Restaurant closures hit RCL’s chicken business

 

When it comes to fast-food, South Africans have a strong preference for a chicken in a bucket. So, it comes as no surprise that the Covid-19-induced lockdown hurt everyone involved in supplying legs, breast and thighs to the local drive-through.

RCL Foods – owner of Rainbow Chicken, Ouma Rusks and Selati Sugar – for example, was hit hard by fast-food operations being forced to close shop. This contributed to a 65.4% decline in headline earnings to R114.2 million for the year to end-June.

The food producer reported that the direct cost impact of Covid-19 to date in terms of additional costs amounts to R266.8 million.

The pandemic had a severe impact on its chicken business – particularly in terms of the fixed costs related to the stock holding of the chicken – as well as its Vector Logistics operation, which supplies fast-food restaurants such as Nando’s and Chicken Licken.

Read: RCL Foods bruised by tariffs and taxes (Sep 2019)

Sasfin Securities deputy chair David Shapiro says that although the results were not “appealing” he believes the company will rise again.

“The results are not great but there is no reason that they should not come of this [pandemic and continue] to make good products. Overall, the quality of their food and products is good, therefore it is up to management to pick itself up and reposition itself after this [pandemic].”

Changes in appetite

The group saw increased appetite for pet food, rusks and peanut butter among consumers (and their pets) during the lockdown.

“Pets are a big market globally,” says Shapiro, adding that the increased demand for pet food may be due to more people buying pets as an antidote to loneliness during lockdown.

Market commentator Chris Gilmour says the increase in pet food consumption could be connected to the working-from-home factor. “People probably spent more time with their pets and gave them lots of treats.”

FNB Wealth and Investments senior portfolio manager Wayne McCurrie agrees.

“I doubt whether people have dramatically increased the number of pets they have. I think they are possibly just feeding their pets more as they are at home a lot more.

“Pets are getting fat during lockdown,” he added.

He says there was an increased demand for groceries due to the regulations that prohibited fast-food outlets from operating during lockdown alert levels 5 and 4, which forced consumers to prepare home-cooked meals.

He doesn’t believe it was due to the direct impact of consumers being cash-strapped due to job losses and salary cuts.

“You will most likely find that food expenses in total are down because people were not eating out or buying prepared food during the earlier lockdown levels.

Prospects

RCL Foods expects tough economic conditions to continue, putting considerable pressure on consumers in 2021.

“Our primary focus for 2021 will be to reset our operations for growth and complete our portfolio review to lay the foundation for a future-ready portfolio shape that accommodates the post-Covid-19 environment,” says RCL Foods chief executive Miles Dally.

The group believes the impacts of the pandemic will continue to be felt in the chicken business unit for the first half of the 2021 financial year, owing to its significant stock holding levels and the knock-on revenue impacts of its supply chain relief measures.

Shapiro says the pandemic is surely at the “beginning” of a whole business environment that will force companies to rethink how they do business post-Covid-19.

SOURCE:  Moneyweb

AUTHOR PROFILE

Melitta Ngalonkulu

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