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Tough times in store for some SA restaurants as job cuts, possible closures loom

Apr 08 2020 12:15
Phumi Ramalepe

As stringent measures to curb the spread of the coronavirus continue, restaurants are not seeing much light at the end of the tunnel - with retrenchments and possible closures looming, particularly for small establishments.

Restaurants are not deemed essential services, and have been ordered to shut their doors for the duration of the three-week lockdown ordered by President Cyril Ramaphosa to curb the spread of the coronavirus. The number of confirmed Covid-19 cases in South Africa is still climbing, with a death toll of 13. 

The shutdown measures, however necessary, pose a threat to the macro economy, and for industries such as hospitality they present an even more acute risk.

Most restaurants are expected to "take a hit operationally… for the time that they closed for trading," says Nolwandle Mthombeni, an investment analyst at Mergence Investment Managers. 

She says a number of factors, such as like location, will help determine whether a restaurant will come back with ease after the shutdown ends, or crawl back to recovery.

"For as long as the shutdown is not going to take too long and the restaurant is not in a small area or has got small profit margin, it should be fine. But if you’re sitting with a restaurant at a popular location, you’ve got a profitable franchise that will get you through this hard time," she says. 

While large restaurant and fast food chains such as those owned by Famous Brands and Spur Corporation may be shielded from the worst effects of the pandemic, small eateries are set to feel the impact much more significantly. Some have already retrenched staff members.

"The little restaurants that are one or two in a chain - one little restaurant that is someone’s whole life - those restaurants are going to be destroyed," says founder of Herenya Capital Advisors, Petri Redelinghuys.

Food vouchers 

Redelinghuys refers to a restaurant in Woodstock, Cape Town, which had to retrench all its staff members and might be able to reopen after the lockdown.  

In a bid to survive the lockdown, the restaurant has resorted to selling food vouchers - through an initiative called Say Siyabonga - to secure its cashflow.

The owner hopes this will allow the restaurant to bring employees back and attract customers when the lockdown ends. 

"What he is doing now is listing vouchers that you can buy, and is saying [he’s] created a fund for staff members and are selling R500, R700… vouchers that will go straight into those funds so [he] can pay staff and hopefully undo the retrenchment if [they] raise enough money."

Uncertainty for one of SA’s big favourites  

Yum! Brands, the owner of KFC, says that although a cloud of uncertainty hangs over many of its businesses due to the lockdown, the group will ensue that staff members at KFC receive their full salaries in March and April despite the lost business days. But times will still be tough.  

According to KFC Africa, "The coronavirus outbreak clearly presents some risk for the restaurant and hospitality industry globally, but ultimately, the impact remains highly uncertain.

"New information and policy responses are unfolding daily, making it impossible to provide a reasonable forecast," said the group, citing that the business will continue to engage with all stakeholders to assess the impact of the lockdown on the business.

For now, KFC Africa will brainstorm "measures that may mitigate the impact, now and beyond."

More sectors to suffer

Simon Brown, analyst and founder of Just One Lap, a trading and investment education company, believes that big restaurants will have the upper hand after the lockdown ends. 

"I think restaurants will pick up fairly quickly. We are finding lockdown quite hard and we want to go out and eat food cooked by somebody else rather than ourselves."

Brown also said hotels and airline industry were where problems would be harder to resolve.

"People certainly aren’t going to be jumping on a plane and traveling to Cape Town or Durban or Johannesburg. The hotel industry will find it a bit harder and the airline industry might find it a bit harder to restart post the lockdown," Brown said. 

kfc  |  simon brown  |  coronavirus  |  lockdown
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