Nothing to crow about for fast-food outlets

Restaurant chains say load-shedding is severely impacting supplies of chicken and fries

BLPREMIUM

15 JANUARY 2023 - 07:09THABISO MOCHIKO

As blackouts intensify, fast-food chains are experiencing a supply crunch of chicken, with Nandos warning of a threat to fresh food supply.

Nando's South Africa CEO Mike Cathie said while none of its restaurants closed due to chicken shortages in December, "it was and continues to be tough to manage supply across our national footprint with seemingly always-on load-shedding".

Given Nando's uses fresh chicken, "it has certainly amplified the difficulties for us as we don't stockpile frozen product".

Cathie said the shortage of chicken and other fresh produce to businesses and consumers "is strongly related" to consistent blackouts. "As long as load-shedding remains, so too does the significant threat to fresh food supply. We can expect to have a continued tough year ahead, but we are confident we have adequate plans and contingencies in place."

More than 90% of Nando's supply is from South Africa, he said, adding: "We do not import any frozen product into the country, so the impact on input costs is largely due to general high inflation in South Africa."

The cost prices of commodities such as fries; sunflower oil, a major input cost; generators, fuel and equipment repairs; and transportation attached to the fuel price put significant inflationary pressure on the business.

"While it is inevitable any business will pass on a portion of its increasing costs to consumers, we are cognisant of the broader macroeconomic conditions and the impact on our customers. Price increases are the last resort to mitigate such cost pressure. We endeavour to constrain any price increases to consumers below inflation," said Cathie.

In December, some KFC outlets were temporarily closed as JSE-listed poultry producer Astral was unable to supply chicken due to power cuts.

This week, Astral, which is expected to issue a trading statement on January 25 that is likely to shed more light on its December challenges, said load-shedding has resulted in less birds available in specific weight ranges and portion sizes specifically needed for the quick-service restaurant chain.

"There are supply constraints with fast-food/quick-dining restaurants as a channel, not just KFC, with general supply issues due to load-shedding's effect on poultry producers. KFC appears to be the worst affected due to its large store network," it said.

KFC said less than 7% of its store base experienced intermittent closures and that in coming days "our customers will again be able to get all their KFC favourites at any of our more than 1,000 restaurants across the country".

The company has backup generators at more than 600 outlets and said it is working with suppliers to ensure they have sufficient back up power.

For the financial year to end-September 2022, Astral reported the direct cost of load-shedding to be R126m and water-supply interruptions R9m.

The company has spent on diesel generators and additional water storage. This has made it more expensive to produce chicken, resulting in price hikes.

Famous Brands, which owns outlets such as Steers and Wimpy, said it is "experiencing an irregular supply of some chicken cuts from our suppliers and are actively managing the situation to try to avoid disappointing our consumers".

In addition to chicken supply constraints, importers of French fries have warned of further price increases if the government imposes new import duties.

In July, the International Trade Administration Commission (ITAC) imposed provisional duties of up to 190% on frozen fries imported or originating from Belgium, Germany and the Netherlands.

Fred Hume, MD of Hume International, which imports the product, said whileSouth African farmers have sufficient potatoes, they do not have enough of the variety suitable for producing French fries.

Hume said imports have dropped three-fold compared with pre-Covid, partly because of the import duties.

The three biggest markets are Holland and Belgium, while suppliers from Germany, which was slapped with the highest import tariff, are no longer bringing French fries to South Africa.

If the local industry has enough supply for the market, there will be no need to import, he said, calling on the government to suspend import duties until domestic suppliers are able to supply the market at a reasonable price.

Further tariffs will put consumers under even more pressure, especially when food prices are already under pressure due to rising input costs like fuel, said Hume.

Jaco Koekemoer, acting marketing manager for Potatoes, said import duties have been put in place to protect the local industry. "From a sector perceptive, the collective viewpoint on import tariffs is clear while trade and thriving regional and global markets and economies are, of course, a priority, so are South Africa's agricultural and manufacturing industries."

"In reality, cheap, low-quality potatoes entering the market will ultimately be detrimental to South African producers and the sector as a whole, and could cause a surge in illicit trading activities," he said.

South Africans have an opportunity to buy and support local, and help rebuild the economy. "What citizens decide to put on their dinner tables could determine what South African farmers put on theirs. For industry players to provide the country with good quality, locally produced food, we must prioritise our growers, our supply chain and the expansion of the agricultural economy," said Koekemoer.

The actions outlined in the Agporiculture and Agro-processing Master Plan (AAMP) must be prioritised to enhance potato processor capacity, he added. "There are numerous opportunities for investment and expansion. However, these need to be underpinned by consistent power and a conducive operating environment."

Cathie said potato processing facilities are severely disrupted when load-shedding occurs and "we are working with our supply partners to manage this complexity on an ongoing basis".

Kindly assist with

• Graphically illustrate and explain the impact of the import duties in South Africa on the market for potatoes.
• Also with given the economic environment (load-shedding and water shortages), Please help me graphically illustrate and explain why local chicken producers will not be able to supply chicken at "reasonable prices".