SA Restaurants Weather Financial Storm

The restaurant industry in South Africa faces many challenges, but there is some cause for optimism in 2017. By Karl Westvig.

In 2016, travel and tourism contributed R402 billion or 9.3% of South Africa’s GDP to the country. This is anticipated to grow to R412.2 billion (9.4%) of GDP in 2017.

Restaurants play a significant role in how tourists experience this country, but hospitality is faced with challenges that make operating in a tight-margin industry particularly difficult. Among these challenges are the rising costs of doing business, with food inflation chief among these.

In 2016, food inflation peaked at 11.7%, but even now that it has dropped to below 6%, the effects of last year’s spikes are still being felt. Even more worrying is that the contributing drought hasn’t even taken full effect yet in key agricultural regions in the Eastern and Western Cape.

The drought has a more direct impact in terms of water consumption as well. Water usage is restricted, and usage penalties have been implemented in some areas. This means that restaurants, which use water to maintain standards of hygiene and to cook the food that they prepare, aren’t operating within the usual structures of ‘business as usual’ while trying to make their contribution to the economy of South Africa.

In addition, there are the typical concerns that face the industry including high staff turnover and skills shortages, bad debts and cash-flow constraints, and the need to constantly adapt to consumer needs and expectations.

These challenges are particularly hard felt by new restaurant owners, who are attempting to make a name for themselves in a competitive industry.

Glen Foxcroft-Williams, chef-proprietor of Foxcroft Restaurant in Constantia.

According to Glen Foxcroft-Williams, chef-proprietor of Foxcroft Restaurant, the challenges in opening a restaurant cover a broad spectrum, from establishing brand identity, finding your market and forging an ethos for your team. The Constantia based restaurant won the Eat Out Retail Capital New Restaurant of the Year Award last year.

As Foxcroft was Glens’ first foray into running a kitchen – never mind a restaurant as a whole – the learning curve has been steep.

“Winning the award was a huge morale boost for my team who had worked so hard in getting the restaurant up and running,” says Glen. “It served as a validation of our hard work up until that point, and let us know that we were on the right path. It also made a noticeable change to our reservations, increasing our waiting lists by at least 50%. We are very thankful to Eat Out and Retail Capital for this recognition.”

A large number of Retail Capital’s clients are in the restaurant business, and from the vantage point of supporting them through their financial challenges, there are key areas that those in the hospitality industry need to focus on to ensure their businesses weather the storm.

These include keeping up with innovation in the industry such as the role of technology. From a day-to-day perspective, making themselves aware of hidden costs is critical but so too is the staff complement. Training staff well and consistently over time, incentivising their staff and providing excellent levels of service and convenience and that little something extra for their customers – these all need to be taken into account.

There is some good news ahead, as summer is the busy season, and in 2017, there is cause for optimism across the whole industry.

South Africa’s weaker rand keeps the country’s tourism experience affordable, therefore we’re anticipating an increase in international tourists visiting SA during the festive season.

This also leads to less South Africans being able to afford overseas holidays, with the result that South Africans will spend more locally, which suggests a positive outlook for the hospitality industry over the coming festive season.

The Eat Out Retail Capital New Restaurant of the Year Award winners will be announced at the annual Eat Out Mercedes-Benz Restaurant Awards on Sunday 19 November 2017.

About the author: Karl Westvig is the CEO of Retail Capital, providers of flexible and convenient business finance.

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