The South African government has been highly responsive to the COVID-19 pandemic, from its first reported case in early March of 2020, up until the more than 20 000 positive cases as of this writing. The government’s responses are notable through the implementation of stringent regulations on how individuals, businesses, institutions and society must operate for the containment of the rate of transmission of the virus. The most notable responses entail the declaration of the “National State of Disaster”, the implementation of full lockdown and the easing of the lockdown regulations – the lowering of the lockdown from level 5 (full national lockdown) to level 4 (resumption of certain economic activities). These measures were taken to circumvent a large-scale surge in infections, which could be disastrous to our health system. As the lockdown advanced, the government’s response embodied not just health, but also economic and social responses. The cases in point are the R500 billion economic and social relief package and the R1.2 billion relief fund for small-scale farmers. Figure 1 provides a bird’s eye view of COVID-19 in South Africa and the associated lockdown measures in relation to the food industry.
Figure 1: COVID-19 in South Africa: A chronological timeline
While food items have to be supplied and sold throughout, not all food establishments are permitted to do so at each level. The reason for this is that the lockdown levels are expressed as a continuum of economic activities – a particular economic activity to be carried out at each level, the entity permitted to carry out each activity, and the degree to which each entity can carry out each activity. Table 1 provides a summary of the preceding and prevailing lockdown levels concerning the food industry.
Table 1: Risk-adjusted strategy: Levels 5 and 4
|OBJECTIVE||SECTORS PERMITTED||TRANSPORT RESTRICTIONS||MOVEMENT RESTRICTIONS|
|ALERT LEVEL 5|
|Drastic measures to contain the spread of the virus and save lives.||Only essential services||Individuals allowed to take buses and taxis, with restrictions on times of the day and stringent hygiene, to buy food and other essential items, and obtain essential services.|
Individuals allowed to use private motor vehicles to buy food and other essential services.
|Interprovincial movements allowed for the transportation of food items and other essential items.|
|ALERT LEVEL 4|
|Resumption of a few economic activities subject to extreme precautions to limit community transmission and outbreaks.||All essential services, plus:Food retail stores permitted to sell the entire product line All agriculture: (horticulture, export agriculture including wool and wine, floriculture and horticulture, and related processing)Forestry, pulp and paper.|
Reopening of fast-food stores and restaurants for online food ordering and food delivery.
|Individuals allowed to take buses and taxis, subject to stringent hygiene measures, to buy food and other essential items, as permitted in column 2.|
Individuals allowed to use private motor vehicles to buy food and other essential goods, as permitted in column 2.
No collection of takeaways.
|Interprovincial movements allowed for transportation of food items and other items as permitted in column 2.|
The food supply chain is composed of various economic actors, from input suppliers and farmers through to manufacturers and distributors, and retailers. Given this, the effect of the lockdown will vary per actor, conditional on the level and the extent to which each actor is permitted to operate. It is, therefore, imperative to explore the following:
- Challenges: Some of the difficulties experienced by certain food supply chain actors due to lockdown restrictions.
- Trends: Innovative solutions that have been employed by food retailers to curtail the spread of COVID-19, to provide the best possible service to customers during the lockdown, and to survive the lockdown restrictions.
- The path ahead: Builds on the trends and envisions the paradigm shift that will be required for food establishments to recover and thrive beyond the lockdown. This aspect further highlights selected theories and principles that necessitate a rethink to ascertain their applicability in the context of the prevailing pandemic.
Losers’ and winners’ dilemma
The lockdown restrictions have thus far had a varying impact on the food supply chain actors. Undoubtedly, some will bear the brunt of the lockdown more than others. For instance, under levels 5 and 4, firms involved in the production and distribution of food, as well as food retailers, have been allowed to operate. On the contrary, sit-down restaurants, fast-food chains, pubs, cafés and small eateries were prohibited from operating (under level 5) and permitted to operate for online food ordering and deliveries (under level 4). Against this backdrop, the food retailers are expected to benefit more than fast-food chains and restaurants, as they have been allowed to operate regardless of the lockdown level. Again, the economic and social relief measures, while necessary, may have been less effective for the fast-food outlets and sit-down restaurants, as demand has been muted. Although fast-food outlets and sit-down restaurants are allowed to operate (for deliveries only) under level 4, after having been closed under level 5, individuals receiving the relief money can hardly afford to spend those limited funds on luxuries such as fast food. In the case of farmers, it boils down to the fundamental economic questions of what is being produced and for whom. From this perspective, those producing for the retail stores are expected to benefit more than those producing for the hospitality industry, which is set to reopen towards the extreme right of the lockdown levels.
Temporary shutdown of retail stores
South Africa has recorded several positive cases of COVID-19 among workers in food retail stores across the country, which implies that the pandemic is posing a risk to workers in the very industry that is supposed to feed the population. The affected stores include the major retailers, namely Shoprite, Checkers, Spar, Pick n Pay and Woolworths. The affected stores had to temporarily close for sanitisation of the premises, as well as screening, testing, quarantining and isolation of staff members. This has a bearing on consumer preference, in that for safety reasons and as a precautionary measure, consumers might shift their preference from the affected retail store to an unaffected substitute store.
Reopening under level 4 not financially viable
While it is permissible for fast-food chains to operate under level 4, there have been concerns about whether it is financially viable to do so. The reason for this is that the income to be generated from online food ordering and deliveries might be insufficient to offset the operational costs. As stated by Mike Cathie, the CEO of Nando’s, “Opening for delivery only will lose Nando’s and our franchise partners more money than being closed.” Despite this and the franchise’s initial reluctance to open, it is noted that the franchise has reopened a limited number of its outlets from 4 May 2020. Other outlets that have confirmed that selected stores will reopen are McDonald’s, KFC, Chicken Licken, Debonairs Pizza and Steers. In summation, while reopening these outlets will bring in much-needed income, it may be less effective in covering the operational costs and generating profits.
The food industry is embedded within the economic system consisting of various sectors, one of which is the financial sector. From this perspective, if restaurants cannot generate enough money to cover their operational costs such as rent, property owners might lapse on mortgage payments. Such a lapse might lead to a domino effect as the banks might suffer a loss, which might impact on their ability to lend money to other parties. Therefore, the longer it takes to reach lockdown level 1 – the resumption of all economic activity – the deeper the financial loss, which would take the economy longer to recuperate from.
Digital grocery vouchers/virtual food vouchers
Amid COVID-19, Pick n Pay has launched digital grocery vouchers for customers to purchase and to send to recipients via email or SMS. The vouchers are redeemable at Pick n Pay stores (in-store shopping only). The Shoprite Group has also launched virtual food vouchers for customers to send directly to the recipient’s cellphone via SMS. The vouchers are redeemable nationwide at Shoprite’s subsidiary stores, namely Shoprite, Checkers, Usave and Checkers Hyper. These vouchers are some of the innovative solutions that have been employed by these retailers to thrive during lockdown restrictions.
Following the COVID-19 outbreak in the country, all Pick n Pay stores introduced special shopping hours for shoppers aged 65 and above, every Wednesday from 7 am to 8 am. On the other hand, Shoprite and Checkers retailers have allocated special till points for the elderly and persons with disabilities for a safe and speedy checkout. These tailored solutions embody some of the best services that have been provided to selected customers during the lockdown.
Restructuring of business models
To avoid the financial downturn set in motion by the pandemic, some businesses have restructured their models to allow for the delivery of goods and services, which were not previously offered. A case in point is NetFlorist, a gifting and floral distributor, which has restructured its business model to include the delivery of essential goods such as fruits and vegetables, baby products, toiletries, coffee and tea, etc. Moreover, Checkers has partnered with Mr D Food for the delivery of medication from MediRite Pharmacy, its sister pharmaceutical store, to customers. Another example is Quench, an alcohol delivery app, which has re-engineered its business strategy to incorporate the delivery of foodstuffs from Woolworths stores to customers.
A surge in online grocery shopping
While food retailers have been permitted to operate, they do so under certain guidelines, including a limit on the number of individuals permissible in-store. As the food retailers are, for the most part, beset with long queues, this has propelled some consumers to shift from in-store grocery shopping to online shopping through various apps. Some of the more prominent grocery delivery apps amid lockdown are:
- Sixty60, Checkers’ exclusive one-hour grocery delivery app;
- Bottles for the delivery of groceries to Pick n Pay online shoppers;
- Quench for Woolworths online shoppers;
- Zulzi for the delivery of groceries from various retail stores including Pick n Pay and Woolworths;
- OneCart for the delivery of groceries from Specials, Pick n Pay, Food Lover’s Market and Woolworths; and
- Bolt Food (formerly Taxify) for the delivery of food from those retailers that do not have delivery partners.
THE PATH AHEAD
Reassessment of economic theories and principles
An envisioning of the future calls for academics to revisit some of the theories and principles to ascertain their applicability in the context of the current pandemic. A case in point is the institutional economics collective action theory, which posits that what is rational in the case of an individual’s actions could be irrational from a collective viewpoint. However, COVID-19 involves externalities in the form of risk of infection for those with whom the infected person interacts, who in turn pose a risk for others, thereby increasing the infection risk in society. From this perspective, not only are the actions of an individual (self-isolation, wearing of masks, washing of hands with soap, use of hand sanitiser and social distancing) critical to curbing transmission of the virus but so are the actions of others. For this reason, COVID-19 requires some aspects of both individual and collective action, which justifies a rethink of the collective action theory. Other theories and principles that require rethinking are as follows:
- The limitations of property rights theory, which is comprised of the right to use the good, earn income from the good, transfer the rights to others and enforce property rights – the extent to which property rights can incentivise individuals to participate in economic activities when some of the activities are prohibited under lockdown.
- Contract theory – the extent to which economic participants can stipulate contractual obligations and associated consequences, and eliminate the risk of disputes in the future, in the presence of uncertainty brought forth by COVID-19.
- Public economic concepts of policy formulation and implementation, including monitoring and evaluation, in the context of COVID-19.
- Economic rationality of some of the regulations imposed by the government to contain the spread of COVID-19.
The path to recovery
The key question that has been raised in the public domain relates to how long COVID-19 will last before life returns to normalcy. The indications are that it is impossible to provide a definite answer, as new information and government responses are constantly developing. In the case of South Africa, the return to normalcy is assumed under level 1 of lockdown, which envisions the resumption of all economic activities. In the case of the food industry, some outlets might crawl back to normality earlier than others, conditional on the level at which they are permitted to operate fully. We are, therefore, expecting retail stores to start recovering as from level 4 in which they are selling entire product lines except for alcohol and tobacco products. The fast-food chains and restaurants – those that will survive – are expected to recover over a longer period. However, this does not preclude that the demand for food from these outlets might decline due to current and future job losses. The reason for this is that consumers have to work, earn an income, and decide on whether to spend their income on takeaways or Food Away From Home (FAFH), given their budget constraints and the choices available to them.
For instance, some consumers are losing their income, especially in the sectors that are banned from operating during the lockdown. This assertion is supported by a recent web-based survey by Statistics South Africa, which found that 25.8% of the respondents reported a decrease in income during the lockdown. The decrease in income has a bearing on what consumers can afford. Consider a consumer who is part of the 25.8% that reported a decrease in income. Figure 2a depicts a consumer’s original budget set (before lockdown), while Figure 2b illustrates the new budget set (under lockdown).
Figure 2a: Consumer’s budget set
Let X1 and X2 be two items that the consumer can buy (online) from any fast-food outlet at given prices with his/her income. Before lockdown, the amount of X1 and X2 that a consumer could afford is given by consumption bundle A (X1⃰, X2⃰), ceteris paribus. Any bundle below and to the left of A is affordable, while any bundle above and to the right of A is unaffordable. According to the economic principle of rationality, a consumer will spend money on the bundle that they can afford, given their income.
Figure 2b: Effect of income on consumer’s budget set
Specifically, when income decreases, the affordable consumption bundle, given prices and income (budget set), will decrease. Graphically, the budget line will shift inwards – downwards and to the left – as depicted in Figure 2b. This illustrates that the amount that a consumer can buy will dwindle from bundle A (X1⃰, X2⃰) to B (X1⃰ ⃰, X2⃰⃰⃰ ⃰). However, it is envisioned that a consumer’s expenditure on takeaways/FAFH might increase as income increases – as we move along the continuum to the extreme right of the lockdown levels. This will be conditional on the price changes, the demand for other non-food items, and factors associated with takeaways/FAFH such as convenience, ease of ordering, promotion, brand loyalty, etc. In brief, while consumers ought to spend on fast-food outlets for such outlets to recover, there are other factors which might impede on the consumers’ expenditure. Overall, the longer it takes for the lockdown to end, the greater the income loss and the slower the recovery of the fast-food outlets.
Penetration of food retailers into townships and rural areas
Given the current pandemic, retailers will have to reconfigure their supply chains towards the end consumers. More specifically, food retail stores are envisaged to move from being embedded in towns and cities to entering townships and rural areas. This move will be achieved through the establishments of tuckshops – smaller, less capital-intensive food stores that are constructed in a container and closer to customers’ homes. An example of a retailer that has made such a move is the Shoprite Group through its Usave eKasi stores, which are primarily located in townships and are now infusing into rural areas. For this reason, other food retailers are reimagined to also repurpose their supply chains by introducing similar stores in townships and rural areas.
Reconfiguration of business models
Most food outlets are heading into an abrupt and unprecedented downturn, which will prompt some drastic changes for them to recover. Almost all outlets will be forced to reform or restructure, and those with the capability to do so will thrive. The traditional sit-down restaurants are expected to extend their product line by incorporating the sale of takeaways to boost revenue. The fast-food and take-out restaurants are expected to vertically integrate their operations through the incorporation of their delivery services to eliminate low commissions receivable from third parties. In summation, COVID-19 will compel food outlets to remodel their business models and reconfigure their modes of distributing food to customers.
Despite its disruption, the pandemic must be viewed as a critical opportunity for the automation of services. An example is automated self-service tills whereby customers can scan, pack and pay for their groceries and other items without interacting with cashiers. The benefits of such a service are that it saves time and, in the context of COVID-19, eliminates interaction between customers and cashiers. The downside is that, by using the service, a customer substitutes cashiers, which could lead to job losses. Thus, the primary beneficiaries will be innovators, investors, and shareholders at the expense of the labour input. Therefore, there will be a need for government to forge a balance between creating favourable conditions for such innovation and the provision of a safety net for the displaced labour input.
Automated (cardless) payment services
Further to the automation of services, there is a need for automated payment options that minimise contact between customers and cashiers, alongside the traditional payment options. A case in point is Shoprite Group’s QR payment technology, which allows a customer to use their cellphone to scan a QR code and pay with Masterpass, SnapScan, Zapper, FNB Pay or Nedbank Pay, instead of with cash or a card. The technology has been launched at selected Checkers stores and will also launch in the rest of the group’s food stores, namely Usave, Shoprite, Checkers and Checkers Hyper stores. Another example is Pick n Pay’s launch of the ‘Scan & Pay’ payment option, which allows a customer to scan a QR code and enter their bank PIN on their cellphone via Masterpass. The edge of the automated payment services is that they avoid the exchange of cash between customers and cashiers and the need to touch card machines and keypads at till points – some of the potential sources of virus transmission. For this reason, it is envisioned that other retail stores and food outlets will adopt similar automated payment technologies.
In the future, we are likely to witness technologies that minimise human interaction and reliance on manual labour within the food supply chain. In the case of restaurants, the return to normalcy entails, among other things, eating at our favourite spots, while catching up with loved ones, watching TV, or listening to music. However, it is envisioned that our food and drinks might not be delivered by human waiters as has been the custom until now. More specifically, we are likely to be served by robotic waiters that mimic human waiters by greeting customers, guiding them to their tables, taking orders and serving food. Thus, robotic waiters are an embodiment of some of the technologies that restaurants are envisaged to adopt for the foreseeable future.
In conclusion, when COVID-19 finally subsides, it will leave behind an economic crisis that will take us some time to resuscitate. Undoubtedly, we need to emerge from this crisis with agility – the ability to respond swiftly to the unexpected. To do so, businesses will have to reconfigure their supply chains and business models, digitise services, and embrace 4IR.