Eating in the dark: How are restaurants navigating load shedding?

South Africa has been facing significant challenges due to load shedding, with the cumulative number of days affected reaching 207 as of June 23rd. Against the backdrop of inflation, rising interest rates, and other economic factors, the restaurant industry has had to adapt to survive. Restaurant stocks and food retailers offering delivery services have been at the forefront of this transformation. Famous Brands, known for chains such as Steers, Wimpy, and Debonairs, saw a 37% increase in earnings and a 15% rise in revenue, showcasing resilience in a challenging environment. Roy Mutoni, Portfolio Manager at Sanlam Investments, highlighted how famous brands faced difficulties in the UK and navigated through the impact of COVID-19, leading to a solid recovery. The discussion also focused on how load shedding presented opportunities for restaurants, with consumers turning to dining out as an escape from power outages. Zwelakhe Mnguni, Chief Investment Officer at Benguela Global Fund Managers, emphasized the importance of volume recovery post-COVID and the need for sustained growth. While famous brands experienced a boost post-COVID, margins still lag behind pre-pandemic levels, signaling the need for innovative strategies. Food inflation has been a persistent challenge for restaurant companies, affecting pricing and menus. Companies like Famous Brands and Spur have adjusted their menu offerings to accommodate consumer demands amid inflationary pressures. The recent decline in global prices of maize and soya provides a glimmer of hope for managing food costs. However, without significant volume growth, sustaining profitability in the face of inflation remains challenging. Spur, known for brands like Rocamama's and Panerati's, reported a rise in restaurant turnover, highlighting the importance of strategies to counter food inflation. Virtual kitchens have emerged as a cost-effective approach to expanding delivery services. Spur's strategy of leveraging existing infrastructure for virtual kitchens allows for localized offerings at competitive price points. However, the success of virtual kitchens hinges on consumer perceptions of value and income levels. Collaborations between restaurant companies and food retailers, such as Mr. D's partnership with Pick n Pay, signal a broader trend towards cross-platform integration. Leveraging existing delivery networks to offer grocery deliveries enhances profitability and volume for companies like Mr. D. These collaborations demonstrate a shift towards shared logistics and diversified revenue streams. Looking ahead, differentiation will be key for the sector's growth, with a focus on delivery speed, convenience, and quality. Consumers increasingly expect innovative offerings, such as drive-throughs and order, collect, and deliver services. As the industry adapts to changing consumer preferences, the outlook remains challenging yet promising. With a focus on innovation and consumer-centric solutions, restaurant stocks and food retailers are poised to thrive in a post-pandemic landscape.