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QSR and Casual Dining Companies in Sub-Saharan Africa

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QSR and Casual Dining Companies in Sub-Saharan Africa 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. 1 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
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