A closer look at our reality – and what we can do about it

As a supplier to restaurant chain head offices in South Africa, my days (and sometimes nights) are spent with people who make decisions on behalf of hundreds of franchise outlets. My clients’ main challenge is to present their franchise forum with a profitable menu that’s?on trend.?

It’s not an easy task. There are many moving parts, including the vagaries of consumer tastes and trends, being able to think ahead to what the ‘next big thing’ is going to be. Each franchise has their peculiarities which are reflected in the forum – so there’s often a quite disparate group to satisfy. This is all happening in a highly competitive market, eager to take advantage of another’s lapse in focus.?

But it’s also such a vibrant, responsive market which rewards you when you get it right. There’s nothing quite like the excitement of a full, buzzing restaurant. It’s stressful, hard work, but also kind of addictive.

Buzz Kill

Reflecting on the recent past got me quite misty-eyed. Month-on-month, year-on-year growth was normal. It felt like we worked hard and got rewarded for it.

The Covid nightmare might be over, with restrictions lifted and trading back at full capacity. We should all be ecstatic, moving towards a ‘new normal’.?

But we’re not. Human behaviour doesn’t change with the flick of a switch. Habits have changed, as have expectations, work commutes and household budgets. It’s a volatile environment.

Then we get hit by the worst period of load shedding and the highest fuel prices in history. Inflation is up and the world is talking about a recession.

It can be quite depressing. So much so that we often change the subject. Chin up, ‘sterkte,’ look on the bright side and all that. That’s not going to help anyone. We’re in this with you – without clients, we have no business. We have no alternative, but to carry on, as punch-drunk as we might be.

First, let’s remind ourselves why we’re in business in the first place. And, for this, we need to put ourselves in the consumers’ shoes.

Curious Customers Keep Us Going

We know they come for the food, but they also come for the experience. A night off from cooking, a change of scenery outside the home, a date night to catch up, a treat for the kids, letting your hair down with friends, an escape from the frenetic office. You see them coming in and can usually tell what’s going on.

Thankfully humans are not rational. They’re so predictably irrational that an entire field of study which combines economics and psychology has grown around trying to figure them out. Smart people’s irrational and illogical behaviour fascinates behavioural economists so much that they conduct experiments and developed theories to predict the materially ‘unwise’ decisions they make.

What this means for us, is that we shouldn’t assume our guests will choose cheaper options because they’re strapped for cash.

In fact, one of behavioural economists’ most popular theories is about how everything is relative, including pricing. We see the ‘anchoring’ price strategy on most menus, especially with wine lists. Guests are not expected to buy the R500 bottle, but it sure makes the R220 bottle look like a good buy.

Another experiment showed how guests in restaurants changed their orders based on what others at the table had chosen. When the order is written down in private, the decision-making process was completely different.

The South African economy has been stressed and constrained for a while now – and yet there is still growth in segments of the FSR and QSR sectors. There is still money to be made, but we might need to shift our thinking.

These three unwelcome threats are on our minds every day. If we take a closer look at each one, maybe there’re ways we can prepare or respond that will benefit the businesses.

Load Shedding Presents Unique Needs

Just when we get a good run without load shedding, it comes back with a vengeance. It doesn’t always seem logical. All we can do is be prepared and practical.

On the upside, the schedule generally gives us a heads-up for when the power will go out. So, there is some time to prepare. If all goes to plan the duration of the outages is also predictable. Making it possible to plan for when the power’s back up.

With that in mind, no business can just shut down and cut its trading hours. Going forward, we’re going to have to assume that load shedding is here to stay.

Like every curveball thrown our way, there’s opportunity in the crisis.?

Create a load shedding menu

It’s realistic to expect that not all items will be available during load shedding. Even if you have generators or solar and batteries – some kitchen appliances are really greedy when it comes to electricity.??

Rationalising the offering to exclude things like milkshakes and deep-fried chips is tough, but if you are upfront about your capacity, it can prevent the need to shut down completely or run up unaffordable bills.

Solve a unique need to ‘kill’ two hours

For FSR/QSR outlets who do trade through the outages, it’s worth considering that you might have guests coming in to ‘kill’ their two dark hours at work or home.

People are planning their time and meals around the outages. Sitting in the dark, listening to the hum of other people’s generators is no fun. People are going out where there are other people, lights, power and, incidentally, something to eat.?

There may be aspects of your menu that can adapt to this new trend. Quick, easy-to-eat meals that can be ordered, enjoyed and paid for within about 80 minutes. They aren’t really coming for a treat, it’s more for respite.

If guests can plug in a phone, power bank, or laptop, now that might be a treat.

Recession: This is Not Our First Rodeo

A recession is the label given to an economy that is shrinking. By definition, if two consecutive quarters deliver negative growth, in other words, measurements of Gross Domestic Product (GDP) indicate that there is less production, income and spending in the country’s economy than in the previous three months, it’s called a recession.

For some countries, where growth has been robust and consistent, this is a step-change. But, in SA, our economy has been sluggish for a while. The country’s highest annual growth rate over the past 10 years was 5,6% in 2006. That was before the financial crisis in 2008/9. We then came in with a 3% growth rate in 2010 and 3.2% in 2011. (Source: https://data.worldbank.org)

The past five years have looked like this:

Basically, the economy didn’t bounce back as much as it had fallen.

Q3 of 2020 only looks so positive at 13,8% because it’s compared with the previous quarter’s 17,1% drop.

Reading and listening to forecasts, the likelihood of the economy shrinking this year is high. But our reality is that we have not been operating in a growing economy for years.

The key is to fulfil those often irrational needs, even in a recession. Let’s look at the other ‘evil’ of inflation.

Inflation: What’s Pushing or Pulling Prices Up?

When economies boom, prices rise due to ‘demand-pull’ inflation. There’s so much competition for goods and services that suppliers can ask for higher prices.

Alternatively, prices can be pushed by rising costs. That’s where we are now.?

Both of these dynamics cause rising prices. The major difference between the two is that not much can be done about ‘cost-push’ inflation.

Central banks raise interest rates (like in SA) to try to push that demand curve down to reduce prices – i.e., reverse demand-pull inflation. But these kinds of policies don’t do much when costs are pushing prices up.

Prices Don’t All Rise at the Same Rate

Inflation is a general measure of price increases. The official Consumer Price Index (CPI – currently at 7,4% June 2022 year-on-year) is based on a basket of goods. So not all prices are rising at the same rate. Very high vegetable oil prices in the food category and high increases in say electricity and fuel, push the average costs (inflation) up. But other costs could even be coming down – like electronics.

Rising costs are biting, especially the ones that affect everyone – like fuel and electricity. But some categories are seasonally unaffected, available locally, or more abundant and therefore less costly. It’s going to mean we need to be more flexible.

Recession and inflation also don’t impact every consumer segment in the same way. Because one person’s spending is another one’s income, there could be consumer segments who gain an advantage with high inflation. When the real value of money (spending power) decreases, those who borrow tend to benefit and those who invest tend to lose.

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Kelvin Quinn has been part of the Unilever Food Solutions SA team for over 25 years. In his role as National Key Accounts Manager, he manages the company’s sales to FSR and QSR chain outlets. Connecting with clients to help them grow their businesses is what he does best.?

For more insights into trends in the QSR/FSR franchise sector, visit the UFS LCA portal .?