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Sunday Read: The fast food business that made big money during Stage 4 load shedding

Apr 07 2019 09:28
Ferial Haffajee, Fin24

I think I hang out with glass-half-empty people too often – so a panel run by The Economist’s Intelligence Unit this week was quite an eye-opener.

It featured companies with high growth in a market with growth so flat, it could rival a pancake. 

McDonalds, for example, is about to report stratospheric numbers in its year-end as it recorded huge sales during the load-shedding in March. It was a record-breaking year in SA for the golden arches, so to achieve this in a market growing at under 1% a year is remarkable. 

The burger chain has generators at all its stores and so it benefitted from the power cuts as did retailers in the building and general home sectors, many of whom sold out of generators.

Eskom implemented several days of Stage 4 load shedding in March following Cyclone Idai in Mozambique which further compromised South Africa's electricity supply. The embattled power utility has, however, long been plagued by ageing power plants, insufficient maintenance and allegations of state capture, among other things. 

McDonalds 'secret sauce'

Asked by Herman Warren of The Economist’s Corporate Network about his secret sauce, Greg Solomon, the CEO of McDonalds in South Africa said, “We invested half a billion (rand) a year.” 

The US fast-food giant is about to open its 275th outlet in South Africa in Phuthaditjhaba in the Free State. 

In addition, McDonalds employs an average 1000 people a year, taking it to a staff complement of 12 000. Solomon said that McDonalds had brought the drive-through concept to South Africa and that its introduction of a breakfast menu had been a big sales push. 

While its menu was 70% local, the Big Mac accounts for 40% of sales in SA. 

Solomon revealed that his management style was to organise a team by categories that cut across disciplines like finance, marketing or strategy. Instead, McDonalds arranges teams by Menu, Health (a growing category of salads and other healthy items) and Breakfast.

“People are holding each other accountable,” he told the panel.

He said that 57% of business in South Africa is from drive-through where you can order from your car and pick up in minutes. 

McDonalds coffee accounts for 5% of sales while breakfasts already make up 12% of the total. 

A glass half full mentality

Other panelists included Mteto Nyati, the CEO of Altron and Gaganjot Singh, the regional director of Michelin.

“If we don’t get a single new customer for the next two years, we will continue to grow,” said Nyati who is also taking Altron to new markets including the United Kingdom and Australia where many South African businesses have lost traction.  

Singh said that South Africans tended to have a glass half empty rather than a glass half full mindset. He drew a comparison with South Korea which has a population of 51 million compared with that of South Africa with 57 million people.

It had similar natural endowments, yet its GDP is at $1.5 trillion compared with South Africa’s $350 billion. 

He made the comparison to show growth potential.

“There are pockets of growth in South Africa that are higher than those in India or China.” 

Singh identified South Africa’s biggest growth impediment as skills; Nyati agreed. 

“In South Africa, execution is usually the problem,” said Nyati while Singh said, “The biggest challenge I sit with is how to create leaders (for Michelin)  in South Africa for France, the US, and China.”    

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