| Thu 15 Jun 2006, 15:42 | | Taste banks on fast food-guzzling middle-class mac |
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Taste banks on fast food-guzzling middle-class machines
June 15, 2006
By Jabulani Sikhakhane
If you are between the ages of 35 and 49, and you fit the description of the emerging middle class, marketers regard you as a fast food-guzzling machine who cares very little about a healthy lifestyle.
That much can be drawn from the prospectus of Taste Holdings, the fast food retail company that plans to list on the JSE's AltX board some time next week. The company owns the Scooters Pizza and Maxi's franchises.
"A healthy lifestyle does not play an overriding role in the emerging middle class LSMs [living standards measures]," says Taste, adding that the main driver of the growth in the consumption of fast foods by the emerging middle class are individuals aged between 35 and 49, a category of people who have "conspicuous consumption" habits.
This age group accounts for 58 percent of the spending by the middle class.
Conspicuous consumption is a term coined by US economist Thorstein Veblen in his book, The Theory of the Leisure Class, published more than a century ago. It is now generally used to describe the buying of unnecessary and expensive products to show off one's wealth.
Taste adds that one of the other drivers of the growth in quick service restaurants and fast food outlets is the fact that families where both partners are working do not have time to cook at home and are increasingly turning to buying prepared meals.
"The increased demand for preprepared meals is satisfied either at home through fast food services, or in a quick service restaurant-style environment for the majority of the population.
"Across both upper and lower LSMs consumers are eating out more frequently than before as convenient-meal opportunities are available at every turn."
The source of Taste's insight into the behaviour of the emerging middle class is the March 2006 report, Black Diamond - Unearthing South Africa's Middle Class, published by the University of Cape Town's Unilever Institute of Strategic Marketing.
The pizza market, which is currently valued at R2 billion a year, is also benefiting from the growth of the middle class and its eating habits.
The most interesting fact about the pizza market is that growth is coming from the opening of new stores by the incumbent brands and the organic growth of these brands. There have been no successful new entrants into this market in the past few years.
Debonairs, which is owned by Famous Brands, is the market leader, followed by Scooters.
The lack of successful new entrants is possibly explained by a decline in the prices of pizzas.
At the same time, the incumbents stand to reap the benefit of the fact that pizzas have become more affordable relative to chicken or burgers for the middle class.
BEIGE After several years of struggling, this contract manufacturer seems to have reached a turning point with the purchase of Quality Foods in the past financial year.
The additional revenue from Quality Foods, which will account for more than 45 percent of the group's business, combined with a management reorganisation, has shifted Beige's ailing fortunes from a loss to a net profit for the first time in at least two years.
Operating costs have been significantly reduced by moving six of the group's seven factories into one location, although there was a brief period of increased costs and quality issues associated with this move.
Another factor that has come into play this year is the resolution of the fraud case against two former Beige directors, which harks back to the late 1990s. The case will come before court in August and management is expecting to recover some costs once the trial has ended.
The markets have responded positively to the good news so far this year, with the share price on an upward curve for the first time in six years. Beige's stock has moved up 50 percent from 6c in January to 9c this month.
All in all, it is a pleasing show of good management skills and business decisions for shareholders.
The renewal of a cautionary with the results announcement yesterday, combined with management's comments on a "low gearing and facility to draw on more funds if necessary" points to further expansion plans or possibly another acquisition in the near future.
INSURANCE INDUSTRY The ever-increasing number of rulings by the pension funds adjudicator in favour of consumers has highlighted how opaque the long-term savings industry has been in its operations.
In each case, insurers have chipped off a sizeable chunk of the benefits due to fund members despite there being no provision or authority for such penalties.
At this rate, one can be forgiven for thinking that there is more to come as more people come forward with complaints.
Maybe insurers should start making provisions for these ongoing disputes, notwithstanding the fact that they have already taken a collective charge of close to R3 billion.
Then again, consumers have languished in unforgivable ignorance, taking up some savings products without finding out how they work.
In the adjudicator's most recent ruling, a complainant contested a market-performance adjustment that was made to her benefits after the fund she belonged to was exposed to poor-performing assets.
It is time for buyers of insurance and retirement funding products to appreciate the fact that their investments may sometimes not perform as well as they might wish them to.
All the same, while regulation of the long-term insurance industry may appear burdensome to shareholders, it will help to gradually rid the sector of a lot of headaches that have become the norm.
