Fast Food’s Final
Frontier: an environmental,
social and governance profile
July 2013
Kigoda Consulting
About Kigoda Consulting
Kigoda Consulting provides research and analysis of environmental, social and governance issues across sub-Saharan Africa. Based in Cape Town, South Africa, Kigoda Consulting is a signatory to the United Nations-supported Principles for Responsible Investment (PRI) Initiative.
Contents
Executive Summary ...... 1 Introduction ...... 3 ESG issues ...... 7 Environment ...... 8 Climate change, energy & emissions ...... 8 Energy usage ...... 9 Energy efficiency measures ...... 9 Carbon tax and emissions ...... 10 Transport ...... 11 Waste Management ...... 12 Packaging...... 12 Reduced packaging ...... 12 Recyclable packaging ...... 13 Sustainable materials ...... 13 Fats, grease and cooking oil ...... 13 Food waste ...... 14 Social ...... 16 Obesity ...... 16 Healthy items and product labelling ...... 18 Advertising standards ...... 19 Regulation and “fat taxes” ...... 20 Supply chain ...... 22 Integration with local supply chains ...... 22 Food safety, quality assurance and public perceptions ...... 23 Sustainable sourcing ...... 25 Fish ...... 25 Palm oil ...... 27 Coffee ...... 27 Animal welfare ...... 28 Labour standards ...... 30 Governance ...... 33 Key implications ...... 37 Appendices ...... 42
Kigoda Consulting Fast Food’s Final Frontier
Executive Summary
Sub-Saharan Africa has been described as the “final frontier” of the quick service restaurant (QSR) and casual dining sector.1 However, as multinationals such as Yum Brands’ KFC, and regional companies such as South Africa’s Famous Brands, look to capitalise on the high rates of economic growth and the expanding middle class in many African countries, they will be exposed to a variety of material environmental, social and governance (ESG) risks. A number of these issues are particularly acute given the relatively poor state of physical and social infrastructure in the region. QSR and casual dining companies need to address the various ESG issues to ensure that they are meeting industry best practice and supporting long-term, sustainable growth. This will reduce the risk of reputational damage that can arise when companies act, or are perceived to be acting irresponsibly, while improving operational efficiencies and building more resilient supply chains.
The key ESG issues facing the QSR and casual dining sector include:
Sustainable supply chains: A central challenge for QSR companies entering new markets is developing supply chains. To avoid the criticism associated with multinationals moving into Africa, companies need to build linkages with local supply chains. However, this can be expensive and time-consuming, particularly given that it is essential that international quality and food hygiene standards are maintained. Failure to provide safe food can resulting in massive reputational damage and loss of consumer confidence.
The sustainable sourcing of food products addresses a number of sustainability concerns including resource efficiency and waste. Internationally, QSR and casual dining companies have taken steps toward improving the sustainable sourcing of fish, palm oil and coffee. There are some indications that QSR companies in sub-Saharan Africa are starting to adopt similar practices. However, Spur Corporation’s casual dining brand John Dory’s is the only company with a robust sustainable fish policy, while there is minimal disclosure in general on how companies are addressing concerns relating to palm oil and coffee.
Climate change and energy: With sub-Saharan African countries expected to be particularly vulnerable to climate change, the QSR and casual dining sector in this region will face a number of potential issues. Many of these will be concentrated in supply chains, with the physical exposure of the agricultural supply chain raising notable concerns around sourcing. QSR and casual dining companies operating in sub-Saharan Africa will need to take steps to address these challenges though mitigation and adaptation. At present, the main players do not appear to have a strategy to address climate change risks.
In South Africa, QSR companies face increasing environmental regulations, including a carbon tax. While many companies have taken steps to reduce energy consumption in the face of escalating energy prices, by not taking a more comprehensive approach towards addressing climate change implications they remain vulnerable in this area.
Waste management: Sources of waste products in the QSR and casual dining sector include food waste, packaging, and used cooking oil. Companies risk causing environmental degradation if they fail to adequately manage waste. This can include deforestation if unsustainable materials are used in packaging, and water pollution resulting from poorly managed waste disposal. As used cooking oil is carcinogenic, health issues are also relevant.
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The issues surrounding waste management can be particularly important in developing countries across sub-Saharan Africa given the general lack of infrastructure and capacity to address waste issues.
Labour standards: Job creation is often promoted by the QSR sector as a benefit of investment into sub-Saharan Africa, but the working conditions of employees in the QSR sector, even in developed markets, are widely perceived to be poor. Many QSR and casual dining companies operating in sub-Saharan Africa do not appear to have robust codes of conduct, policies or programmes aimed at addressing possible labour standards issues in their operations or supply chains.
Board structure: Board independence is a cornerstone of corporate governance best practice. Several of the major regional QSR and casual dining companies have emerged from family businesses or retain some core founding members as part of their executive teams. This can be seen as a strength, but can also raise concerns when not managed correctly. Kigoda Consulting has identified a number of situations among South African QSR and casual dining companies where the company’s official classification of a director as being independent appears to be incorrect. Furthermore, as some of these directors sit on audit committees, the companies are not in compliance with their listing requirements on the Johannesburg Stock Exchange (JSE).
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Kigoda Consulting Fast Food’s Final Frontier Introduction
The emergence of a broader middle class in Africa has shifted investor interest, long concerned almost exclusively with the continent’s resources and commodities, towards growth in the consumer classes. This consumer growth story is supported by various macrotrends, including more stable political environments, increasing urbanisation, improving education and growing disposable income. From South Africa to Senegal, new shopping malls have been built to satisfy consumer demand. And with the malls have come the retail shops, banks, fast moving consumer goods companies, mobile phone providers, breweries and quick service restaurants (QSRs). Companies from Gap to Porsche, Unilever to Samsung, KFC to Subway all want a part of the action and are positioning themselves to benefit from this trend.
QSR’s “final frontier” The QSR sector, which incorporates everything from street vendors to multinational brands such as KFC and McDonald’s, is not new to the 49 countries of sub-Saharan Africa. There are thousands of QSR outlets across the continent. The South African QSR market, which is worth around US$2bn per annum, is reasonably developed.2 Yum Brands’ KFC is the dominant QSR in South Africa with a market share of around 15% and around 810 outlets. McDonald’s entered South Africa in 1995 and now has 180 outlets across the country. JSE-listed Famous Brands, which owns franchises such as Steers, Debonairs Pizza and FishAways, with almost 1,900 outlets in South Africa, and privately-held Nando’s, with its 300 local restaurants, are among the home-grown leaders.
While competition in the South African QSR and casual dining market is relatively strong, the majority of African markets are comparatively under-served by international brands. These countries, particularly those with annual GDP growth of over 5% and increasingly wealthy consumers who are part of a broadening middle class, present attractive opportunities for regional and international players looking to expand their footprints outside of their relatively saturated domestic markets. To some extent, South African companies such as Famous Brands and Spur Corporation, and Zimbabwean company Innscor, led the charge into other markets in sub-Saharan Africa. Famous Brands is now extending its presence into other emerging markets with Debonairs Pizza announcing its entry into India in March 2013.
However, it has been KFC’s recent expansion drive into Africa that attracted international headlines. The first KFC in Nigeria opened in December 2009, and the company subsequently expanded into Ghana, Kenya and Zambia in 2011 and Angola, Malawi and Swaziland in 2012 (see Figure 1: Geographic footprint of international QSR brands across sub-Saharan Africa). Other international brands have also recently entered the sub-Saharan African market. Subway, for example, which has stores in South Africa, Tanzania and Zambia, is expected to open its first Kenyan outlet in August 2013.3 Burger King South Africa (Pty) Ltd, a joint venture between Burger King and JSE-listed Grand Parade Investments, opened its first store in Cape Town in May 2013. 4 The appeal of global QSR chains has resulted in significantly more competition for both regional companies and domestic incumbents such as United Africa Company of Nigeria’s (UACN) Mr. Biggs, which has around 170 outlets in Nigeria and several more in Ghana, making it the largest domestic player in the West African region.
Blurring lines across market segments As in other parts of the world, in Africa the line between QSRs and casual dining – more traditional sit-down restaurants with table service – is becoming blurred. Consumers’ preferences are shifting, driven by a variety of factors, including price, quality, value and convenience.
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In South Africa this has led the multi-branded QSR companies such as Famous Brands to make acquisitions in the casual dining sector. The Famous Brands portfolio now extends from QSR brands Steers, Wimpy and Debonairs Pizza to Fego Caffé and Europa, a casual full-dining restaurant. In March 2013, Famous Brands entered into a joint venture with family steakhouse group Turn and Tender. This blurring can also be seen in Famous Brands’ Mugg & Bean, a coffee-themed restaurant chain, which has launched its “On The Move” concept to provide takeaways. Meanwhile, Spur Corporation, which is a JSE-listed company that traditionally focussed on casual dining through its Spur Steak Ranches and Panarottis Pizza Pasta, in March 2012 entered the QSR sector with its acquisition of DoRego’s, a QSR chain offering chicken, seafood and burgers. While this report focuses on the QSR sector, due to this blurring it is also essential to cover aspects of the casual dining sector.
Djibouti
Middle class (%) US$4-US$20 per day
>20% 15%-19.9%
10%-14.9%
5%-9.9% 0%-4.9%
No data
Swaziland Lesotho
Figure 1: Geographic footprint of international QSR brands across sub-
Saharan Africa
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Kigoda Consulting Fast Food’s Final Frontier
Challenges remain… While the expansion of multinational QSR companies into Africa on the back of growing consumer demand might be a popular media story in 2013, it is important to maintain perspective. Success is not guaranteed. Nando’s, which is one of South Africa’s most successful QSR and casual dining companies, has been forced to withdraw from both Kenya and Nigeria. Reasons have not been given for this, but its Nigerian partner UACN blamed the “failure of the operating model”.
Like other businesses operating in sub-Saharan Africa, QSR and casual dining companies face numerous challenges including bureaucracy, corruption, weak infrastructure, relatively poor skills and political risks. When entering new, less developed markets, QSR and casual dining companies also face particular issues relating to supply chains, especially quality control, meaning that regional expansion is not always easy. As discussed in more detail in Supply chains below, some companies operating in Africa have managed to overcome some of these challenges through establishing and acquiring companies that provide inputs into their supply chains. While this does bring efficiencies in the long run, it can also add to delays and slow growth in the initial phases of expansion.
…but demographic trends support growth outlook McKinsey has forecast that the number of African households with discretionary income, defined as those with income greater than US$5,000 per annum, will increase from 85m in 2008 to 128m by 2020.5 Of these, in 2020 12% or 29m households will have income of US$20,000 or more, which McKinsey terms middle-class, compared to 8% or 16m households in 2008.
In April 2011, the African Development Bank (AfDB) suggested that in 2011 the African middle class was nearly 326m people, or 34.3% of the population, almost triple the 1980 figure. However, the AfDB used a relatively low income measure, defining middle class as those with a daily expenditure of between US$2 and US$20 per day. If those living on between US$2 and US$4 per day (2005 purchasing power parity), who are highly vulnerable to economic shocks, are excluded, the middle class consists of around 127m people or 13.4% of the population.6 This represents growth of 29.8% over the decade from 2000.
The drivers supporting the growth of consumer demand in sub-Saharan Africa include7:
Rapid population growth – particularly, with fertility rates falling, of the working-age population; A youthful market, with on average more than 50% of the population under 20 years of age; Increasing urbanisation - the commonly accepted view, which is supported by UN Habitat data, is that Africa is urbanising rapidly with the continent predicted to become more urban than rural by around 2030;8 Growing numbers of households with discretionary income – partly the result of more women entering the workforce.
Although the figures presented by McKinsey and the AfDB might represent an overly optimistic outlook, it is this largely urbanised, permanently employed middle class that the QSR and casual dining sector aims to tap into. Clearly, different companies and different brands are trying to capture different market segments. For some high-income consumers, the QSR sector is just one of many food options, while for others at the lower end of the discretionary spending scale it represents something more aspirational.
The AfDB’s 2011 figure of 326m places the size of Africa’s middle class roughly on a par with that of China and India. Yum Brands’ business in China, where there are currently 3.5 Yum restaurants
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(around three-quarters of which are KFCs) every million people, accounted for 42% of the group’s profits in 2012.9 Ignoring for a moment that there are 54 countries in Africa, by comparison there are 0.95 KFC outlets per million people in Africa as a whole, including those in North Africa. In South Africa, there are 14 KFC outlets per million, but Nigeria and Kenya have only 0.1 per million in each. More consumers with more spending power and more demand for convenience mean that sub- Saharan Africa represents a significant opportunity for the QSR and casual dining sector.
Scope of the report This report considers the key material ESG issues facing the QSR and casual dining sector in sub- Saharan Africa. The focus is on listed companies, both international and regional, with interests in sub-Saharan Africa. However, examples of privately-held companies are also included where relevant. A list of the major companies is provided in Appendix A: Main QSR and casual dining companies in sub- Saharan Africa.
The report is based on desk-based research of publicly available information ranging from integrated reports to corporate websites. International information sources were used to establish best practice emerging from other markets. Companies were also approached for additional comment and clarification. Where companies provided responses, this information has been incorporated into the analysis.
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"Africa is undoubtedly one of the fastest-growing regions globally and KFC is fully committed to harnessing this opportunity and building a sustainable business model on the continent" – Bruce Layzell, KFC GM, new African markets
ESG issues
QSR and casual dining companies, and investors in these companies, are exposed to a number of material ESG factors. While the arrival of international brands into sub-Saharan Africa has been welcomed by consumers, there are those who question whether the fast food industry can ever be sustainable. Critics argue that the sector’s core focus is selling “cheap, frequently very processed [food that creates] much food and packaging waste”.10 Some ethical investors apply a “negative screen” and decide not to invest in this sector, but it is evident that QSRs offer consumers convenient, reasonably-priced food that is now an integral part of the food services sector worldwide. Responsible investors should assess the various environmental, social and governance issues facing the sector and integrate this analysis into their investment decisions.
Many of the ESG issues covered in this report have potential consequences for the reputation of the company involved. A failure to adequately address these issues at the outset can result in significant resources and management time having to be devoted to them later. While consumers in sub-Saharan markets may not yet view all of these ESG issues as being as important as many Western consumers do, companies, and therefore investors, should be particularly aware of accusations of double- standards. Given the many challenges that of necessity preoccupy sub-Saharan Africans, consumers might understandably be more focussed on issues such as price and value, for example, than animal welfare or waste management. But by ignoring ESG factors companies leave themselves vulnerable, at the very least, to reputational damage in their home markets.
Furthermore, considering the relatively poor state of infrastructure in the majority of sub-Saharan Africa, it could be argued that some issues, such as waste generated from packaging and used cooking oil, are even more important in the developing world context due to their far greater potential for causing negative effects. If international brands do not subscribe to the sort of initiatives they have adopted in developed markets to address health concerns, reputational issues can arise particularly given the high levels of malnutrition in many sub-Saharan countries.
A major challenge in assessing ESG risks and opportunities in the QSR and casual dining sector is the mix of operating models used by the majority of companies. These include QSR owned stores, developmental licenses and regional franchisees. QSR and casual dining companies measure and report on sales across their entire systems, but when it comes to sustainability issues most companies only include corporate functions and those outlets owned by the company in their metrics and analysis. Yum Brands’ assertion that it “cannot oversee associate practices in every restaurant…but offers guidelines, coaching and training to encourage our franchisees and licensees to implement and manage best practices in accordance with our corporate goals and objectives” is fairly typical in this regard.11
“Africa is one of the regions most affected by climate change” - UNFCCC Executive Secretary, Christiana Figueres
Environment
Material environmental issues affecting the QSR and casual dining sector include energy and waste, particularly packaging, food waste and used cooking oil. The performance of QSR and casual dining companies operating in sub-Saharan Africa in managing environmental issues is highly variable. Famous Brands simply dismisses the relevance of environmental issues with the comment that the “board believes that our activities do not severely impact the environment nor threaten the sustainability of either the company’s existing operations or the environment which future generations will inherit.”12 However, a number of companies have started to take positive steps towards addressing their environmental impact.
Climate change, energy & emissions It is widely believed that Africa is highly vulnerable to climate change.13 Effects could include water stress, food shortages and disease, biodiversity loss, extreme weather events and coastal flooding. Although improved agricultural yield could result from higher temperatures and shifts in rainfall patterns in some areas, reduced yield is forecast across arid and semi-arid areas. As a result, the risks relating to climate change, particularly the physical risks affecting agricultural supply chains, should not be ignored.
The environmental regulatory risks from climate change for the QSR and casual dining sector are at present greatest in South Africa, which is a major carbon emitter due to its use of coal-fired power stations as the dominant form of electricity generation. In the majority of sub-Saharan African countries, greenhouse gas (GHG) emissions are low and as non-Annex 1 countries under the Kyoto
Protocol, there are no binding emissions targets. South Africa’s CO2 emissions account for 64% of the CO2 emissions across sub-Saharan Africa.14 According to South Africa’s Second National Communication under the United Nations Framework Convention on Climate Change, 83% of the country’s total emissions in 2000 were from energy supply and consumption. In 2009, the South African government committed to reducing emissions by 34% by 2020 and 42% by 2025. To achieve these targets, key mitigation efforts will focus on energy efficiency, electricity generation and transport.
Despite the potential implications for their supply chains and the additional regulatory risks, QSR and casual dining companies in South Africa are largely ill-prepared to address climate change issues. Famous Brands, Taste Holdings and Spur Corporation have not yet formally assessed the risks and opportunities relating to climate change.15 KFC South Africa appears to be the only company operating in the sector in sub-Saharan Africa that publically acknowledges the issue of climate change. While some companies have taken steps towards reducing electricity consumption, this seems to be related more to cost management than an attempt to formulate a mitigation response to climate change. As a result, these companies are likely to remain exposed to key climate change risks, including those affecting supply chains and corporate reputation due to growing consumer concerns.
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Kigoda Consulting Fast Food’s Final Frontier
Energy usage The energy required for refrigeration and for cooking and preparing food is a major, and in some cases escalating, cost for the QSR and casual dining sector in sub-Saharan Africa. In South Africa, electricity prices increased by 109% between 2005 and 2011.16 In February 2013, the National Energy Regulator of South Africa granted state-owned electricity utility Eskom authorisation for a further average increase of 8% for each of the next five years. The rapid increase in electricity prices has not only had a negative effect on potential consumer spending, but has also had a direct bearing on franchisee profitability. South African QSR company Taste Holdings, which includes Scooters, Maxi’s and The Fish & Chip Co. in its portfolio, has reported that in many cases energy costs now exceed rentals, while in 2012 the “electricity price increases alone have inserted an additional expense into store-level income statements equivalent to 3% – 5% of turnover.”17
In other countries, such as Kenya and Nigeria, where the electricity supply is less dependable, companies also have to invest in expensive alternative energy supplies such as generators. According to Pamela Adedayo, MD of Tastee Fried Chicken Limited and president of the Association of Fast Food Operators of Nigeria, around 25% of profits are spent on alternative electricity generation.18
Energy efficiency measures Given this situation, energy efficiency measures can have a positive impact on the balance sheet as well as the environment. Several companies are tackling the issues relating to energy consumption through setting reduction targets against baseline surveys and efficiency measures. Taste Holdings, for example, has made reducing its energy consumption and carbon footprint a priority. In 2011, the company set a target of reducing electricity consumption in its food outlets by 20% over two years using 2009 as the base year.19 However, in 2012 it reported that progress had been slower than expected.20 According to CEO Carlo Gonzago, Taste Holdings estimates that 15% consumption savings were achieved, but they have not been able to verify this across their network. One of the reasons for this was difficulties in “obtaining accurate measurement from franchisees and landlords”.21
Measures that Taste Holdings has taken to reduce consumption include:
• replacing halogen lights with LED lamps, which consume 6% of the energy of the former; • replacing air-conditioning units with evaporative coolers, which consume 20% of the energy of the former; • halving energy consumption of geysers and external signage by installing timers; and • using imported energy-efficient ovens in new pizza outlets.
Spur Corporation, in its 2011 Integrated Report, set a cumulative percentage energy reduction target of 20% over 5 years based on a baseline audit benchmark at July 2010. No key performance indicator update was given in the 2012 report, although the reduction target for 2013 was set at 10%.22 However, Spur Corporation’s acquisition of DoRego’s and buyout of John Dory’s means that the savings target set against the July 2010 benchmark is unlikely to have been met in either 2012 or 2013 and a new baseline will need to be set.23
In its Corporate Responsibility & Sustainability Report 2009/2010, KFC South Africa committed to reduce energy usage in its restaurants by 12% by 2011.24 In addition to LED lighting, KFC has installed more energy efficient kitchens and cooling systems. However, no indication as to whether or not the target was met has been provided. Meanwhile, Famous Brands describes its implementation of energy efficiency measures as “very limited – and not yet measurable”.25
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Carbon tax and emissions South Africa’s Finance Minister Pravin Gordhan announced in the 2013 budget that a carbon tax of
R120 per ton of carbon dioxide equivalent (CO2e) would be imposed on direct greenhouse gas (GHG) emissions from 1 January 2015, with a 10% increase each year to 2020.26 Under the current proposal there will be a tax-free threshold of 60% at introduction. Furthermore, the electricity sector will qualify for a higher tax-free threshold of 70%.
The QSR and casual dining sectors will not face significant direct costs from a carbon tax in South Africa as direct emissions, which are those that can be considered to be from areas under operational control, are relatively low. The sources of GHG emissions from the QSR and casual dining sectors include, inter alia, electricity usage, packaging, transport, and fresh Emission “greenwashing” and franchising produce and meat production. According to Swedish company Max There are two major questions relating to emissions in Burgers, which has attracted franchising businesses: firstly, which entities are included significant attention for including in a company’s emissions measurements? Including information about the carbon company-owned stores, but not those owned by footprint of each item on its menu, franchisees, can lead to allegations of “greenwashing” 77% of its “climate impacts”, (see Pearse, G. 2012. Greenwash: Big Brands and Carbon including those of suppliers, are from Scams. Black Inc.) This is particularly relevant if the beef production, while another 18% majority of new outlets are not company-owned as it are from other inputs such as allows the company to report reduced company production of bread, potato products emissions even though overall system emissions are and vegetables. Direct emissions increasing. from packaging, transport, electricity and travel only account for 5%.27 Secondly, what role does or should the franchisor play in shifting the behaviour of franchisees? Spur Corporation While none of the companies argues in relation to its resource management plan that covered in this report provide public “due to Spur's franchise model, the group can only access to their carbon emission levels provide guidance and support to its owner-operated for sub-Saharan African operations, a franchises, while implementation and monitoring is useful point of comparison is from actioned at store level. The group commits to provide Australia, which also has an energy support and awareness campaigns to enable franchisees mix dominated by coal. With around to minimise their impact and reduce their resource 600 KFC outlets and 300 Pizza Hut consumption more efficiently.” Similarly, Taste restaurants in Australia compared to Holdings’ CEO Carlo Gonzaga says that “as franchisor, 700 KFC outlets in South Africa, we have no direct financial or operational control over Yum Brands’ Australian Scope 1 and franchisees, but are in a position to influence behavior. Scope 2 emissions in 2011 were The Group's supportive initiative at franchise level is 1,070 metric tonnes CO2 equivalent aimed at assisting stores to measure and reduce their (CO2e) and 39,478 metric tonnes energy consumption.” 28 CO2e respectively. If KFC’s Sources: Spur Corporation, Integrated Report 2012. Response from Taste emissions in South Africa were Holdings to questions posed by Kigoda Consulting. identical, it would face a total carbon tax of around R51,000 in 2015.
However, the indirect costs could be significantly higher with the effect on suppliers’ and landlords’ costs likely to result in higher input costs. As it is proposed that the agricultural sector will be exempt from the tax for the first five years, these higher costs will be concentrated around energy and transport, although packaging and other inputs will also be affected. Given the expansion plans of the
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Kigoda Consulting Fast Food’s Final Frontier majority of QSR and casual dining companies and the strategic acquisition of suppliers, reducing or even maintaining emissions levels will be a challenge. Furthermore, as companies expand outside of South Africa to areas where electricity supply is unreliable, overall emissions are likely to increase as generators have higher emissions compared to electricity supplied by the grid.
Transport Another significant source of emissions in the QSR and casual dining sector (not considering the emissions related to the production of ingredients) is from transport. Transport costs are also an increasingly important cost factor, particularly as sub-Saharan African countries such as Nigeria and Ghana remove fuel subsidies. Some companies such as Famous Brands and Taste Holdings manage their own distribution networks, which increases transport-related emissions and costs attributable to these companies.
In response to increasing transport costs, Spur Corporation has introduced a route optimisation and eco-driving programme. Spur has also taken initial steps towards converting used cooking oil to biodiesel, which can be used to fuel trucks, industrial machinery and even fishing vessels. Envirodiesel, a company based in Cape Town, reportedly produces around 20,000l of biodiesel per month from used cooking oil collected from Spur Corporation restaurants in the Western Cape.29 With a recovery rate of between 87% and 94%, this translates to the conversion of up to 23,000l of used cooking oil per month. KFC South Africa indicated in 2010 that it was working on “broad scale programmes to convert [our] waste oil into alternative fuels”. However, progress is unknown. Unlike some biofuel processes, the conversion of cooking oil to biodiesel does not have consequences for food security or result in alternative land use as it involves the recycling of a waste product. Furthermore, using biodiesel from cooking oil rather than base diesel for transport can reduce transport emissions by up to 87%.30
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Waste Management Waste products from the QSR and casual dining sector include food waste, packaging, and used cooking oil. According to McDonald’s, corrugated cardboard and used cooking oil account for “nearly 35% of the total waste (by volume) generated by an average restaurant”.31 Most companies follow a “reduce, reuse, recycle” approach towards waste management. However in general companies in the sector provide minimal information on how much waste is recycled and whether waste reduction targets are in place in their African operations. An exception is Spur Corporation which, as part of its 2011-2013 Sustainability Framework, has established a number of targets with measurable key performance indicators as outlined in Table 1: Spur Corporation’s waste targets.
2011 2012 Target 2013 Target for next 5 years % waste reduction* 55% 70% (target 64%) 75% 85% % water usage Not available 0% (target 10%) 10% 20% reduction** % takeaway 15% 65% (target 25%) 75% 90% packaging that is recyclable % reduction in the 35% 45% (target 40%) 50% 65% use of plastic bags, and other polymers % marketing 45% 50% (target 50%) 60% 75% elements that are recyclable or reusable * Cumulative percentage reduction compared to baseline audit benchmark at July 2010. ** Cumulative percentage reduction compared to baseline audit benchmark at July 2011. Table 1: Spur Corporation’s waste targets Source: Spur Corporation Integrated Report 2012, p47
By not managing waste, companies risk exposure to reputational damage if inadequate disposal of waste products results in ecosystem degradation. Regulatory fines and penalties can also result from inadequate waste management measures. However, companies will also be able to realise cost savings through the effective management of waste, whether from packaging or within their operations.
Packaging Packaging materials can play an important role in keeping food fresh and reducing food waste, but they are also a significant source of the waste that ends up in landfills, waterways or, as is often the case with food wrapping, as litter on the side of roads.32 This is particularly significant in developing countries where municipal waste collection, if it exists, is largely poor, existing landfills and dumps have reached capacity and the infrastructure for recycling, particularly of paper, is weak.
QSR companies have taken two main approaches to addressing questions over packaging. The first is to reduce the amount of packaging used, while the second is to recycle essential packaging.
Reduced packaging Reducing measures include using reusable packaging crates, using refillable sauce dispensers rather than individual sachets and switching to alternative packaging materials. KFC in the UK and Ireland, for example, reportedly reduced its packaging by 1,400 tonnes annually by replacing cardboard boxes with paper wrappers and paper bags.33 KFC Australia has introduced a Closed Loop Recycling
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Kigoda Consulting Fast Food’s Final Frontier
Programme, under which all packaging has been assessed and a solution provided for recycling and recovery. While some initiatives in this area are evident, there does not appear to be clear leadership on these issues among the companies operating in sub-Saharan Africa covered in this report. No company has, for example, shown evidence of investigating the “lightweighting” of materials, which can both minimise packaging and reduce fuel costs.
Recyclable packaging Although recycling is becoming more viable in several of the more developed sub-Saharan African markets, the focus tends to be on recycling higher-value materials such as copper, aluminium and lead. However, the Paper Recycling Association of South Africa (PRASA) reports that 59% of recoverable paper and cardboard was recycled in 2011.34 Food packaging is often not accepted for recycling, so effort is largely focussed on the packaging as used in the “back of house” rather than that in which food is served to customers.
Sustainable materials QSR companies are also increasingly focussing on the raw materials that go into packaging. In October 2012, for example, KFC UK released a new policy on packaging following a Greenpeace campaign that accused Yum Brands of using wood harvested from rainforests in Indonesia, contributing to habitat destruction for the endangered Sumatran tiger.35 As a result, KFC UK now uses suppliers that “can demonstrate sustainable forestry management throughout their supply chain and that are not actively involved in rain forest clearance."36 The campaign has now shifted to KFC’s parent company Yum Brands, with KFC in Indonesia and China facing similar allegations. In 2011, McDonald’s USA also announced a new Sustainable Land Management Commitment that discourages land use change from natural forests to industrial plantations and gives preference to buying paper products that are certified by the Forest Stewardship Council (FSC).37 In South Africa, Spur Corporation, which has “migrated from plastic-intensive takeaway packaging to sustainable paper-based packaging’’, indicated in 2012 that it would continue to seek compliance with FSC standards.38 It has now received FSC accreditation for its Klafold based packaging used by its Spur, Panarottis and John Dory’s outlets.
Although initiatives including the use of environmentally-friendly materials such as FSC certified paper in packaging and recycled paper napkins, and reducing packaging overall, appear to be increasingly common in sub-Saharan markets, particularly South Africa, the lack of disclosure, targets and measureable data undermines the credibility of these actions.
Fats, grease and cooking oil Unsurprisingly, food service companies are significant producers of grease, fat and used cooking oil. According to KFC, which is likely to be among the higher users of oil given its cooking process, the average outlet produces 227kg of used cooking oil per month.39 This equates to around 2,200 tonnes of used cooking oil for KFC’s 810 sub-Saharan African-based outlets each year. The correct disposal of fats, grease and used oils is essential. Not only can fats, oils and grease cause major infrastructure problems in municipal sewers and drains, leading to unplanned discharges into rivers and other water systems, but they also represent a potential health concern. A failure to comply with regulations could have financial costs, in addition to generating negative press coverage and reputational damage.
Disposal Local authorities in many countries require food service companies to implement a system such as a grease or fat trap to prevent grease or fat entering the sewage system. However, compliance with and enforcement of these regulations in sub-Saharan Africa is poor. In a 2008 report, the eThekwini Municipality, which includes Durban, South Africa and surrounding areas, found that six out of 10
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fast food outlets in the Heritage Market shopping complex had vegetable oil content in samples taken from their fat trap outlets exceeding the Durban Metro Sewage Disposal Bylaws limit of 250mg/l. In one case, the vegetable oil content was 27,716mg/l, more than 100 times the regulated limit.40
The state of sewage infrastructure across sub-Saharan Africa is notably weak. Even in South Africa, which is regarded as the most developed market, the state of the sewage system is considered to be substandard. The South African Department of Water Affairs’ 2009 Green Drop report found that 55% of the sewage plants surveyed needed drastic intervention due to mismanagement and non- compliance with regulations, including waste water quality.41 The survey revealed that while the standards of waste water treatment plants in larger cities were relatively good, smaller plants in more rural areas had reached full capacity and failed to meet basic standards. South Africa is facing significant water-related challenges ranging from acid mine drainage to industrial water pollution. Although the QSR sector is not the largest culprit, all companies that are potentially major contributors to the problem are likely to come under increasing scrutiny as and when the situation deteriorates.
Health risks Additional health risks related to used cooking oil stem from the fact that cooking oil can only be reused a certain number of times before it degrades (depending on factors such as the temperature at which it is used for cooking), becoming potentially carcinogenic. Poorer consumers reportedly reuse old oil, which is either bought from unscrupulous QSR outlets or restaurant owners, or sometimes stolen. One report in 2006 based on research from the South Africa Fryer Oil Initiative at the University of the Free State claimed that “one in eight frying establishments in South Africa abuse their oils”.42
Given the potential health issues and environmental implications, it is important that used oil is disposed of safely. As noted in Transport above, one viable option for disposal of used grease and oil is to convert it to biodiesel, representing a significant ESG opportunity.
Food waste Given the concerns over food security and food inflation in many of the frontier markets into which QSRs are expanding, food waste, which includes overproduction, spoiled produce and expired items, is a particularly relevant ESG issue for the QSR and casual dining sectors. It also has relevance for other ESG issues: food waste in landfills is a major source of methane and carbon dioxide.43 Failure to take measures to address food waste could result in negative press and increased reputational risk.
As can be seen in Figure 2: Per capita food losses and waste across regions, food waste at the consumer level in sub-Saharan Africa, which amounts to around 6 to 11kg per person per year, is extremely low in comparison to developed countries.44 In Europe and North America, waste per person is between 95kg and 115kg annually. While much less food is wasted at the consumer level in developing countries, significant amounts of food (more than 40% of the total) is lost during the agriculture and harvesting stage of food production. The distribution and processing stages are also important in terms of food loss. Given the challenges in supply chains in emerging markets, and the shift of many QSR companies into distribution networks, this is a key factor.
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350
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150 kg/year
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0 Europe North American Sub-Saharan Latin American South & & Oceania Africa Southeast Asia
Production to retailing Consumer
Figure 3: Per capita food losses and waste across regions
In some developed markets, QSR companies have started taking steps to address the issue of food waste. In the UK, 73 companies, including McDonald’s Restaurants and Domino’s Pizza, agreed in July 2012 to cut food and associated packaging waste by 5% by 2015. In 2011, American food manufacturers, retailers and restaurants formed the Food Waste Reduction Alliance (FWRA), which aims to reduce the amount of food waste in landfills while increasing food donations to the needy.
There does not appear to be commensurate action in any of the sub-Saharan African markets, although in 2011 Spur Corporation formed a relationship with FoodBank, a not-for-profit organisation that “rescues” food from donors, including manufacturers and retailers, and redistributes it to the poor. Spur Corporation has given direct financial assistance to FoodBank and established a voluntary employee salary deduction scheme for contributions to the charity. However, it does not appear to contribute any food to FoodBank SA’s food rescue programme. KFC South Africa’s “Add Hope” programme has raised R9m since 1 December 2012 through donations, which include a R2 donation that customers can choose to add to their purchase. The funds are used to support feeding schemes through registers charity partners.
Given that food waste will likely increase as income levels rise, with patterns similar to those seen in developed markets, it is important for QSRs and casual dining companies to implement similar food waste management programmes in developing countries to those in developed markets.
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“23% of [South African] school children can be classified as either obese or overweight…The consequences to both individual and society are devastating.” – Dr Aaron Motsoaledi, South African Minister of Health
Social
Obesity The increasing global problem of obesity, and the rising healthcare costs associated with it, represent a risk to the food and beverage industry, and QSRs in particular. Although when compared to the majority of Western markets there is far less public scrutiny in most of sub-Saharan Africa of the influence fast food might be having on health, there is growing consumer awareness that, along with an increasingly sedentary lifestyle, certain foods, such as those high in fat or processed, are causes of obesity-related health issues. Despite this, one survey found that in 2011, 61% of around 25,000 nationally representative South African adults over the age of 16 surveyed bought fast food at least once a month. This compared to 53% in 2007.45 Some researchers have suggested that the growth of the QSR sector in South Africa can be explained by the provision of deliberately large portions at low prices, representing value for money Prevalence (%) especially for the lower-income end of ≥35.4% the market.46 23.8%<34.5 %17.5%<23.8 13.8%<17.5% According to a study published in The 8.6%<13.8%% Lancet, if current trends continue, by <8.6% 2030 17.5% of adults in sub-Saharan Not available Africa will be obese.47 While low by global standards, the rate of obesity is a Figure 4: Rates of obesity in sub-Saharan Africa problem in many countries in sub- Saharan Africa. Figure 3: Rates of obesity in sub-Saharan Africa shows the range of obesity rates across the continent. There are stark differences between countries. In South Africa, for example, the average Body Mass Index among men in 2008 was 26.9, which compares with Canada (27.5) and the USA (28.5).a Meanwhile, Congo (DRC) had the lowest average BMI in the world at 19.9.48
a Where a BMI of 25 to 29.9 is considered overweight and a BMI of 30 and higher is considered obese.
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Not only adults affected, children too The obesity problem is not limited to adults. A 2010 study published in the American Journal of Clinical Nutrition found that the “estimated prevalence of childhood overweight [sic] and obesity [defined as the proportion of preschool children with values 2 or 3 standard deviations respectively from the WHO growth standard median] in Africa in 2010 was 8.5%”.49 The study found the worldwide prevalence of childhood overweight and obesity in 2010 was 6.7%, while in Asia the prevalence was 4.9%.
Public health concerns The related health concerns, which range from diabetes to higher rates of infant mortality, will place greater strain on already burdened public health infrastructure. As in other parts of the world, food service companies, particularly QSRs, are likely to come under increasing scrutiny in Africa for the role they play in supporting this trend. Concern over rising obesity has led to various voluntary initiatives in a number of countries, including product labelling and advertising restrictions, especially for children. However, unless these demonstrate results, growing public health concerns will make regulatory and legislative intervention by governments more likely.
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Healthy items and product labelling Table 2: Examples of nutritional information makes clear why campaigners focus on the health related aspects of many fast foods. A Big Mac, King Steer burger, or standard Debonair’s margherita pizza can account for a quarter of a woman’s guideline daily energy allowance (GDA), more than half the GDA of saturated fat and up to 65% of the GDA of sodium. This is before fries or calorific drinks are taken into account.
Unit Energy Protein Carbo- Sugar Fat Sat Sodium (kJ) (g) hydrate (g) (g) Fat (mg) (g) (g)
Guideline Daily 10,500 55 300 120 95 30 2,400 Amount (men) Guideline Daily 8,400 45 230 90 70 20 2,400 Amount (women) McDonald’s Big Per 2,076 24.3 39 26.4 12.1 973 Mac burger Steers King Steer Per 2,738 49.1 28 10.4 38.9 18.3 1,539 burger Per 100g 865 15.5 9 3.3 12.3 5.8 486 Debonairs Per 2,290 68 31.3 n/a 20.9 13.9 1,415 Margherita Pizza standard pizza Per 100g 1,062 30 13.9 9.3 6.2 629 Table 2: Examples of nutritional information Sources: McDonald’s, Steers, Debonairs
In response to changes in consumer preferences and to deflect criticism, many QSR companies now offer “healthy” choices such as salads and grilled, rather than fried chicken. However, studies have shown that these options in developed markets remain high in salt and/or fat, and highly calorific. Similar investigations do not appear to have been carried out in any of the sub-Saharan African markets. Other responses include offering a skinless chicken option, which is available on some of Nando’s menu items, while fish is increasingly prevalent as a QSR offering. Some companies such as Naked Pizza, which has imported the concept of a lower calorie pizza made with a natural grain dough from New Orleans to Nairobi, and South Africa’s Kauai promote healthier eating as a cornerstone of their brands.
Furthermore, support for third-party initiatives appears to be weak. For example, the Heart and Stroke Foundation South Africa operates the “Heart Mark Restaurant Programme” which provides consumers with a “simple and reliable way of identifying heart healthier menu choices at selected restaurants”.50 Spur Corporation’s casual dining restaurant chains, which include Spur Steak Ranches, Panarottis Pizza Pasta and John Dory’s Fish & Grill, are members of the Heart Mark Restaurant Programme. However, the main South African QSR chains are not involved in the programme.
Mandatory labelling As with the “Heart Mark” initiative, where QSRs provide nutritional information about their products, QSR customers are able to make informed choices that are, hopefully, healthier choices. In some developed jurisdictions mandatory labelling has been introduced. In New South Wales (NSW), Australia for example, regulations introduced in February 2011 require fast food outlets with 20 or more stores in NSW or 50 or more stores nationally to display kilojoule information for products on
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Kigoda Consulting Fast Food’s Final Frontier their menus. New York City and California introduced a similar system in 2008, which the US Food and Drug Administration (FDA) will extend across the US under the Patient Protection and Affordable Care Act.51 However, menu labelling in New York has been criticised for being complex and unclear.52 Furthermore, evidence of whether or not the measure has had positive results is inconclusive.53
Selective approach to voluntary labelling Although in South Africa, under new regulations that came into effect on 1 March 2012, it is mandatory to provide nutritional information on foodstuff labels if a nutritional claim such as “high in” or “low in” is made about the product, there is no mandatory labelling scheme for QSRs in any sub-Saharan African market.54 Some chains, such as McDonald’s South Africa and Steers highlighted above, voluntarily publish nutritional information on their websites. However, nutritional information on websites is unlikely to be regularly reviewed by customers and as a result its effect will probably be minimal.
Furthermore, companies appear to be selective in what information they provide. For example, The Fish & Chip Co. does not list sodium or salt levels for the two items it provides nutritional information for, hake in batter and chipped potatoes.55 McDonald’s does not indicate sugar levels, which is potentially significant given recent studies suggesting that sugars are likely to be a major contributory factor to obesity.56 Meanwhile, as highlighted in Table 2: Examples of nutritional information, not all companies provide easily comparable measures.
One major concern, from a reputational standpoint, is that some QSRs that provide nutritional information about their products in other jurisdictions do not do so in sub-Saharan African markets. This selective approach towards providing consumer information has the potential to undermine attempts by QSR and casual dining companies to play a more positive role in the nutrition debate in the medium term, as well as exposing companies to accusations of having double standards when it comes to their approach to African markets.
Advertising standards Fast foods, particularly international brands, are viewed as aspirational items in many African markets. Various news reports have commented on the way in which QSRs, even brands which are relatively mundane in their home markets, are considered trendy in African cities. This is in part because eating these foods can be seen as an indication of wealth. As a result, the marketing of these products can have an important role to play.
Despite this, across sub-Saharan Africa there are very few countries with either statutory or self- regulatory codes covering the advertising of food products, particularly to children. Outlines of some of the codes that are in place are provided in the Advertising to children textbox. The Advertising Standards Authority of South Africa’s (ASASA) Code of Advertising Practice is probably the most rigorous of the few codes in place covering advertising to children in sub-Saharan Africa. As South
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African based Multichoice runs the largest digital satellite pay-TV service across Africa with 1.63m subscribers outside of South Africa, its influence extends outside of the South African borders.
In 2007, prior to ASASA’s 2008 amendment of its Code of Advertising Practice to include limits on advertising to children, the South African government proposed strict regulations under the Foodstuffs, Cosmetics & Disinfectants Act that would have completely prohibited advertising Advertising to children or promoting to children foods deemed “non- essential to a healthy lifestyle”, while certain South Africa: Appendix M of the Advertising foodstuffs would also have had to be labelled Standards Authority of South Africa’s Code of with health warnings. Although these proposals Advertising Practice covers the food and have been shelved, public comments by the beverage sector. It requires that food and South African Minister of Health Dr Aaron beverage advertising “should not encourage Motsoaledi indicate that further regulation of poor nutritional habits or an unhealthy lifestyle advertising is possible if it is shown that self- in children, or encourage or condone excess regulation is not working.57 consumption.” The Code further requires that nutritional or health claims in TV Responsible advertising policies advertisements targeting children aged 12 years Despite the concern over the advertising of fast or younger should not be made if the product food in many developed markets, none of the does not represent a healthy dietary option. companies considered in this report have Nigeria: the statutory body Advertising publicly available responsible advertising Practitioners Council of Nigeria (APCON), policies. Four QSR companies (Famous which controls and regulates advertising, Brands, KFC, McDonald’s and Nando’s) were requires vetting of certain products, including party to the 2009 South Africa Pledge on those directed at children, before publication Marketing to Children, which is a voluntary or screening. APCON’s Nigerian Code of commitment not to advertise to children aged Advertising Practice and Sale Promotion 12 years and under except for products that (NACP) requires that advertisements directed meet certain nutritional criteria.58 However, at children should promote their physical and there appears to be little momentum behind the moral well-being. initiative and little evidence of the independent monitoring system which was intended to Tanzania: the Media Council of Tanzania’s review progress. Code of Ethical Practice for Public Information and Media Advertisers requires Regulation and “fat taxes” that children must not be used “exploitatively Regulatory responses to address public health in advertisements that concern adults, and concerns related to obesity, amid the perceived should not be exposed to products that are failure of voluntary initiatives, have the harmful.” potential to raise input costs for QSR and casual dining companies. Several European countries have introduced a “fat tax”, a tax on unhealthy or fattening foods and beverages.
Denmark, which was the first country to introduce this sort of tax in October 2011 with a 2.3% tax on all foods that include more than 2.3% saturated fat, abolished its fat tax on a variety of goods in November 2012. This was because the tax had not only failed to change eating habits, but it had also had a number of unintended consequences, such as increasing cross-border trade of taxed items, which increased pressure on domestic retailers. However, despite Denmark’s failed initiative, other countries continue to investigate the issue. For example, in November 2012 health spokesman for the UK opposition Labour party Andy Burnham proposed that there should be legal limits on the amount of fat, salt and sugar that food companies add to their products.59
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In 2010 the concept of a “fat tax” was raised in South Africa by Dr Robert Fryatt, an advisor to the minister of health, but the introduction of such a tax in South Africa or in other sub-Saharan markets is unlikely in the near future.60 However, more targeted initiatives can be expected. The South African government has already taken steps to regulate the amounts in food of certain substances linked to obesity and other health issues, a rarity in the developing world. Other African governments may follow this lead in the medium term.
Two specific South African regulations affecting the QSR and casual dining sectors are related to:
Trans fatty acids: In August 2011, South African regulations came into effect that prescribed a maximum level of 2 grams of industrially produced trans fatty acids per 100 grams of oil or fat in foodstuffs.61 Trans fatty acids are linked to an increased risk of heart disease, diabetes and obesity. According to local press reports, many QSRs, including KFC, Wimpy and McDonald’s South Africa, had removed trans fatty acids from products ahead of the August 2011 deadline. Sodium: Regulations regarding timeframes for reduced limits of sodium, which is linked to high blood pressure, in a range of foodstuffs came into effect in March 2013.The foodstuffs range from bread to breakfast cereals and from butter to potato crisps. However, the move has been met with resistance from manufacturers and the industry body, the Consumer Goods Council of South Africa, who argue that the restrictions could lead to higher costs of foodstuffs.62 These costs would be passed on to retailers and food service companies, and ultimately to consumers.
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Supply chain KFC’s franchise owner in Kenya has suggested that one reason other international chains, such as McDonald’s, have not yet entered the Kenyan market is the supply chain challenge.63 There are four main sustainability issues relating to supply chains: local integration, food safety, sustainable sourcing, and animal welfare.
Integration with local supply chains A central challenge for QSR companies entering new markets is developing supply chains. Multinationals moving into Africa are often subjected to criticism that they have relatively low impact on the local economy due to their weak linkages into the local supply chain. This can often be explained by the poor availability of goods and services from local companies. Companies from multinational KFC to Nigeria’s Food Concept Group, which owns QSR chain Chicken Republic, have complained about supply issues.64 In fact, press coverage of KFC’s entry into several new African markets has frequently focussed on the shortage of quality chicken suppliers. In some cases, such as Ghana, KFC has resorted to importing chicken. However in certain countries, including Nigeria and Kenya, chicken imports are banned to protect local industry. This has provided both local and regional suppliers with business Supply chain issue leads to market opportunities. JSE-listed Country Bird Holdings entry delay (CBH), for example, has publically stated that it is its “strategic intent to become supply chain partner of In Zimbabwe, where KFC is expected to KFC as it expands into Africa.”65 reopen restaurants in 2013 that were closed in 2009, Minister of Youth Building up the supply chain can be costly. KFC, for Development, Indigenisation and example, had to work with a Kenyan chicken Empowerment Saviour Kasukuwere has supplier, Kenchic, for more than 12 months in order criticised plans to import chicken from to ensure quality standards were met. Kenchic South Africa. Kevin James, who is an reportedly made numerous policy and process executive director of Country Bird changes to provide product traceability and Holdings, a South African chicken refrigeration throughout the value-chain. A similar producer, is reportedly the franchise process was undertaken in Nigeria. Local producers holder for KFC in Zimbabwe.a can also be more expensive and less reliable. According to local press reports, amid However by ignoring local producers and relying on lobbying by Mr James for an exemption imports, companies are vulnerable to criticism from to the chicken import duty of the higher both government and consumers. This can have of US$1,50 per kg or 40%, Kasukuwere negative repercussions. As a result, companies are has said that the move would threaten becoming increasingly aware that by investing in local producers, who had welcomed the supply chains they are not only supporting the local new import duties on the US$65m economy, but also expanding their potential chicken import industry.a Although customer base and building more resilient businesses. Zimbabwe has the potential capacity to supply chicken to KFC, KFC argues that Fresh produce it will take time to ensure that quality Chicken is not the only input that suffers supply standards are met. constraints. In Kenya, where KFC is able to source its chicken locally, it still has to import its frozen Source: Mungadze, S. 13 December 2012. Zimbabwe insists on indigenised chicks. BusinessDay. potato chips from Egypt as domestic suppliers are not yet able to fulfil the requirements for the chips to be pre-blanched and blast frozen.66 KFC burgers in Zambia and Mozambique were the first in the world to be served without lettuce due to problems with ensuring supply. In 2011, KFC in Botswana and Namibia experienced a gap in the supply of
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Kigoda Consulting Fast Food’s Final Frontier fresh produce such as tomatoes and lettuce for several months after terminating its relationship with South African company Fruit & Veg City. According to KFC, this was due to Fruit & Veg City failing a supplier health and safety audit, but according to Fruit & Veg City, KFC had required compliance with new standards that Fruit & Veg City decided not to implement as they required additional infrastructure development.67
Moving into the supply chain To overcome supply chain issues such as quality control and inadequate infrastructure, a number of QSR and casual dining companies have acquired businesses that provide inputs. This “backward integration” can also make economic sense as it allows a company to capture the returns across the value-chain. In South Africa, Famous Brands has a manufacturing division which provides sauces and spices, processed meat, bread, ice cream, fruit juice and mineral water to both its franchise network and to the wider food services industry. It also has a logistics division which provides warehousing and distribution services. It exports packaging and sauces to various countries in Africa, the UK and New Zealand. In Nigeria, Food Concepts has gone a step further and established Free Range Farms Limited, which is a wholly owned subsidiary of Food Concepts that produces and processes poultry for its Chicken Republic brand. It is also intended to supply third parties in future. While backward integration gives a company greater control over the supply chain, it can also lead to regulatory issues. In Zimbabwe, the Competition and Tariff Commission (CTC) has reportedly opened an investigation into Innscor on the grounds of restrictive practices given Innscor’s control of companies across the value-chain.68
Food safety, quality assurance and public perceptions Food hygiene and quality assurance in the supply chain are crucial in the QSR sector. Failure to provide safe food can result in reputational damage, loss of consumer confidence (which can be fuelled through social media), and even litigation. Examples that illustrate the links between food safety, quality assurance and public perception include:
In November 2012, a media report that some of KFC’s chicken suppliers in China were using excessive amounts of antibiotics had a negative effect on consumer demand and led to a decline in Yum Brand’s Q1 2013 profits. Antibiotics can be used to combat disease, but they also raise human health concerns relating to antibiotic-resistant bacteria, and animal welfare concerns as they can be used to artificially stimulate growth. McDonald’s Corporation in China, which used the same suppliers as KFC, experienced similar negative press. In the USA in 2012 a new scandal emerged over the use of “pink slime” in meat products. This “pink slime”, also called “lean finely textured beef (LFTB)” in the industry, is a meat product in which the lean meat has been separated from the fat in trimmings using processing equipment. It is then sanitised with gaseous ammonia or citric acid to kill bacteria. Although the process has not raised any health concerns, the negative reaction from many consumers, particularly following a series of media reports in March 2012, resulted in McDonald’s USA and several retailers removing LFTB from their burger patties. In South Africa, media reports in April 2013 revealed that major supermarkets had mislabelled processed meat products. Some samples included undeclared donkey and water buffalo. The investigation followed similar stories in the United Kingdom, where meat products were recalled after beef burgers were found to contain horse meat. Although these incidents did not represent a major food safety issue, they raised questions over traceability and undermined consumer confidence.
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In developing markets, the reputation of international brands is built on the foundations of both quality and consistency. As a result, the break-down of trust that can occur if these foundations are removed is a major threat to operations.
Food safety management systems In some markets, such as the EU and USA, food business operators are required to implement hygiene procedures based on Hazard Analysis and Critical Control Point (HACCP) principles. HACCP is a food safety management system that provides systematic assessments throughout the food manufacturing operation. While HACCP is not a requirement in sub-Saharan African countries, some companies do implement HACCP as Nando’s Sudan 1 controversy part of a food safety management system. This is particularly evident in South Africa, In 2004, the UK’s Food Standards Agency (FSA) where several companies have found positive samples of Sudan 1 in Nando’s extra manufacturing facilities. However, the hot peri-peri sauce. Sudan 1 is a red dye considered extent to which standards are maintained in to be a carcinogen unfit for human consumption, newer markets is less clear. and is banned in the EU, UK, Australia, US and South Africa. Investigations showed that the Monitoring quality contaminant was cayenne pepper sourced by the Taste Holdings, for example, has received a Freddy Hirsch Group (Pty) Ltd (Hirsch) from India. South African Bureau of Standards (SABS) Nando’s, which marketed the product as colourant HACCP accreditation for its Cape Town free, was required by the FSA to place manufacturing facility.69 Taste Holdings also advertisements in newspapers to inform consumers undertakes an annual audit of its suppliers and withdraw contaminated products from retail and monthly testing of random samples of outlets within 48 hours. Nando’s then initiated a food products. Famous Brands has two worldwide recall. facilities with HACCP accreditation, one which manufactures bread rolls in Gauteng In the long-running legal battle that followed, province and another which produces Hirsch claimed that Nando’s wholly-owned sauces, pizza bases and retail products in subsidiary, Chickenland (Pty) Ltd, owed an Cape Town. It also operates a Total Quality outstanding amount of R1.36m to Hirsch for Management System which aims for supplies of cayenne pepper and sued, relying on its continuous improvement and a Supplier limited liability clause for defects. Chickenland Quality Assurance programme with counterclaimed for damages for breach of contract. independent audits and quality control In March 2011, South Africa’s Supreme Court of testing. Yum Brands utilises an in-house Appeal dismissed an appeal by Hirsch against a Supplier Tracking and Recognition (STAR) judgement that found in favour of Chickenland. system, which audits and monitors The court found that Hirsch was negligent in standards for food safety and quality in all fulfilling its contractual obligation as the spices were of its markets. unfit for human consumption. Damages of R7.5m were awarded to Chickenland, which was exempted “Farm to Fork” from paying the outstanding R1.36m owed to As noted above, chicken imports are not Hirsch. allowed in all countries, so KFC has been Source: Supreme Court of Appeal. 2011. Freddy Hirsch Group (Pty) Ltd v forced to invest significant effort in Chickenland (Pty) Ltd. Available at: ensuring that chicken suppliers meet its http://www.saflii.org.za/za/cases/ZASCA/2011/22.html STAR system criteria. In doing so, KFC has raised the level of food safety in a number of countries. In Kenya, KFC’s chicken supplier Kenchic operates a “Farm 2 Fork” system that allows for product traceability. Kenchic’s chickens are reared indoors “under controlled
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Kigoda Consulting Fast Food’s Final Frontier conditions that meet internationally recognized biosecure standards.”70 In September 2011 Kenchic was awarded the internationally-recognised Food Safety System Certification (FSSC) 22000, which incorporates the requirements of ISO 22000 and sector specific programmes. Kenchic, which supplies around 160 tonnes of chicken to KFC Kenya per month, reportedly also supplies to Famous Brands’ Steers and Chicken Inns in Kenya.71
Growing concerns over fresh produce Food safety issues are not confined to meat. In the USA and elsewhere in the developed world, an increasing number of food-borne health issues are caused by fresh produce.72 In 2011, one Botswanan newspaper quoted local franchise CEO, Wynand Pretorious, saying that the reason for an audit of local fresh produce suppliers was the court case in Australia brought by a customer who was left severely disabled after contracting salmonella at a KFC restaurant in 2005. KFC is appealing the ruling, which awarded the customer AUD8m in damages. Similar audits, which resulted in the suspension of fresh produce being offered to customers, have been reported in some of KFC’s other southern African markets.
Sustainable sourcing The sustainable sourcing of food products addresses a number of sustainability concerns including resource efficiency and waste. Various initiatives in the food sector aim to address the effects of climate change, population growth and increasing demand for certain commodity groups such as soy, palm oil, coffee and cocoa. Most recently, in 2012, 17 founding members, including McDonald’s and Walmart, formed the Global Roundtable for Sustainable Beef. Ongoing discussions as to what “sustainable beef” actually is will mean that sustainable sourcing is likely to be focussed on more tangible initiatives in the short-term. In the QSR sector in sub-Saharan Africa, there are currently three main areas of concern: fish, palm oil and coffee.
Fish In South Africa, a number of QSR companies have introduced fish takeaways into the market. Famous Brands operates FishAways, Taste Holdings has Fish & Chip Co. and Traditional Brands has “Old Fashioned” Fish and Chips. Some of these outlets represent the fastest growing franchises in the country. In Nigeria, KFC has also adapted its menu to local tastes by introducing seafood options including the Fish Zinger and Zinger Shrimps. While the sustainability and type of fish used in KFC’s Nigerian outlets is unclear, in South Africa the main QSRs offer a relatively simple choice of hake, snoek, and calamari. These are listed as Green on the WWF-Southern African Sustainable Seafood Initiative (SASSI), which means that the species can handle current fishing pressure, making them the more sustainable choice for consumers.
Green or orange? However, there are still a number of important sustainable sourcing issues. The South African hake trawl, which according to The Fish & Chip Co. accounts for more than 60% of fish sold in fast-food outlets, is certified by the MSC until March 2015, although as Case Study: South African hake trawl under threat below shows, there are numerous issues with monitoring. SASSI has placed snoek under review and its colour classification could change. In addition to the Green-list species, FishAways also offers “pop prawns” while “Old Fashioned” includes kingklip on its menu. Kingklip and prawns are on the SASSI Orange list, which means that while the species may be legally sold by registered commercial fishers, increased demand could compromise a sustainable supply. SASSI is developing more detailed assessments of the priority prawn species on the South African market, but notes that most international sustainability assessments consider consumption of many prawn species, whether farmed or not, to be unsustainable.
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Certified and traceable In developed markets, various QSR companies have taken steps towards improving their sustainable sourcing of fish. McDonald’s USA, which is one the largest single buyers of fish in that country, announced in January 2013 that it would become Marine Stewardship Council (MSC) certified, which means the source of its fish products is sustainable and there is traceablity in the supply chain.73 McDonald’s in Europe was MSC certified in 2011. In October 2012, KFC in France announced that it had received MSC certification, with all of the pollock used in its products coming from sustainable fisheries.
South African hake trawl certification under threat While much of the fish sold in South Africa’s QSR and casual The Marine Stewardship Council’s third surveillance audit of dining outlets will be MSC South Africa’s hake trawl fishery was undertaken in early certified hake, only Spur March 2013 with the results to be released around July. The Corporation’s casual dining John surveillance audits take place annually to ensure that fisheries Dory’s has a publicly-available continue to meet MSC standards and any additional sustainable fishing policy. It certification requirements within the 5-year licence period. If clearly defines John Dory’s there is not adequate progress in meeting these requirements, understanding of sustainable the certifier can suspend or withdraw the certificate. The seafood and commits to sell only MSC confirmed the fishery’s accreditation following the 2012 MSC certified wild-caught audit, indicating that steady progress has been made toward products or SASSI green-listed compliance with existing conditions, but raised several areas products by 2016. John Dory’s is of concern including the government’s lapsed Offshore a WWF-SASSI Restaurant Resource Observer Programme. Supporter, which requires attendance at an annual training A myriad of problems have delayed the reestablishment of course, and a Retailer/Supplier the observer programme, which programme is a key participant, which means it has component in fisheries management as it provides essential made “public and timebound data on practices such as discarding by-catch. commitments to sustainable Mismanagement on the part of the Department of seafood”.74 Agriculture, Forestry and Fisheries has played a major role in the delay, with ongoing disputes over the tender to run patrol Taste Holdings’ The Fish & ships. The department has argued that the most critical Chip Co. commits to purchasing surveys necessary for the MSC have been undertaken. The “only the finest quality fish from loss of MSC certification will have considerable implications recognized and respected fish for the country’s hake export market, which is estimated to merchants and that those be worth around R1.6bn. merchants guarantee that the Source: Vechhiatto, P. 23 April 2013. Industry steps in to secure fish certificate. fish they supply to The Fish & BusinessDay. Chip Co. has been sourced in sustainable and well managed fishing grounds.”75 However, while providing leadership as the only South African QSR chain making a commitment towards the sustainable sourcing of fish, The Fish & Chip Co. still places the onus on its suppliers to source sustainably. Despite indicating on its website that the WWF-SASSI is a partner, The Fish & Chip Co. is not a WWF-SASSI Restaurant Supporter nor is its chain of custody MSC certified. As a result, The Fish & Chip Co. falls short of best practice in this area.
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Palm oil Palm oil has become increasingly popular for cooking in restaurants and fast food outlets for economic reasons as its yield per hectare is the highest of any oil or oil seed crop.b However, the unsustainable production of palm oil is seen as a major contributor to deforestation, as virgin forests are cleared to make way for palm oil plantations. Deforestation also has implications for greenhouse gas emissions as forests absorb carbon dioxide, which is then released back into the atmosphere when the trees are logged or burned. Responsible investor and consumer concern has led many organisations to commit to sourcing palm oil from sustainable suppliers. In 2011 retailer Woolworths became the first South African company to become a member of the Roundtable of Sustainable Palm Oil (RSPO) and similarly committed to use sustainable sources of palm oil in its foods and cosmetics by 2015.
In 2011, McDonald’s Corporation joined RSPO and committed to use only RSPO certified palm oil in its restaurants by 2015. It also met its goal of requiring all palm oil suppliers to be RSPO members by the end of 2011.76 While Yum Brands is yet to make similar commitments, KFCs in various countries have made changes. In Australia, for example, KFC switched from using cheaper palm oil to Australian canola oil and in the UK and Ireland, KFC switched to rapeseed oil.
None of the other major QSR or casual restaurant companies across the various sub-Saharan African markets provide information on whether or not they use sustainable palm oil in their restaurants, or if they have made commitments to address this issue. However, in response to emailed questions Taste Holdings and Famous Brands indicated that they have a supplier with a sustainable palm oil procurement policy in place, while Spur Corporation responded that the palm oil it uses is RSPO certified.77 A 2012 article in the Food & Beverage Reporter notes that KFC South Africa only uses palm oil for frying, but there is no information as to whether this oil is from sustainable sources or not.78 However, according to the Sustainable Palm Oil Platform, South Africa’s DH Brothers supplies sustainable deodorised palm oil to McDonald’s and other fast food restaurants.79 DH Brothers Industries, the holding company for Willowton, which includes Sunfoil palm among its brands, is one of two Consumer Goods Manufacturer members of the RSPO in sub-Saharan Africa. DH Brothers and Sealake, the other member, are both based in South Africa.
Coffee Coffee production raises several sustainability issues. These include environmental concerns such as the impact of climate change on growing conditions, deforestation when areas have been cleared for coffee plantations, soil quality issues such as erosion, water pollution resulting from washing and processing, and the spread of pests such as the coffee berry borer. Social issues range from child labour on coffee plantations to health and safety matters related to the use of chemicals.
There are numerous sustainable coffee certifications including80:
Fairtrade – includes environmental standards on ecosystems degradation, social standards on working conditions and child labour, and ensures that producers receive fair remuneration. Rainforest Alliance – aims to maintain biodiversity in production areas and ensure sustainable living conditions among farm workers. UTZ –provides a set of social and environmental criteria to encourage producers to improve growing practices and farm management. Provides traceablity from producer to end product.
b While in West Africa, where the oil palm tree Elasis guineensis originates, palm oil has historically been used for cooking, South Africa predominantly uses sunflower oil, particularly in the consumer market.
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As with other schemes, each of these certifications is open to criticism for being too narrow or omitting certain elements. However, consumers are increasingly aware of some of the issues surrounding sustainable coffee. Several QSRs worldwide have started to implement sustainable coffee initiatives. McDonald’s in Australia, New Zealand and Europe only serves coffee from certified sustainable sources.
However, McDonald’s South Africa and other QSRs do not appear to have sustainable coffee procurement on their agendas. Compared to developed markets, coffee consumption is relatively low. Average consumption per capita in South Africa in 2011 was only 0.64kg compared to 10kg in Finland.81 However, growing consumption is reflected by KFC South Africa’s recent push into the breakfast and coffee market. As the market grows, companies will come under increasing pressure to add coffee to the list of products that are sustainably sourced.
Animal welfare While animal welfare might not be the priority issue for consumers in sub-Saharan Africa that it is in the developed world, the negative attention that international brands could attract from not adhering to best practice could result in reputational risks. Brand reputation can be damaged by campaigns that highlight poor animal welfare practices resulting in increased consumer concern.
People for the Ethical Treatment of Animals (PETA) has been running a campaign against KFC since 2003. PETA runs a website www.kentuckyfriedcruelty.com and has released footage of chickens being abused at a KFC supplier in West Virginia, USA. South African investigative journalism television programme Carte Blanche Five freedoms for animal welfare followed up on PETA’s allegations of abuse in the US in July 2004 with a look A commonly used framework bases animal welfare at conditions in the local poultry industry. on five freedoms. These are: 82 Although there was no evidence to 1. Freedom from hunger and thirst - by ready access suggest similar practices were taking to fresh water and a diet to maintain full health and place, the journalists were not able to vigour. access any of the suppliers’ premises to 2. Freedom from discomfort - by providing an ascertain the conditions under which appropriate environment including shelter and a chickens are farmed. There is clearly a comfortable resting area. risk that organisations such as PETA 3. Freedom from pain, injury or disease - by could use the expansion of international prevention or rapid diagnosis and treatment. brands into new markets as an 4. Freedom to express normal behaviours - by opportunity to refocus their campaigns providing sufficient space, proper facilities and and highlight inconsistencies in company company of the animal's own kind. policies. It is also credible that animal 5. Freedom from fear and distress - by ensuring welfare concerns will become more conditions and treatment which avoid mental prevalent as the market expands and suffering. consumers become more informed about Source: Compassion in World Farming www.animal-voice.org the choices they face.
As noted by the Business Benchmark on Farm Animal Welfare (BBFAW), which provides a global measure of food companies’ animal welfare standards, in their 2012 benchmark report, “as investor awareness of the financial implications of farm animal welfare grows, companies will increasingly be expected to report on their performance in a way that provides investors, and other stakeholders (such as regulators, customers and animal welfare NGOs) with the reassurance that farm animal welfare-related issues are being effectively managed, across their national, regional and global operations, in their own operations and
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Kigoda Consulting Fast Food’s Final Frontier throughout their supply chains.”83 In the USA, companies such as Chipotle have used values such as “food with integrity” to promote sustainable sourcing and distinguish themselves from their competitors. However, there appears to be minimal focus on animal welfare in the QSR sector in Africa.
Animal welfare issues differ for the various animals used in dairy, egg and meat production, but the issues can be broadly divided into on-farm practices, slaughter and transport. On-farm practices include housing conditions, use of antibiotics, which can be fed to animals to promote growth, and procedures such as beak trimming of chickens which is done in order to reduce injury by pecking. Raising animals at high density in confined conditions increases the likelihood of antibiotics being required to reduce the spread of diseases.
Across much of Africa, cattle production does not tend to involve the confinement of animals, which is more common in “factory farming” chickens and pigs. However, feedlots for cattle, which the RSPCA in Australia identifies as a potential cause for animal welfare concern due to the restriction of movement or exposure, are often used prior to slaughter.84 With pigs, a key concern is the use of sow stalls, which are two metre by 60cm metal cages that limit movement during pregnancy. In South Africa, the National Council of SPCAs (NSPCA) continues to campaign against the use of sow stalls. Although the South African Pork Producers’ Organisation (SAPPO) reportedly agreed in January 2011 to phase out the use of sow stalls, the timeline is contested. SAPPO is pushing for 2020 while the NSPCA and other stakeholders are demanding faster action.85 Although much less pork is used in Africa’s QSR sector than other meats, bacon is an optional extra at most non-Halaal burger restaurants while Famous Brand’s Steers also sells pork ribs.
Animal slaughter methods can be controversial The methods used to slaughter animals that are bred for human consumption are another contentious area. Various measures can be employed to minimise pain and suffering. These include stunning and “controlled-atmosphere killing”, which is a method used for slaughtering chickens in which oxygen is replaced with inert gas causing the chickens to fall unconscious before they are slaughtered. Stunning is commonly used in South Africa, where there does not appear to be any use of controlled atmosphere killing. This is partly because a large percentage of the country’s chickens are halaal, although exact figures are unknown. Rainbow Chicken, which is the largest chicken supplier to the South African QSR sector, is 100% halaal. While stunning is used in South Africa, many Muslims frown on the practice, and mechanical slaughtering is not approved.
The EU directive 1009/2009 on the protection of animals at slaughter, which came into effect on 1 January 2013, has resulted in the amperage at which a chicken must be stunned being increased from 100 to 150 milli-amps (mA).86 At this level, it is likely that the stunning is no longer reversible, which is a central halaal requirement. Rainbow Chicken also benchmarks itself against EU standards, but has not increased the amperage in accordance with the new directive.87
Local compliance While major international QSR companies have made various commitments toward animal welfare, the compliance of African subsidiaries and franchises to these commitments or the standards adopted by local companies is less clear. According to Yum Brands in 2010, Yum Restaurants International’s Global Animal Welfare Program “has been rolled out at the two approved suppliers, covering 100% of the supply”.88 None of the South African, Nigerian or other local companies appear to have a policy on animal welfare issues.
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Labour standards Job creation is often promoted by the QSR sector as a benefit of investment into sub-Saharan Africa. In June 2009, for example, KFC announced that its additional R1.5bn investment into South Africa would result in 200-300 new outlets and up to 9,000 new jobs.89 The announcement that Burger King would soon come to South Africa was delivered with the promise to “bring much-needed new jobs and careers for our people and help in reducing the high unemployment rate”. Clearly, in markets with unemployment levels of over 25% job creation is desirable, but the working conditions of employees in the QSR sector, even in South Africa: minimum wage determination developed markets, are widely perceived to be poor. There is no general minimum wage in South Africa, but minimum wages for the QSR sector currently fall under Coordinated action by fast food the hospitality sectoral determination, which was workers in various US cities in recent introduced in July 2007. From 1 July 2013, the minimum months has returned the issue of wage for employers with 10 or less employees is R12.39 labour standards in the QSR sector to per hour and R13.81 per hour for employers with more the media spotlight. The franchise than 10 employees. This is compared to R11.49 per hour model adopted by many QSR and R12.80 under the previous determination. The 2014 companies and the high turnover of determination formula will be based on the consumer staff has traditionally made it difficult price index (CPI) plus 1.5%. Employees had called for a for workers to organise and bargain minimum hourly wage of R20 and overtime pay collectively in the sector in developed allowances, suggesting that labour relations in the markets. However, as noted by hospitality sector could come under strain. Workers are Calvert Investments, in the US “all still able to negotiate and strike for higher wages once major restaurant chains except sectoral determinations are made. Starbucks lack policies to protect Source: Department of Labour, South Africa. 1 July 2013. Sectoral Determination freedom of association that would – Hospitality Amendment. make it easier to unionize”.90
International QSR companies such as McDonald’s and Yum Brands have come under pressure from shareholders to address labour issues both in operations and in their supply chains. Investors are increasingly aware of the reputational harm and operational loss that can result from poor labour relations and failing to meet core labour standards. Core labour standards that are widely recognised as being particularly significant include:
the freedom of association; the right to collective bargaining; the abolition of forced labour; the elimination of child labour; and non-discrimination.
Best practice with respect to labour issues would include a code of conduct that follows the International Labour Organization (ILO)’s Declaration on Fundamental Principles and Rights at Work. Companies could also become signatories to the UN Global Compactc, which derives its four labour- related principles from the ILO. However, policy statements and codes of conduct are only the
c The UN Global Compact is a “strategic policy initiative for businesses that are committed to aligning their operations and strategies with ten universally accepted principles in the areas of human rights, labour, environment and anti-corruption.”
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Kigoda Consulting Fast Food’s Final Frontier starting point in addressing labour issues. Providing management with training relating to labour standards and establishing a grievance mechanism are among the other key steps.
The only regional company considered in this report with a publicly-available code of conduct covering labour issues is UACN. UACN is also the only locally listed company that is or has been a UN Global Compact participant, although it was expelled in 2011 for failing to communicate its progress in implementing the 10 principles. Spur Corporation and Famous Brands both have Codes of Ethics, but there is no indication that these cover labour standards such as those outlined above. Spur’s Integrated Report 2012 also indicates that the social and ethics committee monitors the company’s activities in relation to legislation and the 10 UN Global Compact principles.
Although the international companies with a QSR and casual Famous Brands and union recognition dining presence in sub-Saharan In October 2010, members of the Metal and Electrical Africa have developed codes of Workers Union of South Africa (MEWUSA) went on conduct, these only apply to strike at Famous Brand’s Midrand facilities over pay, employees and directors, not to working conditions, including the use of casual labour, franchisees. This means that the and union recognition. According to Department of majority of the outlets of Labour reports, MEWUSA alleged that Famous Brands international brands in sub-Saharan de-recognised the union as it was opposed to the African will not be covered by these introduction of a six-day rolling-week shift system. codes of conduct. For example, However, Famous Brands said that MEWUSA only McDonald’s Standards of Business represented 30% of the workforce in Midrand, and not a Conduct, which includes a majority as claimed by the union. The union was also commitment not to use child or against the planned outsourcing of truck drivers. In June forced labour, does not apply to 2010, Famous Brands announced an initiative in which owner/operators, which would half of its 105 vehicle fleet would be converted to an exclude McDonald’s South Africa. owner-driver system. Famous Brands announced the Instead, less specific requirements scheme as a Black Economic Empowerment initiative are imposed. Yum Brands, for but also indicated that the programme would contribute example, only requires “associates to higher margins. and franchises to comply with all Source: Department of Labour, South Africa. Annual Industrial Action Report applicable local labor laws regarding 2010. age and working hours in every country in which we operate”.91
These companies argue that they cannot be held responsible for the actions of franchisees. However, given that worker rights are curtailed in many sub-Saharan African countries, including those in which QSR and casual dining companies are operating, it is perhaps insufficient to merely expect franchisees to adhere to local labour laws without having a stronger company policy to provide guidance on expected standards of behaviour. Even when the legal environment does conform to international standards, there are numerous instances in which workers’ rights are restricted or undermined in practice.
Supply chain and labour standards The reliance of the QSR and casual dining sector on agriculture means that there are also potential labour standards issues in the supply chain. Agriculture, for example, is one of the major areas in which child labour is used in sub-Saharan Africa, including in several of the markets that QSR and casual dining companies are focused on. According to the US State Department, in Nigeria, “the worst form of child labour…included commercial agriculture”.92
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However, despite some advances by international companies, QSR and casual dining companies operating in sub-Saharan Africa do not appear to have robust policies and programmes aimed at addressing possible labour standards issues in their supply chains. On the positive side, McDonalds issued a new Supplier Code of Conduct in November 2012 which has strengthened the company’s commitment towards ensuring that its suppliers meet the core labour standards. While Yum Brands Supplier Code of Conduct sets out minimum labour standards for suppliers and subcontractors in its US market, it is unclear how these standards are applied in other countries, including in the almost 70 outlets owned by Yum Brands in South Africa.
None of the regional companies appear to have established Supplier Codes of Conduct. Furthermore, Famous Brands does not assess suppliers in terms of environmental and social factors. Taste Holdings audits suppliers in terms of “sustainability of medium term supply, traceability and compliance” but seemingly not against labour standards.93 This apparent lack of oversight of supply chains leaves companies vulnerable to reputational damage and lost management time devoted to addressing problems that might arise.
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African economic growth will not be sustainable if the continent does not improve its reputation for corporate governance – Ansie Ramalho, CEO Institute of Directors in Southern Africa (IoDSA)
Governance
In the sub-Saharan African QSR and casual dining sector several of the major regional companies have emerged from family businesses or small, long-serving management teams. In Nigeria, for example, QSR company Tantalizer Plc was established by vice chairman Mofoluso Ayeni and his CEO wife, Mrs. Abosede Ayeni, who still own 66% of the company. Founder of Food Concepts, Deji Akinyanju, raised the initial capital from family and friends before concluding a US$20m deal with the International Finance Corporation (IFC) to support regional expansion and improve safety and corporate standards.
This trend is also evident among South Africa’s listed QSR and casual dining companies. The origins of Famous Brands, and arguably of the franchise model itself in the country, go back to the 1960s, when George Halamandaris opened a Milky Lane ice-cream parlour and several steakhouses including the Seven Steers and the Black Steer.94 He was later joined in the business by his son and nephews. Taste Holdings was started in 2000 by a father and son team with Scooters Pizza outlet. The first Spur restaurants were also founded by George Halamandaris before the brand was sold to franchisees, including current executive chairman Allen Ambor in the 1970s. Of the 9 directors serving on Spur Corporation’s board, six have served for 14 years or more. Three of these are non- executive directors.
Board structure and independence of non-executive directors While strong family-based teams and solid, experienced management teams who have built up businesses can be seen as a strength, they can also lead to corporate governance concerns when, for example, board structures do not meet best practice or listing requirements. Best practice principles with respect to board structure have been developed to resolve the agency problem (a conflict of interest between management and shareholders), so shortcomings in this area can raise significant concerns. These range from a lack of objectivity to acting in a self-interested manner in areas such as executive remuneration. Board independence is a central pillar of corporate governance frameworks. Given its key role in maintaining internal financial controls and managing financial risks, the independence of the audit committee is now regarded as especially important.
However, as noted in Table 3: Board structure of JSE-listed QSR and casual dining companies, Kigoda Consulting has identified situations where the company’s classification of a director as being independent appears to be incorrect. This means that:
companies are failing to achieve best practice with respect to King III’s requirement that a majority of non-executive directors, who should constitute a majority of the board, are independent; and companies are not complying with the mandatory listing requirements of the JSE.
The JSE listing requirements and the South African Companies Act, 2008 both prescribe that the audit committee be comprised of at least three independent non-executive directors. In addition, the
JSE listing requirements adopt the King III criteria for independence which are more onerous than those of the Companies Act. For example, as can be seen in Appendix B: Definitions of independence, in addition to the requirement that an audit committee member is not employed in an executive capacity by the company, which can be found in both the Companies Act and King III, King III also requires that independent non-executive directors do not hold significant direct or indirect interests in a company. As a result, while companies might meet the criteria of the Companies Act, they can still fail to meet the listing requirements and best practice set out under King III.
Majority Majority Majority Ind., non- Lead Audit Arms- non- non-execs non- executive indep. committee length executive indep.– execs chairman director – at least relations directors company indep.– – Kigoda three between disclosure Kigoda analysis indep. board analysis non-execs and company secretary Famous Yes, 6 of n/a No, 2 of No Yes No Yes Brands 10. 6. Taste Yes, 7 of Yes, 5 of 7. No, 3 of No No No Yes Holdings 11. 7. Spur Yes, 5 of Yes, 3 of 5. No, 3 of No Yes No No Corporation 9. 5. Table 3: Board structure of JSE-listed QSR and casual dining companies
The circumstances in which companies fail to meet best practice with respect to independent non- executive directors, which in some cases have direct implications for audit committee requirements, can be broadly grouped into two areas:
1. material ownership stakes: King III stipulates that for non-executive directors to be considered independent, they should not have a direct or indirect interest of more than 5% of the number of shares in issue. Furthermore, non-executive directors with stakes of less than 5% of the total number of shares in issue also cannot be considered independent where this stake can be considered material to the director’s wealth. Compliance with this last requirement is an issue at all three of South Africa’s leading QSR and casual dining companies: Spur Corporation, Taste Holdings and Famous Brands.
Spur Corporation audit committee chairman Keith Madders holds a stake of over 1%, presently worth around R32m. Spur Corporation recognised in its 2012 Integrated Report that this stake is material to Mr Madders’ wealth, and that as a result he cannot be considered independent, which is a mandatory listing requirement of the JSE. According to Spur, having failed to secure a new independent non-executive director to sit on the Board, the Board has accepted a proposal by the Nominations Committee to appoint Dean Hyde to chair the audit committee and to accept Mr Madders’ resignation. Mr Hyde’s appointment is subject to shareholder approval at the December 2013 annual general meeting. Given that Mr Hyde has served on the board since 1999 and was only designated an independent director in November 2012 after he sold his interests in Spur group franchises, questions over his independence might remain. Mr Hyde is currently chairman of the Remuneration Committee.
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Kigoda Consulting Fast Food’s Final Frontier
At Taste Holdings, Bill Daly, the non-executive chairman that the company describes as independent, with associates holds a 2.6% stake in the company, presently worth around R19m, which could be deemed to be material to his wealth. As a result, a lead independent director should be appointed if the company is to follow best practice. Furthermore, one of the audit committee members, Mr Jay Currie, holds a 6% stake in the company, presently valued at R55m, which means that the company does not comply with the JSE listing requirements. On 10 July 2013, it was announced that Mr Currie would be to the executive team as CEO of the Taste Food Division, which also means a new audit committee member will need to be appointed to comply with the Companies Act. Famous Brands’ 2012 Integrated Report highlights the fact that the board does not meet best practice with respect to having a majority of independent non-executive directors. However, it also does not comply with the JSE listing requirements regarding audit committees as non-executive director Hymie Levin, who serves as chairman of the audit committee, cannot be characterised as independent given that his stake of just over 1% is presently valued at R95m. Famous Brands acknowledges that Mr Levin is not designated as independent and states that alternative solutions to an independent audit committee are being sought.95
2. professional advisor or contractual work: As acknowledged by Spur Corporation, one of the members of its audit committee provides consulting services to Spur Corporation on a contractual basis via an intermediary, and so cannot be considered independent under the King III definition. At Famous Brands, audit committee chairman Hymie Levin and his alternate director Christopher Boulle, who is also an audit committee member, are partners at HR Levin Attorneys. This raises a potential conflict of interest as in the 2012 financial year Famous Brands paid HR Levin Attorneys professional fees at a market-related rate for legal services rendered to the company.
Board diversity also lacking The board structures of JSE-listed QSR and casual dining companies also raise questions over the length of tenures of some of the directors and, in particular, a lack of diversity. At least two of the companies considered in this report do not have a single female board member, while three others only have one female board member.
Board diversity is a particularly relevant issue in South Africa, where post-apartheid policies have focussed on black economic empowerment (BEE) as a tool to address historical imbalances and injustices. BEE, as interpreted in the Department of Trade and Industry’s Code of Good Practice, covers seven areas:
ownership; management control; employment equity; skills development; preferential procurement; enterprise development; and socio-economic development.
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As they do not provide goods and services to public entities or companies that are subject to BEE compliance, QSR and casual dining businesses are not required to comply with BEE Codes of Good Practice. However, it will be increasingly difficult to avoid providing some tangible results so as not to be seen as laggards and risk reputational damage, which could undermine growth in the black South African market.
Currently, of the three main QSR and casual dining companies listed on the JSE, namely Famous Brands, Spur Corporation and Taste Holdings, the companies have a total of four blackd board members out of 30 directors. While there are many black-owned franchises across the various chains, there has been little activity on the ownership front. Siphumelele Investments owned a 15% stake in Spur Corporation, but that deal unravelled in 2004. Black-owned Brimstone Investment Corporation bought a 12.4% stake in Taste Holdings in 2012, while Famous Brands indicates that it continues “to strive for compliance”.96
Lack of diversity reflected in management? As these companies each have more than 50 employees, they are required to comply with the provisions for affirmative action under the Employment Equity Act. However, progress has been slow here too, partly due to the country’s skills crisis after decades of poor investment in education.
Spur Corporation reports that “the lack of availability of skills in middle and senior management is a concern”. In 2010, when seven of 46 of those in top, senior and mid-management were black, then- managing director Pierre van Tonder expressed concern over the transformation of top management.97 According to its Integrated Report 2012, only six of 51 Spur Corporation employees in top, senior and mid-management are black. The Spur College of Excellence has been established partly to address the shortage of managerial skills.
At Taste Holdings, 40% of top, senior and middle management are black with the percentage of black middle managers increasing from 40% to 52% over the 2012 reporting period.98 Famous Brands does not provide details of its employee representation, but few, if any, of its key management staff appear to be black.
d Under the Broad-Based Black Economic Empowerment Act, 2003 “black people” is defined as a generic term meaning Africans, Coloureds and Indians.
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Kigoda Consulting Fast Food’s Final Frontier Key implications This report has assessed a variety of environmental, social and governance issues that have material implications for the QSR and casual dining sector in sub-Saharan Africa. These include energy and emissions, waste management, obesity and nutrition, sustainable sourcing, animal welfare, and board independence. Despite the fact that shareholder resolutions, activist pressure and consumer demands have led QSR and casual dining companies to address a wide-range of ESG issues in other jurisdictions, and the fact that many of these concerns are equally relevant for the sector in sub- Saharan Africa, no company is currently providing clear leadership in this sector across the range of ESG issues.
On a positive note, there are pockets of excellence and some indications that certain companies are shifting their behaviour. Spur Corporation, for example, has set targets for waste reduction, recycling and resource use. In recent years, Spur Corporation has also made a number of appointments that have brought greater independence to its board. However, in general, ESG disclosure and management by QSR and casual dining companies operating in sub-Saharan Africa is relatively weak. This applies to both the local operations of multinational brands and the regional companies. The lack of disclosure clearly makes the assessment of ESG issues more difficult and underlines the importance of investor engagement in these areas.
Furthermore, even those companies that have developed policies and programmes towards addressing ESG issues in other jurisdictions appear to be lagging with respect to their sub-Saharan operations. Perhaps this is to be expected given that sub-Saharan Africa is the sectors’ “final frontier”, but it also might suggest that the integration of sustainability issues into corporate culture is less entrenched than initiatives elsewhere might suggest. It also might reflect the structural issues in the sector that relates to the challenge around determining what role the franchisor vis-à-vis franchisees have in addressing ESG issues. While franchisors rightly demand certain standards of franchisees with respect to food safety and security, they appear convinced that other ESG issues such as labour standards and resource efficiency are outside of their operational control.
As QSR and casual dining companies expand their footprints in sub-Saharan Africa in search of faster sales growth, their exposure to consumer demands and investor scrutiny will increase. QSR and casual dining companies need to address the various ESG issues to ensure that they are meeting industry best practice and supporting long-term, sustainable growth. This will reduce the risk of reputational damage that can arise when companies act, or are perceived to be acting irresponsibly, while improving operational efficiencies and building more resilient supply chains. By failing to address ESG issues, companies not only miss opportunities, but remain vulnerable to reputational damage, regulation and litigation. Ultimately, a failure to mitigate these risks could result not only in declining consumer confidence and lost management time, but also have severe financial consequences.
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Endnotes
1 Nakkas, L. February 2013. Africa: The Final Frontier. QSR Magazine. Available at: http://www.qsrmagazine.com/growth/africa-final-frontier?microsite=599+4117 2 Yuk, P. 7 October 2011. Africa: the next frontier for fast food? Financial Times. Available at: http://blogs.ft.com/beyond-brics/2011/10/07/africa-the-next-frontier-for-fast-food/ 3 Mugwe, D. 12 February 2013. US fast food chain Subway to open first Kenyan outlet. Africa Review. Available at: http://www.africareview.com/Business---Finance/US-fast-food-chain-Subway-to-open-first-Kenya-outlet/- /979184/1692052/-/f9fypvz/-/index.html 4 Grand Parade Investments. 8 November 2012. Grand Parade Investments brings Burger King to South Africa. Available at: http://grandparade.co.za/grand-parade-investments-brings-burger-king-to-south-africa/ 5 McKinsey Global Institute. June 2010. Lions on the move: the progress and potential of African economies. Available at: http://www.mckinsey.com/insights/mgi/research/productivity_competitiveness_and_growth/lions_on_the_ move 6 African Development Bank. 20 April 2011. The Middle of the Pyramid: Dynamics of the Middle Class in Africa. Available at: http://www.afdb.org/fileadmin/uploads/afdb/Documents/Publications/The%20Middle%20of%20the%20Py ramid_The%20Middle%20of%20the%20Pyramid.pdf 7 McKinsey&Company. October 2012. The rise of the African Consumer. Available at: http://www.mckinsey.com/global_locations/africa/south_africa/en/rise_of_the_african_consumer 8 Adewunmi, F. 8 December 2011. KFC’s Africa growth won’t show significant profits in short-term. How we made its in Africa. Available at: http://www.howwemadeitinafrica.com/kfc%E2%80%99s-african-growth-wont-show- significant-profits-in-short-term/13875/ 9 Kwan Yuk, P. 7 December 2012. KFC in China: it’s not just the economy. Available at: http://blogs.ft.com/beyond-brics/2012/12/07/kfc-in-china-its-not-just-the-economy/ 10 Cheeseman, Gina-Marie. 25 August 2010. Can the Fast Food Industry Ever Be Sustainable. Triple Pundit. Available at: http://www.triplepundit.com/2010/08/can-the-fast-food-industry-ever-be-sustainable/ 11 Yum Brands. Our Associates – Our Team. Available at: http://www.yumcsr.com/people/our-associates.asp 12 Famous Brands. Integrated Report 2012, p24 13 Boko, M., I. Niang, A. Nyong, C. Vogel, A. Githeko, M. Medany, B. Osman-Elasha, R. Tabo and P. Yanda. 2007: Africa. Climate Change 2007: Impacts, Adaptation and Vulnerability. Contribution of Working Group II to the Fourth Assessment Report of the Intergovernmental Panel on Climate Change. Cambridge University Press. 14 US Energy Information Administration. International Energy Statistics. Available at: http://www.eia.gov/cfapps/ipdbproject/iedindex3.cfm?tid=90&pid=44&aid=8 15 Email response by Famous Brands, Taste Holdings and Spur Corporation to questions posed by Kigoda Consulting. 16 Groenewald, Y. 3 February 2013. Power prices rises will squeeze job priorities. City Press. Available at: http://www.citypress.co.za/business/power-price-rises-will-squeeze-job-priorities/ 17 Taste Holdings, Annual Report 2012, p 15 18 Fast food operators spend 25% of profit on power. Available at: http://www.nigerianbestforum.com/generaltopics/?p=82066 19 Taste Holdings, Annual Report 2011, p 19 20 Taste Holdings, Annual Report 2012, p 20 21 Email response from Carlo Gonzaga, CEO, Taste Holdings to questions posed by Kigoda Consulting, received 3 June. 22 Spur Corporation, Integrated Report 2012, p 47 23 Email response from Joe Stead, Marketing Department, Spur Corporation to questions posed by Kigoda Consulting, received 19 April. 24 KFC South Africa. Corporate Responsibility & Sustainability Report 2009/2010, p 34. 25 Email response to questions by Geoff Pyle, Company Secretary, Famous Brands to questions posed by Kigoda Consulting, received 7 May. 26 Creamer, T. 8 March 2013. Carbon Tax from 2015, as new biofuels incentive is unveiled. Available at: http://www.engineeringnews.co.za/article/carbon-tax-from-2015-as-new-biofuels-incentive-is-unveiled-2013- 03-08 27 Max. 2011. Annual Report 2011 – on climate impact and initiatives. Available at: http://www.maxburgers.com/Global/Press/MAX_klimatbokslut-2011-ENG-digital.pdf
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Available at: http://phx.corporate- ir.net/phoenix.zhtml?c=97876&p=irol-newsArticle&ID=1603396&highlight= 38 Spur Corporation, Integrated Report 2012, p49 39 KFC, Sustainability Report 2010, 40 Mahlobo, M. 2008. Reduction and Monitoring of fat, oil and grease in the Hillcrest area and the Greater eThekwini Municipality. Water Institute of SA. Available at: http://www.ewisa.co.za/literature/files/2008_181.pdf 41 Department of Water Affairs. 2009. Green Drop Report 2009. Available at: http://www.dwaf.gov.za/Documents/GreenDropReport.pdf 42 Comins, L. 26 October 2006. HIV+ people at risk from ‘abused’ cooking oil. IOL news. Available at: http://www.iol.co.za/news/south-africa/hiv-people-at-risk-from-abused-cooking-oil- 1.300269#.UTmcxBxTDUX 43 CSIR. 2011. Municipal waste management - good practices. Available at: www.csir.co.za/nre/docs/Waste_Management_Toolkit.pdf 44 Gustavsson, J., Cederberg, C., and Sonesson, U. 2011. Global Food Losses and Food Waste: extent, causes and prevention. Available at: http://www.fao.org/docrep/014/mb060e/mb060e00.pdf 45 Analytix BI. 28 May 2012. South African’s love for fast food grows…! Available at: http://www.bizcommunity.com/Print.aspx?l=196&c=11&ct=1&ci=75913 46 Vallie, A. 12 July 2012. SA embraces fast food, new report shows. BusinessDay. Available at: http://www.bdlive.co.za/articles/2012/07/12/sa-embraces-fast-food-new-report-shows 47 Cresswell, J., Cambell, O., De Silva, M. and Filippi, V. 13 October 2012. Effect of maternal obesity of neonatal death in sub-Saharan Africa: multivariable analysis of 27 national datasets. The Lancet, Volume 380, Issue 9850. Available at: http://www.thelancet.com/journals/lancet/article/PIIS0140-6736(12)60869-1/fulltext?_eventId=login 48 Harvard School of Public Health. A Global Look at Rising Obesity Rates. Available at: http://www.hsph.harvard.edu/obesity-prevention-source/obesity-trends/obesity-rates-worldwide/ 49 De Onis, M., Blossner, M. and Borghi, E. 2010. Global prevalence and trends of overweight and obesity among preschool children. American Journal of Clinical Nutrition 2010;92. Available at: http://www.who.int/nutgrowthdb/publications/overweight_obesity/en/index.html 50 The Heart and Stroke Foundation South Africa. Restaurant Programme. Available at: http://www.heartfoundation.co.za/restaurant-programme 51 National Conference of State Legislatures. Trans Fat and Menu Labeling Legislation. Available: http://www.ncsl.org/issues-research/health/trans-fat-and-menu-labeling-legislation.aspx 52 Johnson, TD. April 2012. Online-only: Fast food chains could serve up better calories listings, study finds. The Nation’s Health. Available at: http://thenationshealth.aphapublications.org/content/42/3/E12.full 53 Duke University Medical Centre. 14 January 2011. Mandatory menu labeling didn't change behavior at fast food chain. ScienceDaily. Available: http://www.sciencedaily.com/releases/2011/01/110114091647.htm 54 Department of Health The Regulations Relating to the Labelling and Advertising of Foodstuffs, No. R. 146 of the Foodstuffs, Cosmetics and Disinfectants Act, 1972 55 The Fish & Chip Co. Fishy Facts. Available: http://www.fishandchipco.co.za/index.php/about/fishy-facts 56 Boseley, S. 20 March 2013. Sugar, not fat, exposed as deadly villain in obesity epidemic. The Guardian. Available at: http://www.guardian.co.uk/society/2013/mar/20/sugar-deadly-obesity-epidemic 39
57 Adams&Adams. 2 April 2010. ‘Junk food’ regulations given a timeout. Available at: http://www.adamsadams.com/index.php/media_centre/news/article/junk_food_regulations_given_a_timeou t/ 58 The Consumer Goods Council of South Africa. The South African pledge on marketing to children. Available at: http://www.cgcsa.co.za/index.php?option=com_content&view=article&id=48:the-south-african-pledge-on- marketing-to 59 Campbell, D. 8 November 2012. Sugar and salt levels in food so high food firms ‘must face legal curbs’. The Guardian. Available at: http://www.guardian.co.uk/uk/2012/nov/08/sugar-salt-high-legal-curbs 60 McLea, H. 9 December 2011. Calls for ‘fat tax’ to fund healthcare. Times LIVE. Available at: http://www.timeslive.co.za/local/2011/12/09/calls-for-fat-tax-to-fund-healthcare 61 Department of Health. 2011. Regulations relating to trans fat in food stuffs. Available at: http://www.doh.gov.za/docs/foodcontrol/fortification/2011/Regulation%20-%20Fortification%20- %20Regulations%20relating%20to%20trans-fat%20in%20foodstuffs.pdf 62 Holmes, T. 5 April 2013. Salt sellers shaken by Motsoaledi’s rules. Mail & Guardian. Available at: http://mg.co.za/article/2013-04-05-00-salt-sellers-shaken-by-rules 63 Mulupi, D. 24 July 2012. KFC expects more global fast-food chains to enter the Kenyan market. How we made it in Africa. Available at: http://www.howwemadeitinafrica.com/kfc-expects-more-global-fast-food-chains-to-enter- the-kenyan-market/18698/ 64 Gbeminiyi, S. 10 November 2011. Scarcity of chicken worries fast food restaurants. Nigerian Tribune. Available at: http://www.tribune.com.ng/index.php/community-news/30987-scarcity-of-chicken-worries-fast-food- restaurants 65 Country Bird Holdings. 21 February 2012. Country Bird Holdings (CBH) has reported operating profit of R77,9m. Available at: http://www.cbh.co.za/news_indn_20120221.html 66 Mbugua, J. 30 August 2011. Kenya: Kentucky Issues Though Condition for Suppliers. The Star. Available: http://allafrica.com/stories/201108310086.html 67 Kisting, D. 18 April 2012. Namibia: KFC Burgers Still Without Tomato. The Namibian. Available at: http://allafrica.com/stories/201204180824.html 68 27 October 2012. Commission probes Innscor. The Sunday Mail. Available at: http://www.sundaymail.co.zw/index.php?option=com_content&view=article&id=31995:commission-probes- innscor-&catid=38:local-news&Itemid=131#.URuNoaVtizk 69 Taste Holdings, Annual Report 2012, p 15 70 Kenchic. Farm 2 Fork. Available at: http://www.kenchic.com/index.php/about-us/farm-2-fork 71 Njeri, M. 24 October 2011. Kenchic gets SGS Food Safety System Certification 22000-2010. CSR Africa. Available at: http://csrdaily.csrafrica.net/market-place/3437-kenchic-kenya-gets-sgs-food-safety-system-certification- 22000-2010.html 72 Surh, C. June 2012. The Evolution of Food Safety. QSR Magazine. Available at: http://www.qsrmagazine.com/food-safety/evolution-food-safety 73 Marine Stewardship Council. 24 January 2013. McDonald’s USA first national restaurant chain to serve MSC certified sustainable fish at all US locations. Available at: http://www.msc.org/newsroom/news/mcdonalds-usa-first- restaurant-chain-to-serve-msc-certified-sustainable-fish-nationwide 74 WWF-SASSI. Retailer/Supplier participants. Available at: http://www.wwfsassi.co.za/?m=8&s=1&idkey=1346 75 The Fish & Chip Co. Sustainable Fishing: Fish procurement policy. Available at: http://www.fishandchipco.co.za/index.php/about/sustainable-fishing 76 McDonald’s Corporation. Sustainable Supply Chain. Available at: http://www.aboutmcdonalds.com/mcd/sustainability/our_focus_areas/sustainable_supply_chain/progress.ht ml 77 Email response from Joe Stead, Marketing Department, Spur Corporation to questions posed by Kigoda Consulting, received 19 April. 78 Payne, T. 31 August 2012. The Taste of Success. Food & Beverage Reporter. Available at: http://www.fbreporter.com/index.php?option=com_content&view=article&id=26139 79 Sustainable Palm Oil Platform. Africa: RSPO Facts and Figures. Available at: http://www.sustainablepalmoil.org/palm-oil-by-region/africa/ 80 International Coffee Organization. Sustainability initiatives. Available at: http://www.ico.org/sustaininit.asp?section=About_Coffee 81 International Coffee Organization. Statistics on coffee: South Africa. Available at: http://www.ico.org/countries/south%20africa.pdf 82 Carte Blanche. 25 July 2004. Chicken Abuse. Available at: http://beta.mnet.co.za/carteblanche/Article.aspx?Id=2563 83 Business Benchmark on Farm Animal Welfare. 2012. Business Benchmark on Farm Animal Welfare 2012 Report. Available at: http://www.bbfaw.com/index.php/info/ 84 RSPCA Australia. Does the RSPCA have animal welfare standards for beef production. Available atL http://kb.rspca.org.au/Does-the-RSPCA-have-animal-welfare-standards-for-beef-production_346.html 40
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85 Joubert, R. 11 November 2012. Renewed pressure on use of gestation crates. Farmer’s Weekly. Available at: http://www.farmersweekly.co.za/news.aspx?id=31205&h=Renewed-pressure-on-use-of-gestation-crates 86 Paun, C. 29 October 2012. New poultry stunning rules may affect quality, warns Dutch firm. Global Meat. Available at: http://www.globalmeatnews.com/Industry-Markets/New-poultry-stunning-rules-may-affect-quality-warns- Dutch-firm 87 Email response from Warren Farrer, Rainbow Chicken to questions posed by Kigoda Consulting, received 16 April. 88 Yum Brands. Animal Welfare. Available at: http://yum.com/csr/food/supply/welfare.asp 89 SAPA. 19 June 2009. KFC in R1.5bn expansion drive. Available at: http://www.southafrica.info/news/business/291066.htm 90 Calvert Investments. 1 February 2012. McDonald’s Corp (MCD) Meets Calvert Signature Criteria and Added to Calvert Social Index. Available at: http://www.calvert.com/newsArticle.html?article=20177 91 Yum Brands. Associate Rights & Responsibilities. Available at: http://www.yumcsr.com/people/associate- rights.asp 92 US State Department. Country Reports on Human Rights Practices for 2012: Nigeria. Available at: http://www.state.gov/j/drl/rls/hrrpt/humanrightsreport/index.htm?year=2012&dlid=204153 93 Email response from Carlo Gonzaga, CEO, Taste Holdings to questions posed by Kigoda Consulting, received 3 June. 94 Gilmor, Chris. 9 April 2004. The American Dream played out on SA soil. Financial Mail. Available at: http://free.financialmail.co.za/report04/brands04/cbrands.htm 95 Email response to questions by Geoff Pyle, Company Secretary, Famous Brands to questions posed by Kigoda Consulting, received 7 May. 96 Famous Brands, Integrated Annual Report 2012, p 27 97 Spur has yet to sizzle in empowerment. Business Report. Available at: http://www.iol.co.za/business/business- news/spur-has-yet-to-sizzle-in-empowerment-1.727494#.UWFtwZNTDUU 98 Taste Holdings, Annual Report 2012, p 22
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Appendix A: Main QSR and casual dining companies in sub-Saharan Africa
Company Main brands Number Main countries of operations Listing in SSA of SSA outlets
Regional companies – listed
Famous Brands Steers, Wimpy, 2050 South Africa (1881), Botswana (28), JSE (FBR) Debonairs Mauritius (28), Zambia (27), Namibia Pizza, (27), Kenya (13), Zimbabawe (8), Nigeria FishAways, (8) Mugg & Bean, Milky Lane, Brazilian Café, and Europa
Taste Holdings Scooters Pizza‚ 540 South Africa (524), Namibia (7), JSE (TAS) St Elmo's‚ Botswana (1), Zimbabwe (1), Swaziland Maxi's, Fish & (3), Lesotho (2) Chip Co.
Spur Spur Steak 443 South Africa (422), Mauritius (9), JSE (SUR) Corporation Ranches, Namibia (7), Botswana (6) Panarottis Pizza Pasta, John Dory's Fish Grill Sushi, DoRego's
Innscor Africa Chicken Inn, 371 Zimbabwe (163) Zambia, Kenya, Ghana, ZSE Pizza Inn, Senegal, Malawi [208] (INN.zw) Baker’s Inn, Galito’s, Bonjour, Steers UAC of Nigeria Mr Biggs, ±170 Nigeria, Ghana NSE Village Kitchen (UACN) (also various Innscor Brands including Chicken Inn and Pizza Inn) Shoprite Hungry Lion 150 South Africa (120), Zambia (8), JSE (SHP) Holdings Botswana (7), Namibia (7), Angola (4), Lesotho (2), DRC(1), Swaziland (1)
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Kigoda Consulting Fast Food’s Final Frontier
Company Main brands Number Main countries of operations Listing in SSA of SSA outlets
International companies - listed
Yum Brands KFC, Pizza ±810 South Africa (730), Nigeria (17), NYSE Hut Mauritus (15+SSA's only Pizza Hut), (YUM) Kenya, Tanzania, Uganda, Ghana, Zambia,
McDonald's McDonald's 182 South Africa (180), Mauritius (2) NYSE (MCD)
Burger King Burger King 1 South Africa (1) NYSE (BKW) Domino's Pizza Domino's 1 Nigeria (1) NYSE Pizza (DPZ) Unlisted companies
Traditional “Old 345 South Africa (345) South Brands Fashioned” Africa Fish and Chips; Chingos Nando's Group Nando's ±340 South Africa (300), Zimbabwe (13), South Holdings Botswana (±10), Mauritius (3), Malawi, Africa Namibia, Lesotho, Swaziland, Zambia,
Chicken Licken 250 South Africa, Botswana South Africa Ocean Basket 155 South Africa (145), Namibia (3) South Africa Kauai 128 South Africa (128) South Africa Galitos 78 Ghana (2), Kenya (11), Lesotho (1), South Malawi (1), Senegal (1), Swaziland (1), Africa Zambia (4), South Africa (57)
Food Concepts Chicken 62 Nigeria (59), Ghana (3) Nigeria Republic, Reeds, Butterfield Bakery, Pizza Republic, Free Range Farms
Barcelos Barcelos 65 South Africa (65) South Africa Tantalizers 52 Nigeria (52) Nigeria Doctor's Subway 27 South Africa (15), Zambia (6), Tanzania USA Associates Inc (5), Djibouti (1) ECP Nairobi Java 17 Kenya (17) Kenya House Sundry Foods Kilimanjaro, 12 Nigeria (12) Nigeria Coral Blue
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Appendix B: Definitions of independence
The King Report on Governance for South Africa 2009 defines an independent non-executive director as a non-executive director who:
is not a representative of a shareholder who has the ability to control or significantly influence management or the board; does not have a direct or indirect interest in the company (including any parent or subsidiary in a consolidated group with the company) which exceeds 5% of the group’s total number of shares in issue; does not have a direct or indirect interest in the company which is less than 5% of the group’s total number of shares in issue, but is material to his personal wealth; has not been employed by the company or the group of which it currently forms part in any executive capacity, or appointed as the designated auditor or partner in the group’s external audit firm, or senior legal adviser for the preceding three financial years; is not a member of the immediate family of an individual who is, or has during the preceding three financial years, been employed by the company or the group in an executive capacity; is not a professional advisor to the company or the group, other than as a director; is free from any business or other relationship (contractual or statutory) which could be seen by an objective outsider to interfere materially with the individual‘s capacity to act in an independent manner, such as being a director of a material customer of or supplier to the company; or does not receive remuneration contingent upon the performance of the company.
The South African Companies Act, no 71 of 2008 (Sec 94(4)(b) and (c)) requires that each member of an audit committee of a company must not be:
b (i) involved in the day-to-day management of the company’s business or have been so involved at any time during the previous financial year; (ii) a prescribed officer, or full-time employee, of the company or another related or inter- related company, or have been such an officer or employee at any time during the previous three financial years; or (iii) a material supplier or customer of the company, such that a reasonable and informed third party would conclude in the circumstances that the integrity, impartiality or objectivity of that director is compromised by that relationship; and (c) not be related to any person who falls within any of the criteria set out in paragraph (b).
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