Fast food is loved by people everywhere and South Africa is no exception. Quick service restaurants, characterised by fast food cuisine like burgers, sausages, pizzas and minimal table service, are thriving across the globe, with emerging markets being one of the fastest growing areas in the industry. The fact is that in an increasingly mobile world, people on the go are demanding a quick bite at all times of the day.
Cheap at the price
Fast food chains deliberately offer large portions at low prices to appeal to the consumer desire for value-for-money. The easy access and efficient service delivery of fast food chains play a vital role in the success and growth in consumption of fast food, as people value convenience.
The focus is on high volumes, low costs and high-speed products. Frequently food is preheated or precooked and served to-go, though many locations also offer seating for on-site consumption. For stands, kiosks or sit-down locations, food is standardised and shipped from central locations. Consumers enjoy being able to get a familiar meal in each location, and menus and marketing are the same in every location.
The best thing since sliced bread
Sandwich shops are among the oldest types of franchises and have a history of providing franchisees with time-tested information on how to do things effectively.
In the US, where the sandwich industry totals more than $22 billion in sales, sandwich franchises are some of the most common available, with some brands adding hundreds of stores each year. Sandwich franchises are known to be highly profitable, and require relatively low start-up contributions, making them a good choice for aspiring business franchisees.
One of South Africa’s top sandwich franchises is Sandwich Baron, started in Alberton in 1996 by Sally J’Arlette-Joy, as a small sandwich shop. Today there are more than 60 outlets, and turnover has increased substantially in the last two years.
It’s no surprise that J’Arlette-Joy’s outlook on the industry is positive. “I think all fast food franchises are doing well despite the recession, as people can no longer afford to go out to restaurants as often as they used to and consumers still like to treat themselves to take out food, or food they have not had to make themselves.”
She says the biggest opportunities in the industry today, from her perspective, lie with cash buyers who have received retrenchment packages, and with an increasing number of black entrepreneurs who want to get into their own business. Sandwich Baron is in a particularly positive position because, although all fast food outlets represent competition, there are few in direct competition in the sandwich business.
However, she notes that there have been challenges in the industry in recent years that have been pressuring profit margins. The industry as a whole has proven robust enough to withstand these challenges, though some players have done better than others.
“As an example, the electricity costs for a typical Sandwich Baron store have doubled — and in some areas even trebled — in the last few years. The rising cost of petrol is also increasing our overheads as we provide a free delivery service, which is something that our customers really love as they get delivery at their workplace at no charge. On top of that, rising food prices are a challenge and it’s difficult to get suppliers to hold prices for as long as they used to. It’s a constant battle to keep food costs at the correct level.”
To overcome these challenges, she says, she and her team have had to work smarter. “We are definitely more diligent at controlling wastage and stock. We are also looking into buying electric motorbikes to save on petrol, and we are spending more time with suppliers to negotiate product prices and reward the most cooperative suppliers with loyalty.”
With Gauteng almost saturated, J’Arlette-Joy says the franchise is currently on a big drive to open more stores nationally.
“We’re looking for franchisees who are prepared to run the business on a full time basis. They should be organised and be able to control staff. Marketing and previous business experience is always an advantage.”
Another local franchise that’s truly different is Hot Dog Café, which helps unemployed people become entrepreneurs, and has more than 150 franchisees. It’s one of the few programmes of its kind to have succeeded, and it’s been recognised as the leading franchise in the development of broad-based black economic empowerment. The company provides a well-loved day-time snack and light meal option and is generally successful in high foot traffic areas.
“Major franchise brands continue to grow, but many smaller brands have had a thrashing,” says Derek Smith, MD of Hot Dog Café. “Franchise stores in shopping centres are under pressure because rents are high and consumers have less money to spend. It’s also an overtraded market in which the competition is tough. That’s why smaller players have all but disappeared.”
Smith says, however, that there are great opportunities when it comes to fast food that is targeted at the lower LSM levels, such as blue collar workers. “More expensive brands have a target market of only three to four million people, whereas those with a wider reach have a much bigger potential market.”
He cautions that rising costs have made it more critical than ever for franchisees and franchisors to focus on basic financial controls if they want to make a profit.
Hot Dog Café differs from the average fast food chain. The brand does not operate from shopping centres and only has permanent sites in KwaZulu Natal. Instead, franchisees run their own hot dog carts outside Builders Warehouse and Massmart stores.
It’s an important distinction, says Smith, because there are no massive rentals, and regular fast food outlets typically lose 80% of their value once their doors open — and have to make it up over a long period of time. “If an outlet does not work for one of our franchisees, they pick up their cart and move. In five years, following the recession, we haven’t lost a single operation. In January and February this year, we grew by 30%.”
Smith is seeking to expand. He recently concluded a deal with the Public Investment Corporation to train new entrepreneurs and open 60 more Hot Dog Café outlets. “We’ve really seen the benefits of thinking laterally, and it’s enabling us to create around 310 new jobs this year alone. Because we are familiar with the process involved in getting this right, the returns start to become more and more attractive.”
Like most franchisors, he’ll tell you that owner-operated is best. “Managers don’t have the same enthusiasm as owners,” he says.