Updated: May 7
Pre-Covid-19 SA's fast food market had potential to grow
A key question when looking at the fast food market in South Africa is - can the market grow indefinitely? The answer is a two edged sword. On the one hand, South Africa has an economy of a particular size that can only support all economic activities to a certain extent, including the fast food market. However, the fast food market can grow under certain conditions.
One of the key conditions is the ability to effectively find gaps in the marketplace. For this to occur one has to use network based accessibility models. The continued use of unilateral approaches, such as site feasibility studies will not help in doing this, which is the predominant approach used by most brands in South Africa.
The fast food market is beginning to saturate so new strategies will have to be developed to create further opportunities. One strategy would be to become a development agent in high potential areas by constructing malls that will enable fast food outlets to be housed there. This will create employment as well as enable the growth of the fast food market.
Clustering fast food outlets - a key strategy to generate demand
Part of this strategy would be to cluster fast food outlets with other retail outlets to generate economies of scale to attract people to these areas and encourage people to buy fast food. There is no doubt that for the fast food industry to grow in a saturating market in South Africa, it will have to draw expenditure away from other sectors, such as the grocery sector.
In South Africa, consumer tastes are changing with the commuter population becoming more fast food orientated because of the convenience while the higher per capita market is becoming health conscience. The consumption in the black consumer market will continue to grow and contribute to the growth in the fast food market. This change in consumer tastes to healthier food is being seen especially in the developed markets like the United States, resulting in fast food outlets having to change their offerings to cater for this change in consumption behaviour.
The ability of the fast food market to grow will be very dependent on a the growth in the global economy and in South Africa. Research shows that the global fast food market will grow by 4.5% between 2015-2020, increasing to 5.6% up to 2026. The key drivers of this will be more working couples, increases in disposable income and the convenience of fast foods at low prices.
Fast food industry growth directly linked to economic growth
The continued growth of the global population, especially the middle income, continued urbanization and increases in business trips and tourism will contribute to the fast food market growth. Increasing the number of fast food outlets and their access will be a further contributor to the growth of the fast food market. Factors that might have a dampening effect on the growth of the fast food market would be people having healthier eating habits and the aging population, especially in developed countries.
In the South African context, the takeaway and fast food market was valued at between R22.4 - R26.4 bill in 2018. The growth in the number of people buying fast food grew from 66% in 2009 to 80% in 2015. By 2019 there will be an estimated 42 mill fast food consumers in South Africa. From 2014 to 2019 the annual growth rate of the fast food market is expected to grow by 9%. Thus, it will grow faster than the South African and the global economy. In contrast the number of fast food outlets will grow annually by only 4%.
What this tells us is that the fast food market will grow at a much higher percentage than that of the local and global economies as well as the number of fast food outlets. Raising concerns that the growth of the fast food market will outstrip the economic foundation upon which it must surely be dependent on. Possibly leading to the the fast food market growing to the extent that it becomes like the lemmings, ultimately "running off a cliff into the sea" (collapsing) to ensure the long term sustainability of the industry.
The key drivers of the fast food market in South Africa will be the growth in the black middle class that has been quoted to have grown from 1.7 to 6 mill people between 2013 - 2018. With both male and female family members being employed there is greater disposable income, even with the flat economic growth being experienced in South Africa. The continued urbanization of the South African population with 64% living in metros and urban centres will contribute to the expansion of the fast food market. As a consequence of the above, the South African fast food market is quoted as being "piping hot" and will experience "exponential growth".
This must be balanced against South Africa's projected slow economic growth and Foreign Direct Investment (FDI). Both will continue to be vulnerable to policy uncertainties and external shocks, like the declining global economy. The International Monetary Fund (IMF) projects that the global economy will decline from 3% in 2018 to 2.8% in 2020/21.
Network based accessibility modelling key to SA's fast food market growth
To fulfill one of the factors needed to grow the fast food market requires effectively finding gaps for new outlets in the fast food marketplace. This can only be done through the use of network based accessibility modelling methods. Accessibility modelling identifies the optimum number and location of restaurants in a network by maximizing their market share within the smallest area across a transport network. For this to be done effectively it must be done within an appropriate framework. One such frame has been termed the "Diamond of Spatial Network Analysis" that has four main components.
The first component is understanding the Demand dynamics. Who is the target market and how many people in the target market are required for a fast food outlet to be financially viable? Experience has shown that the takeaway and fast food expenditure is the most effective data source in defining the fast food target market in South Africa. The second component is the Supply dynamics that looks at how many restaurants of a brand and competitor outlets are already serving the demand in the target market. Another Supply dynamic is understanding how many preferred sites there are where new potential fast food restaurants could be situated.
There must be a means by which supply and demand are connected to one another and this is done by the the third component - access. Access is provided across a transport network using different modes of transport. Modes of transport could be walking to using motor vehicles, buses or trains. In developed countries, the transport networks are much more complex having to integrate walking, buses, motor vehicles as well as overland and underground rail systems.
The final component of the framework is consumer purchasing behaviour. It is not good enough to only define the target market and its size but an understanding of consumer purchasing behaviour across geographic regions is also critically needed. This the holistic approach needed that ultimately allows the defining of the optimum number and location of restaurants in a fast food network.
Fast food target market is multi-faceted
The target market for the fast food industry comprises of a number of sub-populations. The first is defined as the residential or nighttime population whose statistics originate from the census of a country. With censuses being conducted generally every 10 years it is necessary to update the residential population to current year values. The working or daytime population is a critical part of the target population as without it fast food restaurants could not be effectively located in the commercial and industrial areas of metros and major urban centres.
Another sub-population that contributes to the target market is the visiting commuter population. Visiting commuters are people that travel for business and other purposes from their place of residence or work to another place and return the same day. A proxy for the size of the visiting commuter population is normally used and is often proportional to the size of the combined residential and working populations of an area.
The size of the fast food market must also take into consideration that when opening a new fast food outlet in an area it will cannibalize market away from existing restaurants of the same brand. A reasonable percentage of cannibalization can be allowed for depending on the turnover of existing restaurants.
Conquest is the drawing away of market share from competitor brands and outlets. The number of competitor outlets and their average turnovers are a good proxy of market share and can be used as a basis to define the extent to which a new outlet can take market away from the other outlets. The recruitment of consumers from other sectors (eg street vendors, grocery stores) to the fast food consumers is a key mechanism by which to grow the fast food market. Convenience, price, a mix of products and density of outlets are all aspects that will allow this to happen.
About the Author
Craig Schwabe is a geospatial specialist and focuses on the development of geospatial data for South Africa and Africa. He also specializes in the use of accessibility modelling in the provision of government services and optimizing the location of private sector outlets.
Craig has worked with some of the largest motor manufacturers, grocery store chains, fast food companies in optimizing their networks. He has also advised the SA government in developing guidelines for optimizing governments service points. Craig has published several reports, books, chapters and scientific papers as well as presented papers at a number of national and international conferences.