KFC finally flying

Stepping away from market turbulence for a while(I have decided ignorance is bliss) I thought I would take a look at Restaurant Brands [RBD.NZ] sales figures for the 16 weeks ended 8th September 2008.

Sales are flattish overall for the last quarter for the 3 brands the company operates-Starbucks, Pizza Hut and KFC-but Starbucks is suffering and Pizza Hut continues to bleed cheese all over their dirty backroom floors.

What I want to look at is KFC because what is happening looks good.

It has always been the strongest of the 3 brands but having said that its sales figures have been patchy over the years but there looks like there is finally some reason for optimism for the revival of the brand and sales. For the year to date, KFC sales were $110.4m, while the last quarter KFC sales increased $2.7m to $63.4m, with sales up 5.5 per cent on a same store sales basis.

Back on December 12 I was reasonably skeptical about the "increase in sales" that management were crowing about:

Management are siting "record" sales at its fried chicken restaurants but the facts are that the year they might be comparing this latest result to, 2002, KFC did $177.1 million in sales. If you add the 2007 cumulative 3 quarter total of $151.8 Million to say a generous $48 million final quarter, you are still just shy of $200 million, an approximate 12% rise in dollar sales since 2002. Factoring in a generous 3% annual inflation since then though and sales are 3% down since their record listed year in 2002.

Lets do a little rough calculation to come up with a full KFC sales figure for 2008 based on the first two quarters of sales.

Lets assume another 5% growth of sales for the next two quarters and the company could be looking at as much as $230 million in KFC sales for the full year. That estimated figure would be around 30% more than their record $177.1 million in 2002. Factor in the 3% inflation rate for six years for a cumulative 18% then we see real growth in sales over 6 years of around 12% cumulative or 2% a year above inflation.

Now I have been watching this company for ten years and this is the best result in sales that KFC have achieved(if the sales figures pan out) so management efforts seem to be working.

It is hard to tell whether it is the better menu offerings and pricing or the store refurbishments that have been the reason, but I would put more emphasis on the menu and slightly better service.

Just one rider on the good news about KFC sales. Like other retail businesses, higher day to day costs like Labour, energy and ingredients are keeping a lid on margins.

KFC looks more promising though than it has for more than 10 years.

Shame about Starbucks and Pizza Hut.


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Secret Recipe: Why KFC Is Still Cooking After 50 Years by Robert Darden
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