strides in some key markets in the region, with KFC now expanding its presence in Zimbabwe.

Revenue in 2015 was $153m and has been projected to grow further this year. Innscor Africa Limited – which has a partnership with South Africa’s Tiger Brands in National Foods – has unbundled this business. It intends to list it separately on the Zimbabwe Stock Exchange to boost potential for access to cash lines, and to promote growth potential through acquisitions.

Memory Mataranyika, Fin24