Fast food’s final frontier: the environmental, social and governance issues

Sub-Saharan Africa has been described as the “final frontier” of the quick service restaurant (QSR) and casual dining sector. As sales growth for fast food outlets and restaurants in developed countries has slowed, multinational brands have looked towards emerging markets and, most recently, sub-Saharan Africa.

KFC is a fast food brand that has expanded its footprint in Africa.

KFC is a fast food brand that has expanded its footprint in Africa.

To some extent, South African companies such as Famous Brands and Spur Corporation, along with Zimbabwean company Innscor, led the charge into other markets in sub-Saharan Africa.

Competition in the South African QSR and casual dining market is relatively strong, but the majority of African markets remain comparatively under-served by international and regional brands. The emergence of a broader middle class in Africa has also shifted investor interest, long concerned almost exclusively with the continent’s resources and commodities, towards consumer growth. Along with companies such as Unilever, Gap, Porsche, and Samsung, QSR companies are now battling for a share of the growing disposable income available in African countries.

ESG issues extend beyond supply chain challenges

This expansion drive by global brands into new African markets has attracted international headlines. Many of these stories have focussed on the long queues that new outlets have attracted and the aspirational dimension of demand for international brands. Some articles have considered the supply chain challenges that international companies have faced in finding reliable, high-quality sources of ingredients. However, the environmental, social and corporate governance (ESG) issues facing the QSR and casual dining sector in sub-Saharan Africa, as in the sector’s more traditional markets, go further than this. In the USA and Europe, shareholder resolutions, activist pressure and consumer demands have led QSR and casual dining companies to address issues ranging from animal welfare to unsustainable packaging material, from sustainable sourcing to waste management and from working conditions to obesity and nutrition.

Double-standards will raise reputational risk

Many of these concerns are equally relevant in the QSR and casual dining sector in sub-Saharan Africa. In fact, given the relatively poor state of physical and social infrastructure, 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.

Furthermore, while investors might assume that consumers in Nigeria, Kenya or Ghana will be more focussed on issues such as price and value than animal welfare or sustainable sourcing, multinational brands should be particularly aware of accusations of double-standards that could lead to further reputational damage in their home markets. 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.

Best practice required to support sustainable growth

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 these issues, companies are vulnerable to reputational damage, regulation and litigation. And, as recently highlighted by the decline in sales at KFC in China after a 2012 report that some of its chicken suppliers were allegedly using excessive amounts of antibiotics, the financial consequences can be severe.

Mike Davies is a political and environmental, social and governance (ESG) risk specialist at Kigoda Consulting.