[LINK] "Pizza Hut Returns to Africa"
Janice Kew and Christopher Spillane, writing for Bloomberg, describe how Pizza Hut is trying to break into booming African markets.
Pizza Hut knows a few things about fast expansion in emerging markets. In less than 25 years, the chain has added more than 1,300 restaurants across China. But Randall Blackford, the general manager of Pizza Hut’s operations in Africa, says the restaurant operator is taking its time expanding on the continent. In Africa, “we are a small company right now and will stay small for some time,” he says, eating pizza at one of his restaurants in Soweto township in Johannesburg. “It gives us flexibility to respond to local tastes, to engage more. We can’t be first, can’t be the cheapest, so we got to be the best.”
Blackford has reason to be cautious: The world’s largest pizza purveyor, a unit of Louisville-based Yum! Brands, failed in sub-Saharan Africa seven years ago, after consumers were cool to its prices and dine-in model. This time around, Pizza Hut is targeting takeout and delivery service. It will limit drop-off distances to a few miles, which means eventually it will have smaller stores in lots of neighborhoods. From its current eight stores in South Africa and Zambia, it aims to have 200 stores across the continent in three years.
While fast-food purchases in South Africa are growing, with about 34.8 million people expected to buy meals from such restaurants by 2017, up from 31 million now, much of that nation’s fast-food industry is homegrown, according to Euromonitor International analyst Elizabeth Friend. In countries such as Ghana, Kenya, and Nigeria, there’s less competition than in South Africa. So while supply chains are less reliable, those newer markets offer foreign restaurant players good growth opportunities, “at least for those chains that can survive until that investment starts to pay off,” Friend says.
Almost half of Africa’s fast-food restaurants are focused on chicken, then comes burgers. Pizza is a distant third, accounting for about 5 percent of total spending. One reason: the more moderate cost and wider availability of poultry supplies. Some Pizza Hut toppings, such as air-dried pepperoni, have to be imported. That affects customers’ checks. The Streetwise 5 meal from Yum’s KFC, which includes a large order of fries and five pieces of chicken, costs $5.50 in South Africa, while a fully loaded large Pizza Hut pizza approaches $8. In Zambia, the same pie costs about $10. “The pizza outlets are going to have to focus on pricing, bringing it more in line with what chicken costs,” says Wayne McCurrie, a money manager at Momentum Asset Management in Johannesburg.
Pizza Hut knows a few things about fast expansion in emerging markets. In less than 25 years, the chain has added more than 1,300 restaurants across China. But Randall Blackford, the general manager of Pizza Hut’s operations in Africa, says the restaurant operator is taking its time expanding on the continent. In Africa, “we are a small company right now and will stay small for some time,” he says, eating pizza at one of his restaurants in Soweto township in Johannesburg. “It gives us flexibility to respond to local tastes, to engage more. We can’t be first, can’t be the cheapest, so we got to be the best.”
Blackford has reason to be cautious: The world’s largest pizza purveyor, a unit of Louisville-based Yum! Brands, failed in sub-Saharan Africa seven years ago, after consumers were cool to its prices and dine-in model. This time around, Pizza Hut is targeting takeout and delivery service. It will limit drop-off distances to a few miles, which means eventually it will have smaller stores in lots of neighborhoods. From its current eight stores in South Africa and Zambia, it aims to have 200 stores across the continent in three years.
While fast-food purchases in South Africa are growing, with about 34.8 million people expected to buy meals from such restaurants by 2017, up from 31 million now, much of that nation’s fast-food industry is homegrown, according to Euromonitor International analyst Elizabeth Friend. In countries such as Ghana, Kenya, and Nigeria, there’s less competition than in South Africa. So while supply chains are less reliable, those newer markets offer foreign restaurant players good growth opportunities, “at least for those chains that can survive until that investment starts to pay off,” Friend says.
Almost half of Africa’s fast-food restaurants are focused on chicken, then comes burgers. Pizza is a distant third, accounting for about 5 percent of total spending. One reason: the more moderate cost and wider availability of poultry supplies. Some Pizza Hut toppings, such as air-dried pepperoni, have to be imported. That affects customers’ checks. The Streetwise 5 meal from Yum’s KFC, which includes a large order of fries and five pieces of chicken, costs $5.50 in South Africa, while a fully loaded large Pizza Hut pizza approaches $8. In Zambia, the same pie costs about $10. “The pizza outlets are going to have to focus on pricing, bringing it more in line with what chicken costs,” says Wayne McCurrie, a money manager at Momentum Asset Management in Johannesburg.