KFC Doubles up on Double Down record one day sales

Punters waiting to "Double Down" at KFC Quay Street Yesterday


The introduction of the KFC Double Down Sandwich yesterday in New Zealand just has to be the marketing and business coup of the last 10 years for the company that holds the franchise for KFC in this country, Restaurant Brands Ltd [RBD.NZX].

Health nazis across the land yelled from the rooftops to any left leaning publisher or media harlot in the country that would listen and as a result of the free publicity you couldn't go anywhere over the last few days without anyone mentioning it in a conversation, hearing in on talkback or seeing it posted on facebook or twitter.

Restaurant Brands didn't have to lift a finger or spend a cent on publicity, it was all done by the old fashioned word of mouth but done at the speed of the internet rather than as quick as you could tell or phone your neighbour.


There has been little paid advertising of this sandwich at all!

This has led though to record one day sales for KFC and long lines of people waiting in drive thrus and at the counters of every KFC across the nation. Not only did they sell the sandwiches, customers also bought other items on the menu to boot and the increased sales are set to continue as the company has carefully created a scarcity factor into the sale of this product - it will only be available for 5 weeks, so get in fast!! Of course it will be re-introduced on a semi regular basis because who wouldn't want to as every time it comes back on the menu the fingers will wag and the media will go back into overdrive.

Long term, these promotions and hub bub around such "controversial" subjects as so-called junk food will help sales of other products more than the actual promotional item itself.

The next 5 weeks of sales for the company will be interesting to watch. They will not continue in the same volume as today's huge rush to buy the Double Down but they are likely to be significantly higher than comparable sales last year. At $7.90 per unit compared to their burgers with buns the margin for this product is significantly higher and high margins in this business are hard to come by.

This has been a big win for KFC and its marketing program and a great way to create excitement for a new product with big spin offs for other parts of their business.

RBD investors should be lick'n their lips in anticipation of the higher sales.

KFC 1 , Food police 0.


Restaurant Brands @ Share Investor

RBD - 2011 Half Year Result
RBD - 2010 Quarter one sales
RBD - 2010 Quarter two sales


Share Price Alert: Restaurant Brands Ltd
Restaurant Brands share price looking overcooked
Most Outstanding Stock of 2010: Restaurant Brands Ltd
Restaurant Brands Ltd: KFC has finally cracked it
Restaurant Brands: KFC Sales Figures Explained - Part 2
Finger Lick'n Good Management
Chart of the Week: Restaurant Brands Ltd
Long Term View: Restaurant Brands Ltd
Stock of Week: Restaurant Brands Ltd
Restaurant Brands: Buy or Sell ?
Pizza Hut sell-off provide opportunities all-round
Danny Diab & Restaurant Brands
2008-2009 KFC sales figures mislead investors
KFC Finally Flying
Starbuck's New Zealand Cup doesn't runneth over
RBD gives KFC a push
McDonald's playing chicken with KFC
Restaurant Brand's Pizza Hut faces increasing competition
RBD sales analysis
RBD saga continues: CEO leaves
The secret recipe is out
2007 FY profit analysis
Delivering increased profit in October 2007
No reason for optimism in latest sales figures

Discuss RBD @ Share Investor Forum




c Share Investor 2011

Finger Lick'n Good Management

Russel Creedy, CEO of Restaurant Brands Ltd [RBD.NZ] wouldn't give me an interview even though I probably know more about his company than anyone else but him but he did speak to the NZ Herald over the last week.

"There were some long-service people of 20 years plus who left, but the business needed that to change, and there's still some long servers left but they're the ones who were able to adjust and adapt."

A layer of managers between the chief executive and store managers was cut, Restaurant Brands quit making its own television adverts and supply agreements were renegotiated.
Most importantly, the emphasis on the company's star brand, KFC, was intensified.

"Change is necessary, you don't always know the true path or know 100 per cent where you're going to end up, but you've got to back yourself. It's not wild wild west stuff, you just talk to people, be open to change and ideas and bloody act.

"Procrastination will kill any business, no matter how good it is."

And there's more to come, with the company looking for a trade buyer for its 41 Starbucks stores - worth an estimated $10 million to $20 million - and the progressive sale of some of its 91 Pizza Huts to owner-operators. NZ Herald
I have been super critical of RBD and its management over the years (see links below and this Google search)) and skeptical of Russel's tenure over his last 3 years as CEO but I have to give him his dues.

Russel has done everything that I have been talking about for the last 13 years since the company listed to turn RBD around and it has worked.

Focusing on service and cleanliness, cutting costs and middle management and selling parts of the business that were losing money - Starbucks and Pizza Hut.

Creedy focused on the star performer, KFC, and has managed to grow sales to record numbers (if inflation is discounted since its record listed sales in the 1990s).

Profit is also near record levels if you ignore inflation again - I don't.

Previous management were focused on growing the company at all costs but Creedy has put the service and focus back in fast food and reaped the rewards.

This has had the effect of boosting the share price to above the 1997 listing price of $2.20 for the third time in 13 years.

Russsel has been the man at the right time for RBD and he has put in place all that the company needs for a sustainable and balanced business in terms of profit, something that RBD has never seen before. That must be tempered by the fact that he has just about wrung the maximum drop of extra profit out of KFC and the recession is helping his cause.

What he has done though is allowed the company to be able to trade well through the good and bad times and as the fast food sector is a fickle cyclical beast he has obviously put this at the top of his agenda and RBD, in the future just KFC, is in good health no matter what you think of the food they sell.

I only wish Mr Creedy would talk to me.


Restaurant Brands @ Share Investor

Chart of the Week: Restaurant Brands Ltd
Long Term View: Restaurant Brands Ltd
Stock of Week: Restaurant Brands Ltd
Restaurant Brands: Buy or Sell ?
Pizza Hut sell-off provide opportunities all-round
Danny Diab & Restaurant Brands
2008-2009 KFC sales figures mislead investors
KFC Finally Flying
Starbuck's New Zealand Cup doesn't runneth over
RBD gives KFC a push
McDonald's playing chicken with KFC
Restaurant Brand's Pizza Hut faces increasing competition
RBD sales analysis
RBD saga continues: CEO leaves
The secret recipe is out
2007 FY profit analysis
Delivering increased profit in October 2007
No reason for optimism in latest sales figures

Discuss RBD @ Share Investor Forum



c Share Investor 2010

2008-2009 KFC sales figures mislead investors

Let me just elaborate on a short post I made at Shareinvestor.co.nz regarding Restaurant Brands [RBD.NZ] results to the year ended 28 February 2009.

It is something I have mentioned many times before but it must be stressed once again because Restaurant Brands shareholders and prospective investors in the company must be given the full picture when it comes to RBD managements disclosure over their KFC sales.

The "record" $211 million of sales reported in today's result for KFC is only a record in terms of 2009 dollars. KFC are actually serving up less chicken to fewer customers.

Their best listed year was in 1997 where they did $172.3 million in KFC sales. That is because of accumulated inflation at a very conservative 3% annually over the last 12 years amounts to 36%.

36% inflation means in 2009 dollars RBD would have to sell $62 million more chicken just to match the record made in 1997.

$211 million is a long way from the figure they need to make, of $234.32 million, just to match the 1997 record.

I am not an accountant and nor do I think I need to be but if such emphasis of "record sales" is placed on a figure by RBD management to gain market approval that the expenditure of 10s of millions of shareholder funds on KFC refurbishment in order to attain those sales then that figure should be clearly accurate and take inflation into account. That is simply not the case here.

Granted one can do the math oneself to come up with relative figures and compare year by year sales but having said that, to use current sales figures as a tool to push further shareholder expenditure must be justified to the nearest decimal point.

RBD's figures therefore do not pass this test and furthermore for analysts and business reporters to accept this without question is surely remiss to some extent.

Still my record with this company probably goes back longer than many on the RBD board or those professional stock analysts in their professional capacity.

Once again I am not an accountant but I would like to see inflation taken into account when businesses do their books, at lease an annotation in the audited reports of what the inflation rate was in the last year so a stockholder or a prospective stockholder can make a fully accurate comparison before they decide to buy, or not as the case may be.

Just to end on a positive note, the company is negotiating with YUM! over the Pizza Hut franchise and it is expected that this will allow RBD management to divest individual Pizza Hut stores to owner operators.

This is one thing I have argued for Pizza Hut for years that individual ownership makes for a better run business because owners have skin in the game. Pizza Hut's competitor Dominos have this arrangement and they are currently experiencing records sales.

This solution will be at once beneficial for RBD because Pizza Hut loses money and for the Pizza Hut brand in New Zealand which will be able to rejuvenate itself under an alternative ownership structure.

RBD shares were up 1c to 86c today on reasonable volume.

Restaurant Brands @ Share Investor

Finger Lick'n Good Management
Chart of the Week: Restaurant Brands Ltd
Long Term View: Restaurant Brands Ltd
Stock of Week: Restaurant Brands Ltd
Restaurant Brands: Buy or Sell ?
Pizza Hut sell-off provide opportunities all-round
Danny Diab & Restaurant Brands
2008-2009 KFC sales figures mislead investors
KFC Finally Flying
Starbuck's New Zealand Cup doesn't runneth over
RBD gives KFC a push
McDonald's playing chicken with KFC
Restaurant Brand's Pizza Hut faces increasing competition
RBD sales analysis
RBD saga continues: CEO leaves
The secret recipe is out
2007 FY profit analysis
Delivering increased profit in October 2007
No reason for optimism in latest sales figures

Discuss RBD @ Share Investor Forum




c Share Investor 2009

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.


Restaurant Brands @ Share Investor

Finger Lick'n Good Management
Chart of the Week: Restaurant Brands Ltd
Long Term View: Restaurant Brands Ltd
Stock of Week: Restaurant Brands Ltd
Restaurant Brands: Buy or Sell ?
Pizza Hut sell-off provide opportunities all-round
Danny Diab & Restaurant Brands
2008-2009 KFC sales figures mislead investors
KFC Finally Flying
Starbuck's New Zealand Cup doesn't runneth over
RBD gives KFC a push
McDonald's playing chicken with KFC
Restaurant Brand's Pizza Hut faces increasing competition
RBD sales analysis
RBD saga continues: CEO leaves
The secret recipe is out
2007 FY profit analysis
Delivering increased profit in October 2007
No reason for optimism in latest sales figures

Discuss RBD @ Share Investor Forum

Download RBD company reports

Related Amazon Reading



Secret Recipe: Why KFC Is Still Cooking After 50 Years by Robert Darden
Buy new: $15.95 / Used from: $8.52
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c Share Investor 2008

Restaurant Brands consider slicing off Pizza Hut

With a certain sense of satisfaction, the fact that Restaurant Brands [RBD] would consider putting up their loss making Pizza Hut Franchise up for sale is great news for shareholders.

I have been banging on for years about management cutting their ties because of the clear implications of what keeping the brand means for the company as a whole-certain death.

The only mystery to me is that is took Ted Van Arkel, the chairman of RBD so long to even consider making this announcement to the market.

While they are at it they might also like to consider ditching the loss making Starbucks as well. It isn't as bad as Pizza Hut but is doesn't make money!

KFC is the relative star of the show and that is where management and their energies should be concentrated on because I think they lack the management depth to successfully run two major fast food brands.


RBD prepared to quit Pizza Hut

1:30PM Thursday June 19, 2008, NZPA

The Pizza Hut New Zealand chain could be put up for sale if owner Restaurant Brands is unable to turn it around.

Describing Pizza Hut as his company's "Achilles' heel", Restaurant Brands chairman Ted van Arkel today said the board would consider any actions that might end the drain by Pizza Hut on company profits.

That would include its sale if a turnaround was not forthcoming. In the meantime, the company was redoubling its marketing efforts to hold the line in the current economic climate, Mr van Arkel told Restaurant Brands' annual meeting.

He also said Pizza Hut was in a better position than its competitors.

"The pizza market is crowded and price sensitive. Our competitors, all single-brand operators, are also hurting," he said.

"We are increasingly seeing our competitors' pizza franchises on the market, desperately looking for buyers. Several have already gone to the wall."

Pizza Hut, on the other hand, had the backing of Restaurant Brands, which had demonstrated that it could manage brands successfully over the longer term, Mr van Arkel said.

Restaurant Brands, which also has brands KFC and Starbucks Coffee, was in a strong position to weather an economic shakeout and continue to build its brand presence, but many individual operators of single-brand franchises were not.

"With lower levels of disposable income among consumers, all three of our brands remain very competitive and offer good value for money to the increasingly selective consumer dollar," he said.

"We see the economy in the next 12 months as being challenging but not dire."

Restaurant Brands' flatter first quarter for 2008/09 was evidence of the more difficult trading conditions all retailers were facing and second quarter sales to date looked to be slightly behind last year.

"However, we do expect our reliable earners, KFC and Starbucks, to buck the national trend, even if sales do ease."

The next 12 months would be critical for the national pizza market. At any one time as many as 40 rival franchises were up for sale and Restaurant Brands expected that number to rise as the economy slowed, Mr van Arkel said.

In the chicken market, three competitor stores had already closed in the past six months.

Restaurant Brands' total first quarter sales across its three brands, for the 12 weeks to May 19, were $69.8 million, a decrease of 0.9 per cent on the equivalent period last year, although same-store sales were up 0.4 per cent.

Restaurant Brands shares closed yesterday at 85c, and today Mr van Arkel said the company's directors did not consider that price to reflect intrinsic value.

Broker analysts considered the stock worth buying up to around $1.25.

He also advised shareholders that directors were proposing to ask for an increase in their fees at next year's annual meeting, subject to a satisfactory result for the year.

Directors' fees have not been increased since 1998 and no longer rewarded board members adequately for their input, he said.

Related Share Investor reading

RBD gives KFC a push
McDonalds playing chicken with KFC
Restaurant Brand's Pizza Hut faces increasing competition
RBD sales analysis
RBD saga continues: CEO leaves
The secret recipe is out
2007 FY profit analysis
Delivering increased profit in October 2007
No reason for optimism in latest sales figures

c Share Investor 2008

Restaurant Brand's gives KFC a push

It will seem strange to regular readers of this blog for me to be praising Restaurant Brand's [RBD] management but after some reasonable on site research of one of the company's brands, KFC, I do believe they might have got one aspect of the company almost right.

Restaurant Brands is the franchisee operator of KFC, Pizza Hut and Starbucks and has had a very chequered operating past since listing in 1997. Sales have been declining, levels of service poor and menu and food quality dubious at the best of times. Profit and revenue have also consistently fallen in the last decade as a result of the poor management.

There has been a 2 year focus on KFC to resurrect the company's only profit maker. Millions have been spent to remodel the 89 store chain with new menu items to give the image of KFC and the Colonel's old deep fried chicken a healthier look and judging by my own survey of a couple of Auckland's North Shore stores, Takapuna and Browns Bay, the extensive rejig of the menu seems to be keeping declining customer numbers at an even keel.

The choice of salads, burger meals, various new types of snack foods and smaller chicken pieces from the old KFC menu make for more choices for customers but management risk diversifying too much and alienating their core customer (thats me folks) who still comes for the fried chicken, if they go further.

Stick to what you know guys and don't try to reinvent too much. McDonalds have just successfully redefined their menu in a healthier way, while adding a large chicken menu to their roster and too many similarities between the 2 chains chicken products should be avoided at all costs. KFC's main point of difference, and it has been that way for nearly 40 years in New Zealand, is their 11 herbs and spices recipe. Don't kill the very chicken that lays the golden stuff !

Related Share Investor reading

McDonalds playing chicken with KFC
Restaurant Brand's Pizza Hut faces increasing competition
RBD sales analysis
RBD saga continues: CEO leaves
The secret recipe is out
2007 FY profit analysis
Delivering increased profit in October 2007
No reason for optimism in latest sales figures

Russel Creedy, who was appointed as CEO in September 2007, has made some good moves since his appointment and the continued development of KFC from previous management head Vicki Salmon has stemmed the previous hemorrhaging of the KFC unit.

What Creedy must do now though is consolidate his relative success at KFC and sell the loss making Pizza Hut New Zealand while there is someone willing to buy it.

Starbucks, while still growing revenue, mostly from inflation, is nonetheless still losing money overall and a sale back to the franchisor would be the best for all participants.

RBD management don't have the depth of expertise to manage 3 brands to the maximum benefit of their shareholders, and as proven ever so slightly so far, their concentration of efforts seems to be paying off at KFC.

Related links

RBD New Zealand
KFC NZ
Yum ! RBD's franchisor

Share Investor Sites

Share Investor Business News- Get more business news
Share Investor Stockmarket forum -Discuss this topic further

c Share Investor 2008

McDonalds Playing Chicken with KFC

McDonald's is going to take on KFC at their own game and the head of Restaurant Brands Ltd [RBD.NZX] replies to the war cry of MD of McDonald's Mark Hawthorne:

Chief operating officer Rod de Vries said sales had increased 9 per cent in the past year - an outstanding result in a highly competitive market. "It is therefore no great surprise that our competitors will try for the same success in our market and challenge our menu offering.

"However, we are confident that KFC will continue to hold the recipe for success in our industry and that consumers will continue to love the secret blend of 11 herbs & spices that Colonel Sanders perfected in 1939.

Full NZ Herald Story

A very logical and understandable reply from the head of Restaurant Brands, in reply to news out today that McDonald's New Zealand is going head to head with KFC to try and knock the Colonel of his lonely perch.

KFC have to respond to the superior marketing and
service levels of McDonald's to keep their chicken market
share.

As Warren Buffett says, he looks for companies with a "moat", that is, a unique product or company that has high barriers to entry and therefore stable and sustainable cash flows. KFC is certainly that. Nobody else has ever managed to get the 11 secret herbs and spices down pat and nor are they likely to and that is the main advantage that KFC has.

The uniqueness of their taste is their secret to their 69 year old history.

Unfortunately for KFC in New Zealand we have heard this all before from Restaurant Brands, "we will take competition seriously" blah, blah. Witness the Pizza Hut meltdown after competition has decimated that brand. I still think RBD management underestimate their rivals and over rely on the strength of the KFC product when going head to head.

McDonald's Vs RBD, I will pick Maccas every time, because management there are smart and know all about service, imagine what they would do at KFC.



KFC's chicken dominance is going to be severely tested by the McDonald's
competition but KFC have a unique product that loyal customers love.


McDonald's are going for an all out assault on KFC's dominance and are going for quality and range in their chicken offerings. Breast meat and real chicken will be the order of the day. They will take market share off KFC, that is clear. How much market share is up to how RBD management react to the competition.

RBD have a great product but where Maccas will beat them is at service and marketing and that is half the battle.

In the USA and Australia this battle has been fought and lost by KFC and the Big Mac has intentions to be no1 here within 3 years, so history could be repeated here.

The McDonald's saturation advertising has already started. It will be interesting to see what the RBD response will be.

Keep up to date with this development at the Share Investor Blog .


Restaurant Brands @ Share Investor

RBD - 2011 Half Year Result
RBD - 2010 Quarter one sales
RBD - 2010 Quarter two sales


Restaurant Brands share price looking overcooked
Most Outstanding Stock of 2010: Restaurant Brands Ltd
Restaurant Brands Ltd: KFC has finally cracked it
Restaurant Brands: KFC Sales Figures Explained - Part 2
Finger Lick'n Good Management
Chart of the Week: Restaurant Brands Ltd
Long Term View: Restaurant Brands Ltd
Stock of Week: Restaurant Brands Ltd
Restaurant Brands: Buy or Sell ?
Pizza Hut sell-off provide opportunities all-round
Danny Diab & Restaurant Brands
2008-2009 KFC sales figures mislead investors
KFC Finally Flying
Starbuck's New Zealand Cup doesn't runneth over
RBD gives KFC a push
McDonald's playing chicken with KFC
Restaurant Brand's Pizza Hut faces increasing competition
RBD sales analysis
RBD saga continues: CEO leaves
The secret recipe is out
2007 FY profit analysis
Delivering increased profit in October 2007
No reason for optimism in latest sales figures

Discuss RBD @ Share Investor Forum
Download RBD company reports




c Share Investor 2008

Restaurant Brands: No reason for optimism in latest sales figures

Frankly if Van Arkel doesn't know why 2007 3rd quarter sales at Restaurant Brands Ltd [RBD.NZ] Pizza Hut are sliding and surmises that one reason might be that Pizza Hut customers are now shopping at KFC because of the marketing then I'm surprised if he knows what day of the week it is.

Has van Arcle ever ordered a Pizza from his own company?

I don't think so, because if he did he would find out the reason why Pizza Hut sales are doing a Hindenburg.

Its truly a horrible experience getting a pizza from this company. With phone customers there are inaccurate orders taken and the in-store experience with waiting times, if you can get past the surly staff, is quite often something akin to waiting for Led Zeppelin reform(OK, hang on they have, The Beatles then)

Customers are simply voting to go elsewhere, mostly Dominoes, where they get better food, service, prices and a ten minute wait.

A new "cheesy crust" pizza is picked to rescue sales in the coming quarter!

There is also talk of a "new look" for Pizza Hut next year. More capital expense and suffering shareholders as a result.

It really is the same crap from this management every sales/profit announcement, some lame excuse why sales are bad and promises that some new marketing scheme or food item will reverse fortunes.

Never a finger pointing at bad service, at themselves.

Increased KFC sales through the "transformation" of stores are being disingenuous to say the least.

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.

If you add in the increased wages bills, power, ingredients and store refurbishment costs you can see management are still way behind the 8 ball.

And they have Red Rooster, Nandos and Oporto nipping at their heals. Red Rooster will be a big problem for them in the future as their food and service levels are far higher in my experience and they are a full service QSR, with drive through takeaway and sit down.

What can one say about their Starbucks units. Sales are increasing but still yet to turn a profit on top of horrendous overheads, especially lease arrangements.

Regular readers of my columns on this subject will have heard this before. Restaurant Brands needs a clean our from the top, a new head and associated management and a new service focused direction.

Dressing up stores is only going to last song long, putting the S back in service will keep customers coming back for more.

On a more positive note for the company, its shares were up by 1c today to 91c.



Restaurant Brands @ Share Investor

Finger Lick'n Good Management
Chart of the Week: Restaurant Brands Ltd
Long Term View: Restaurant Brands Ltd
Stock of Week: Restaurant Brands Ltd
Restaurant Brands: Buy or Sell ?
Pizza Hut sell-off provide opportunities all-round
Danny Diab & Restaurant Brands
2008-2009 KFC sales figures mislead investors
KFC Finally Flying
Starbuck's New Zealand Cup doesn't runneth over
RBD gives KFC a push
McDonald's playing chicken with KFC
Restaurant Brand's Pizza Hut faces increasing competition
RBD sales analysis
RBD saga continues: CEO leaves
The secret recipe is out
2007 FY profit analysis
Delivering increased profit in October 2007
No reason for optimism in latest sales figures

Discuss RBD @ Share Investor Forum

Download RBD company reports

Related Amazon Reading



Secret Recipe: Why KFC Is Still Cooking After 50 Years by Robert Darden
Buy new: $15.95 / Used from: $8.52
Usually ships in 24 hours






c Share Investor 2007

Restaurant Brands: Delivering increased profit in October 2007

The profit season in New Zealand rolls on, and by and large things look good company wise considering the sad state of the economy. One company set to announce their profit in October, Restaurant Brands Ltd [RBD.NZ] the operator of the KFC, Pizza Hut and Starbucks brands in New Zealand looks set to show an increase in its earnings.

Of course this wouldn't be difficult considering the bad results they have been posting these last 24 months.

RBD's KFC unit has shown another re-growth because of vast sums of shareholder money being thrown at it but it is still off its all-time sales figures way back in the 20th century, still, having said that KFC is still the main and only profit driver for the restaurant group and it is the greasy stuff that will give RBD another shot at breaking its $1 share price barrier again-it listed in 1997 at $2.20 and briefly once touched that price in 2002.

The main problem for RBD though, apart from bad management and poor service, is the competition from its smarter and more motivated rivals.

KFC's position as the number one purveyor of chicken product is being plucked at by several rival chains. Red Rooster and Nandos are picking off KFCs customers piece by piece.

Starbucks has always struggled here and is basically a tax right-off for the company and it has never turned a profit since arriving on these shores in 1999. Operating costs are way too high and revenue hasn't yet matched these expenses.

The biggest threat to RBD though and its Pizza Hut brand, are the inroads that Dominos has made on its sales and profit. In a profit announcement by Dominos today its CEO Don Meij stated:

However, New Zealand EBITDA improved, growing from $1.5 million to $2.7 million. "In New Zealand, Domino's Pizza continues to go from strength to strength, with its EBITDA contribution up 80 per cent during the year."

October's announcement will probably see another big dip in sales for Pizza Hut and everything management have done so far to compete with Dominos has been a dismal failure.

Hopefully shareholders will also find out whether the board have managed to find a new head for the company. Vicki Salmon was pushed out at the beginning of the year and the company dearly need a new direction, any direction really so they can move forward and make some drastically needed changes in operations at head office down all the way down to store level.

In a related matter, Burger Fuel Worldwide [BFW.NZ] the recently listed "gourmet" burger maker, has failed to have its shares traded at all for the last 5 days. We wait in anticipation for a movement soon.

RBD shares closed down 1c to NZ 84c today.


Restaurant Brands @ Share Investor

Finger Lick'n Good Management
Chart of the Week: Restaurant Brands Ltd
Long Term View: Restaurant Brands Ltd
Stock of Week: Restaurant Brands Ltd
Restaurant Brands: Buy or Sell ?
Pizza Hut sell-off provide opportunities all-round
Danny Diab & Restaurant Brands
2008-2009 KFC sales figures mislead investors
KFC Finally Flying
Starbuck's New Zealand Cup doesn't runneth over
RBD gives KFC a push
McDonald's playing chicken with KFC
Restaurant Brand's Pizza Hut faces increasing competition
RBD sales analysis
RBD saga continues: CEO leaves
The secret recipe is out
2007 FY profit analysis
Delivering increased profit in October 2007
No reason for optimism in latest sales figures

Discuss RBD @ Share Investor Forum




c Share Investor 2007

Share Investor: Takes a Bite-KFC

A very interesting article below about Warren Buffetts approach to brand names got me thinking about its local significance and Restaurant Brands Management of its KFC brand:


Brand names

Commodity companies
Warren Buffet distinguishes between commodity companies and non-commodity companies.

Commodity companies sell products or services that are undistinguishable from the products and services of other companies. Here the customer generally buys on price.

Take soap, for example. Different companies sell soap but their ordinary product is generally the same. The customer will buy from habit or personal choice but can swiftly change brands where there is a price advantage.

This makes the seller vulnerable to the trading practices of competitors and it has a limited ability to increase profits by raising prices. To stay alive, it must respond to its competitors.

Warren Buffett on commodity companies

In 1982, Warren Buffett said this about commodity companies, particularly those in industries that have surplus capacity:

‘Businesses in industries with both substantial over-capacity and a "commodity" product (undifferentiated in any customer-important way by factors such as performance, appearance, service support etc) are prime candidates for profit troubles.’

Non-commodity companies - continuing competitive advantage

Other companies produce a product or service that is so different from its competitors, or so special, that the customer, and the distributor, cannot do without it. This allows the company what Mary Buffett and David Clark call a "continuing competitive advantage". They liken a competitive advantage to a moat surrounding a castle. The moat stops enemies attacking the castle; the brand name stops competitors taking away customers.

Having a brand name is not enough. The brand name, according to Mary Buffett and David Clark, must be lasting – it will go on into the foreseeable future without costly maintenance. There is no real competition for the product. This is a sustainable brand name.

The Coke brand name

A good example of a continuing competitive advantage of this kind is Coca Cola. The customer generally asks for a Coke by name; they do not buy a ‘cola’. Coca Cola is a long time investment of Berkshire Hathaway and one that Warren Buffet has constantly said is never for sale.

Some companies can obtain a continuing competitive advantage by having a monopoly, or being part of a marketing structure that operates as a monopoly. A good example of this is Freddie Mac, The Federal Home Loan Mortgage Corporation, established by Congress to buy and securitize mortgages, reselling them to investors as guaranteed mortgage pass-through certificates. This was an earlier investment of Warren Buffett.

Brand name companies

There are also some companies that market commodity products so well that they distinguish their commodity product from that of their competitors and so put their own special ‘brand’ upon their product. They can achieve this by marketing, continuous improvement, by quality production and service, or in many other ways.

McDonalds sells hamburgers and, if truth be known, their hamburgers are no better than those of their competitors. McDonalds has made itself a brand name primarily through marketing, uniformity of product, and accessibility.

Gillette sells razor blades, not a unique product. It has become dominant in the market, and a brand name, because it markets itself well, continually improves its product – track the progress of the shaving tool) – and its products are reliable.

Warren Buffett on competitive advantage

In 1993, Warren Buffett had this to say about companies with a continuing competitive advantage:

‘Is it really so difficult to conclude that Coca Cola and Gillette possess far less business risk over the long term than, say, any computer company or retailer? Worldwide, Coke sells about 44 % of all soft drinks, and Gillette has more than a 60% share (in value) of the blade market.’ Leaving aside chewing gum, in which Wrigley is dominant, I know of no other significant businesses in which the leading company has long enjoyed such global power.’

Brand name advantages

Time, of course, has moved on since 1993 – market shares change and, arguably, computer companies may have entered the brand name field (for example, Microsoft). However, Warren Buffet’s point is that there are big advantages in having a brand name like Coke, or Gillette:

The customer knows the name and the product that the name represents
Distributors have to stock the product (can you imagine a supermarket without Coke) 

The company can keep pace with inflation (or even jump ahead of it) with price rises; 

The competitive advantage of a brand name company is also enhanced if the product needs continual replacement; food and beverages, razor blades, newspapers.

A brand name in itself is no guarantee of investment success. Conversely, a company can be successful without having a brand name.


May I pull out a paragraph for closer scruitiny that is relevant and an indication of how RBD "manage." the brands that they do:


‘Businesses in industries with both substantial over-capacity and a "commodity" product (undifferentiated in any customer-important way by factors such as performance, appearance, service support etc) are prime candidates for profit troubles.’

I would argue that RBDs brands are not the "non-commodity" businesses that Buffett continues on with in the following paragraph, simply because RBD management are not doing any of the above:


Non-commodity companies - continuing competitive advantage
Other companies produce a product or service that is so different from its competitors, or so special, that the customer, and the distributor, cannot do without it. This allows the company what Mary Buffett and David Clark call a "continuing competitive advantage". They liken a competitive advantage to a moat surrounding a castle. The moat stops enemies attacking the castle; the brand name stops competitors taking away customers.

KFC would sneak in on its uniqueness for sure but its "moatability" (I just love new words) if you like, is countered by RBD managements treating their brands in a commodity type way, that is to say, neglecting them.

It is clear to most what happens when you treat any company in a cavalier fashion and in the case of a "moat" company like RBD and its brands they have managed to break the dam down and the water is rotting those brands from the inside out.

The dominance factor that Buffett talks about really only applies to KFC. Pizza Hut and Starbucks are not dominant in their niche as they have many local and international competitors that consumers will go to. Product isnt that unique to these two food brands.

KFCs dominance though has and is being taken for granted by management. How can RBD let such a global brand with such an ingrained status in New Zealand culture to the current point of diminishing returns. For goodness sake they have a potential cash cow here.

Pizza Hut is sadly going into terminal decline in this country and its competitors look set to cut it into Ponsonby like peices of the pizza it throws at its customer.

Starbucks is muddling along at a snails pace compared to its interantional brothers but seems to be stuck in a rut.

I wont go into those two here.

How does one resurrect a brand?

KFC is currently in the process of being given yet another re-vamp. We all remember the most famous revamp over ten years ago, Kentucky Fried Chicken became KFC and we all forgot about the F word.

We didnt of course but that revamp worked for a time, then logos were changed, stores remodled several times for new "looks" and menus were changed.

My point is these things all worked, for a time, and it is clear they only work for a finite time because the keepers of the brand have had to continue to revamp and window dress.

What I think is lacking though is these things that Buffett talks about:

‘Businesses in industries with both substantial over-capacity and a "commodity" product (undifferentiated in any customer-important way by factors such as performance, appearance, service support etc) are prime candidates for profit troubles.’

Even with a business moat, a dominance in the industry and an identifiable brand in KFC . It just isnt going to work if you run your brand like a commodity product and therefore tarnish its image and therefore its cache.

At present they are focused on everything but the basics of maintaining a brand and in the process slowly killing it. Only KFCs uniqueness as a food product is keeping the punters coming through the door.

Great brands are made but they can also die if they are neglected.

Too much has been taken for granted by those at Restaurant Brands head office and all they need to do to resurrect the KFC brand is to treat it like the brand it is.

Stand behind it and back it 200%


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