The boss of major KFC franchisor in Australia, Collins Foods, still believes that the company’s quick-service Mexican food business Taco Bell can succeed in the Australian market despite the brand’s results hitting the group’s full-year profits.
Revenue at Collins Foods was up 14.2 percent to $1.3 billion in the 12 months to April 30. KFC stores hit $1 billion in revenue for the first time, but the company’s net profit declined by 76.7 per cent to $12.7 million.
A $36.7 million impairment against the Taco Bell business impacted the results, with Taco Bell stores posting a same-store sales decline of 4.8 percent for the year.
Collins Foods’ shares surged 16.7 percent to $9.17 in late afternoon trade on Tuesday despite the drop in net profit for the year, with analysts saying the strength of KFC sales was impressive and the outlook for the group’s brands was positive.
Australia’s quick-service Mexican food market has become increasingly crowded over the past few years, with brands like Guzman y Gomez growing strongly, but Collins Foods chief executive Drew O’Malley said there was still a place for Taco Bell in the Australian market.
“New brands can take time to gain traction. We have seen similar trends in other markets in the early years, where the brand [Taco Bell] is now thriving today,” he said.
But the company acknowledges that it has had to invest in “enhancements to product quality” to bring more Australian consumers into Taco Bell stores.
O’Malley said one key area of recent investment been in the quality of the brand’s chips.
“One of my favorite examples is on French fries – we had gotten a number of complaints from our customers around chips being soggy. We have very recently launched an ultra-premium, sure-crisp French fry with McCain,” he said.
“We have seen an immediate change in customer perception … Especially since we do so much customer delivery, we think that’s really important for the brand.”
Collins Foods pointed to sustained inflationary pressures when releasing its full-year numbers on Tuesday, and O’Malley said the impacts of rising input costs is expected to be felt into next year.
But he was upbeat about the value position of KFC in the current economic environment, saying customers view the fast food retailer as providing the best value in the market.
“If you look at the consumer today, it’s like 12 straight rate increases, [which] has meant 12 straight letters from your bank saying your mortgage is going up. We are very sensitive to that, and we want to make sure our brands excel at a time like this,” he said.