F&B: Moving forward purposefully

This article first appeared in Enterprise, The Edge Malaysia Weekly, on August 10, 2020 - August 16, 2020.
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Nando’s Malaysia (formally known as Nando’s Chickenland Malaysia Sdn Bhd) is rolling with the changes. Its CEO Stephen Chew says the company is dealing with the challenges thrown up by the Covid-19 pandemic and subsequent lockdowns head-on and tweaking its business model accordingly.

In fact, he says, restructuring was already in the works before the pandemic struck because Nando’s recognised that, for all the brand love it had received for its flame-grilled peri-peri chicken, there were certain weaknesses in its business model.

For starters, it was disproportionately focused on dine-in customers, and not enough on those who wanted takeaway or delivery. In fact, before the Movement Control Order (MCO) period, dine-in accounted for 82% of its business. “We immediately lost that and could only continue with our takeaway and delivery businesses,” says Chew.

In fact, Nando’s was only doing 20% of its usual sales during the MCO period. So, it closed 30 of its outlets and reassigned the staff to the other restaurants. Although things have now picked up and the company is operating at 70% of the level it was operating at before the MCO, it expects to make 65% of its projected revenue this year.

Even before the crisis, the company realised that things would have to change. It needed to beef up its takeaway and delivery capabilities and automate and digitise whatever processes it could to free up its staff to focus on more value-added tasks such as giving customers a good dine-in experience. So, it came up with a two-pronged approach — to employ a multi-channel strategy and go on a digitalisation drive.

 

Focusing more on deliveries and takeaways

To become more multi-channel, the company will be changing the layout of its restaurants (which are currently very dine-in-centric) to accommodate this, says Chew. This means allocating space for takeaway customers and delivery riders as well as making arrangements for kerbside pick-up so customers (or riders) do not have to park and come in. “You will be able to call ahead and pick up the food at the kerbside.”

Nando’s will also push its delivery and takeaway businesses. “The good thing is that from last year, we had already seen this whole thrust on delivery. So, we started deliveries on Foodpanda and Grab, which has accelerated our progress,” he says.

Although the company scrapped its in-house delivery service last year, it is looking to reintroduce this now. “We want to complement our delivery partners, which do not deliver to all areas,” says Chew.

The company stopped its delivery service because it saw an opportunity to work with third-party providers, aggregators like Foodpanda and Grab, he adds. “They have the scale and network. But now, I see us doing our own deliveries as well to complement their services.”

The company is also reintroducing its own delivery platform to be able to provide a better service to customers via its loyalty app, Peri Village. Chew says 600,000 people in Malaysia have installed Nando’s app and are members of its loyalty club.

“So, what happens is that every time you dine at Nando’s, you get a chilli. For every three chillies, you get a quarter chicken free.

“We want to be able to reward our customers. That is why we want to embark on our delivery platform.”

 

Service with a smile

Chew says Nando’s also wants to revamp its service model. For instance, rather than using physical menus, customers can just scan a QR code, which will take them to the menu, and place their orders using their smartphones.

The new method saves time, he points out. You do not have to get a waiter’s attention and your order is directly transmitted to the kitchen, which means your food appears faster. Customers will also be able to make their payments using their smartphones.

“Digitalisation will do two things. First, the food will come out of the kitchen faster because your order will fly straight into the kitchen, instead of having our staff take your order, go in and process it,” says Chew.

“Second, it will improve the productivity of our labour force. They can spend their time on more value-added things like engaging with customers rather than doing administrative tasks. So, if you have a comment or feedback on the food, the staff can actually act on it immediately.”

With the new ordering platform, Nando’s hopes to offer a superior service experience. “I would say that at this point, our service is good but maybe a little inconsistent. We want to offer exceptional service — where we can focus on putting a smile on customers’ faces: get you in, have your great-tasting peri-peri chicken in a nice environment and then let you finish quickly — rather than how most restaurants operate, where you need at least an hour to dine,”  says Chew, pointing out that most people want to be in and out quickly, which is why so many of them opt for fast food.

Is this so it can cut down on its staff requirements? Not necessarily, he says. But it will be restructuring the balance between its full-timers and part-timers.

“Will we have fewer people in the restaurants? No, we could have more. But where before there were 10 full-time and five part-time employees. Now, it could be five full-time and 15 part-time staff. So, in total, we would have more. But it is really to cater for customers during peak hours,” says Chew.

 

Chicken with a heart

During the early stages of the MCO period, the company went into full-on corporate social responsibility and damage-control mode. “We had stock levels in the restaurants that could not operate. And rather than let it go to waste, we either gave away the raw ingredients or cooked the food and gave it to our staff to take home for their families, many of whom were impacted by the lockdown,” says Chew.

The company knew that a lot of its people had challenges with regards to going out and buying food, even for their own sustenance. “We actually gave away food and let them take it home for their families. And we continued to pay our people,” he says.

Charity may have begun at home, but it did not end there. “Externally, we did a lot of food donations through our non-governmental organisation (NGO) partners such as Kechara and Food Bank for the underprivileged. We also gave away food to the university students who were stuck in dormitories at the time,” says Chew.

Nando’s also got its customers involved in feeding the hungry. “We encouraged our loyalty members to donate their chillies [which they had earned on their loyalty app]. We gave out about RM70,000 worth of food, which is equivalent to 6,000 chicken meals,” he says.

The company also introduced a “kind dining” programme, where customers could donate a non-perishable food item for a 20% discount on their bill. It managed to collect RM100,000 worth of these items, which have since been distributed to those in need through its partner NGOs.

Nando’s has introduced a programme called “No chucking our chicken”, which has to do with preventing food waste. “It is very hard for us to estimate how much chicken to buy because everything is prepared fresh. Ultimately, you are either going to be short or long. And if you are long (meaning there is leftover chicken), there is additional waste,” says Chew.

Rather than throwing out perfectly good chicken, the programme allows the company to redirect it to the less fortunate. “We freeze the chicken, using our stringent compliance process to make sure the food is safe, and donate it through our charity partners,” he says.

All of this ties into Nando’s efforts to create a more meaningful brand. Within the company, it comes under the umbrella of “chicken with a heart”. “This is the heart and soul of the business. It is not just about selling chicken and making money,” says Chew.

“It is about being a brand with a purpose and being able to impact the communities in which we operate. That has been Nando’s guiding principle since it was founded in South Africa in 1987.”

 

On rents

Despite his generally positive outlook, Chew admits that it has been a very challenging time. “We sustained huge losses during this period. Cash flow was definitely the biggest challenge for us during this lockdown period and rents are actually the biggest fixed cost in our whole P&L (profit and loss statement).”

He is hoping that the landlords will be “reasonable”. “Our low sales will require the support of our landlords for sure. They need to understand that because of low sales, it is very hard for us to pay the kind of base rents they require from us,” he says.

Nando’s has 80 outlets across the country and it will have closed five by the end of the year. But it all depends. “What I say today could very well change tomorrow. It all depends on how our business is going and our landlords when it comes to rental negotiations,” says Chew.

“As you know, the rent only goes up and when it hits a breaking point, it is no longer feasible. And when that time comes, you just have to go.”

The company had already closed two of its outlets, but this had nothing to do with the pandemic, he says. The company had been tracking the performance of its restaurants for some time and a few had not been faring well, such as the one at the Oceanus shopping centre in Kota Kinabalu and its original outlet in Kuala Lumpur’s Chinatown.

“Oceanus in Kota Kinabalu has a fantastic view, probably the best view of any of our restaurants, but we were the only tenant in the whole mall. As for Chinatown, that used to be our head office, so it has sentimental value. But our restaurant is housed in a very old building that does not necessarily meet safety standards and the whole trade area has changed,” says Chew.

Nando’s had begun slowing down its expansion in the last few years because it already had restaurants in the majority of the market centres. “The past few years have been about driving traffic through our current real estate, for instance, by introducing a value meal at lunch time, rather than spending money to open new restaurants,” he says.

At the same time, the company will continue to open new outlets where it makes sense, he adds. “The brief to our business development team is to look for sites that make sense based on demand. We look at where the demand is and then plant the business model according to the need there.

“For example, if it is an office area where people do not really come out but we can still get sales volume (through takeaways and deliveries), we do not need to run a full-fledged restaurant there. By doing that, we can substantially reduce our operating costs in terms of rents and overheads, but still be able to service that location.”

Chew does not discount the possibility of cloud or dark kitchens (which sell meals exclusively through delivery) but says these will not be in malls. “It would be very expensive to rent a dark kitchen in a mall. It is much more economical to put it in a nearby neighbourhood, where it could service homes within a 5km radius. By doing that, we can keep our costs manageable.”

That is because, unlike restaurants, dark kitchens do not need to be situated in prime real estate. “You cannot just open a restaurant in, let’s say, an industrial area. But you can open a dark kitchen there at substantially lower rent. All these considerations are radically changing our business model,” he says.

For Chew, the past few months have been a hard reset but the company has focused on giving its customers a good experience as well as generating the kind of impact that allows it to give back to the community. “That is what we have always done,” he says.

“We did it before Covid-19, we did it during Covid-19 and we will do even more of it now. It is not like we have thrown everything out to cut costs and forgotten what the true purpose of the company is.”