African Restaurants: Increasingly Fast, Growing Furiously

09 January 2015

On an ordinary Wednesday evening, there is a small queue at the Subway sandwich shop, with clients silently weighing the merits of whole wheat bread against the taste of white. This altogether unremarkable scene is not, however, unfolding in Chicago, or London, or São Paulo or even in Cairo—but in Nairobi, where the fast food giant has recently opened its third location.

The fast food industry is growing quickly in sub-Saharan Africa, with both homegrown and international firms recording enticing profits thanks to the continent’s expanding middle class. Not only is Africa’s fast food industry promising for investors and multinationals, but it may also offer unique opportunities for agricultural sectors across the continent.

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Background
Which came first, the chicken or the KFC?
Pie Dreams
Conclusions

Background

Unsurprisingly, South Africa has long boasted the most robust fast food sector in Africa. Homegrown firms like Steers, Spur’s and Nando’s have not only enjoyed domestic success, but have flourished internationally, with Nando’s active in 30 countries, ranging from the United States to Malaysia.

Nando’s has been able to capitalize on the international appeal of Southern African “peri peri” chicken (the food is actually Mozambican in origin). Nando’s of United Kingdom and Ireland (which has also acquired English firms like Gourmet Burger Kitchen), recorded profits of £33 million ($51 million) in the twelve month period preceding February 2013. This represents a doubling of profits from the previous year.

International fast food giants have also enjoyed success in South African markets. McDonald’s entered South Africa in 1995, and now boasts over 200 restaurants across the country. Rival Burger King is also active with 34 restaurants (concentrated in Johannesburg, Durban and Cape Town). But the most successful of the Western fast food chains is KFC, with about 700 stores in South Africa (KFC is a part of Yum Restaurants International, which also owns Pizza Hut and Taco Bell).

KFC, or Kentucky Fried Chicken, is in fact the most widespread Western chain in the entire continent, with restaurants in 16 countries, from economic powerhouses like Nigeria and Kenya to somewhat more surprising places like Namibia and Malawi. Recently, KFC has indicated that it plans to establish itself in the Democratic Republic of Congo, Ethiopia, and Senegal. It has not yet offered a timeline for when this might happen.

Which came first, the chicken or the KFC?

Uncertainty around supply chains has been the major historical deterrent to fast food’s expansion in sub-Saharan Africa. The predominance of smallholder farmers throughout the continent makes it difficult for restaurant chains to ensure that they can deliver the exact same product every single time.

Fast food chains as a result have frequently resorted to importing ingredients, oftentimes pledging to source more ingredients locally when that becomes possible. This has been KFC’s approach in Ghana, where producers have thus far been unable to supply poultry meat of sufficient quantity and consistency. Chicken farmers in Ghana in particular are struggling to produce and expand, with many complaining that they have been squeezed out due to cheap imports of European frozen chicken products. As a result, KFC Ghana imports chicken from countries like South Africa and Egypt in order to ensure consistent supply.

However, simply importing the ingredients necessary to make fast food items is not always an option—especially in a continent where there are frequent import restrictions on food items. In Nigeria, for example, importing poultry and poultry products is illegal (although it does still frequently happen through illegal channels). The country’s domestic poultry industry is expanding considerably, at an annual rate of 6 percent since 2007. It’s now responsible for up to 25 percent of Nigerian agricultural GDP. Still, the overwhelming majority of the industry, which reached N373.03 billion (equivalent to $2.3 billion) in 2013, is composed of small-scale farmers.

KFC Nigeria has forged strong relationships with, and invested in, the abilities of domestic chicken producers like TUNS Farms Ltd., the company’s leading chicken supplier. It has also launched a seafood menu in Nigeria. This reflects not only its willingness to adapt to local tastes, but also its ability to adapt to a market in which chicken supply may be uncertain but seafood supply is not (fish can be legally imported into the country).

Although chicken plays a comparatively small role in the Kenyan economy—responsible for only about 6.1 percent of Kenyan livestock GDP in a sub-sector that is dominated by milk production—the supply chain is relatively robust. Kenchic was the obvious choice as KFC’s chicken supplier, even though the company actually runs its own popular fried chicken restaurants in Kenya. Kenchic is the largest and most established commercial chicken supplier in East Africa, and has some of the most thorough biosecurity.

The expansion of KFC and similar fried chicken brands throughout Africa presents a unique opportunity for the poultry industry in the continent, and may prove to be the catalyst that pushes it towards increased commercialization. In South Africa, the restaurants are a huge part of the chicken industry. Keith Warren, managing director of KFC Africa, said that 8-10 percent of all South African commercial chickens produced are sold through KFC. And there are several other fried chicken chains that are popular throughout Africa: Galito’s, Chicken Inn (part of Innscor) and Chicken Licken are all African brands with significant multi-country presence. Many countries have their own popular domestic chains (such as Kenchic in Kenya).

Despite their relatively high prices, Western fast food brands in particular are widely seen as aspirational, encouraging consumers to fork over more than they normally would for a meal. In a Nairobi KFC, for example, almost all meal items are above 400 KES ($4.39). Meals in Luanda, Angola typically cost more than $10. But consumers are not necessarily going to these restaurants because they are amongst the cheapest options—as consumers in the West do—but because of an interest in the brand.

Pie Dreams

Fried chicken is not the only fast food quickly gaining popularity throughout Africa. Pizza chains, including South Africa’s Debonairs and the US’s Domino’s, are gaining momentum. Debonairs, a part of Famous Brands South Africa, has stores in 14 African countries as well as a presence in Dubai. Domino’s is a relative newcomer but boasts successful shops in South Africa, Nigeria, and most recently Kenya. For its Nigeria chain, Domino boasts that all of the ingredients for its pizzas are locally sourced thanks to its investments in local agricultural supply chains.

As the market for unhealthy fast food has grown, so has the market for quick healthy food, particularly among African urban upper classes. This, in addition to a lack of truly “fast” food delivery options, has helped players such as Naked Pizza, a health-conscious pizza chain founded in New Orleans make their way to Nairobi. And business is going very well for Naked, which delivers in an unprecedented (for Nairobi) 35 minutes.

According to the CEO of Naked Pizza Kenya, Ritesh Doshi, Africa has some “interesting” growth opportunities, but also some significant challenges, “with supply chain and logistics costs coming [at the] top of that list, very closely followed by duties.” The biggest challenges according to Doshi have been “price, consistency of supply, [and] suppliers’ willingness to tailor products for the market.” Still, Naked Pizza sources all of its fresh produce locally, and is working with producers and processors for other goods to work up to Naked’s standards.

The rise of the pizza industry therefore presents interesting opportunities for dairy, grain and tomato farmers, as well as an opportunity to improve the processing capacity of all of these sectors.

Conclusions

Africa has entered the fast food age, and has done so with booming demand but oftentimes uncertain supply. In this challenge, there are also opportunities: for farmers, for suppliers, for better linkages between the two, and for food processing facilities—which are lacking throughout much of sub-Saharan Africa. There is a great opportunity here to produce high-quality, value-added agricultural products.

On the other side of the equation, the broad rise of fast food in Africa represents a unique opportunity for owners of traditional fast food chains in the West, who may be finding business more difficult due to increasing health-consciousness. Simultaneously, African fast food companies can strive to build more “fast-casual” brands like Nando’s that market unique indigenous cuisine internationally, and be a part of a niche that is faring much better than traditional fast food in the West.

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