KFC owner Collins Foods to offer ‘everyday value’ to lure customers

The new CEO of Collins Foods, which owns 359 KFC stores across Australia and Europe, believes the fast-food chain has strong ‘value’ credentials but needs to show profitable growth.

KFC owner Collins Foods is struggling under the weight of rising wages and energy costs, and flatlining sales. Picture: Zak Simmonds

The new boss of the nation’s largest portfolio of KFC stores, Xavier Simonet, says the fast food chain is shifting emphasis to an “everyday value” offer to diners and away from excessive promotions, with customers highly price-sensitive when buying burgers and buckets of fried chicken.

Mr Simonet, appointed last month as the new CEO of Collins Foods, which owns 285 KFC stores in Australia as well as stores in Europe and a growing number of Taco Bell stores locally, said KFC had protected its market share in Australia – despite lifting prices due to inflationary pressures.

He said the KFC brand remained resilient amid the high cost of living, and he and the board would engage in a strategic review to help improve the business, which has struggled to sustain profit growth in the past few years, especially in the face of rising costs such as food, wages and energy that have eroded margins.

But just weeks in the role, Mr Simonet – an ex-CEO of adventurewear retailer Kathmandu – had recognised the importance of diners seeing “everyday value”.

“I’ve only been here for two weeks, but we’ve changed tack,” Mr Simonet told The Australian, after Collins Foods reported a slide of more than 50 per cent in its half-year profit and warned of weaker profit margins in 2025 due to rising costs.

“Instead of just offering value from time to time through promotions, we’re offering everyday value, which is good for customers and good for the business.”

Collins Foods chief executive Xavier Simonet.

On Tuesday, Collins Foods reported that first-half revenue to October 13 was up 1.2 per cent at $703.53m, with profit diving 52.1 per cent to $24.12m. Although the profit was substantially weaker, it was slightly ahead of market forecasts, and helped by better margins than forecast by the company in August, and slightly less operating costs than the market had pencilled in.

Collins Foods declared an interim dividend of 11c a share, down from 12.5c and payable on January 6.

Underlying earnings from continuing operations – which excludes a recent impairment to its struggling Taco Bell stores and reflects the sale of its Sizzler restaurant chain – was down 6.6 per cent at $102.7m.

The profit pain came from spiralling costs, especially wages and energy, with some deflation in key food items. Some of its rising costs had been passed on to customers in higher prices, but this was becoming increasingly difficult as diners baulked at rocketing fast food prices.

Shares in KFC slumped almost 10 per cent on the results, and weaker outlook, falling as low as $7.95 before closing down 37c at $8.25.

“There’s certainly price sensitivity, particularly because cost-of-living pressures are having an impact on customers in general,” Mr Simonet said.

“At the same time, food is resilient as a category. All the kinds of analysis we do show that we are protecting our market share in Australia and in Holland as well, which are the two countries where we do this kind of analysis.”

Mr Simonet added it wasn’t just price that made up the concept of “value”, with KFC to also focus on its branding, food, taste and experience.

Over the first half at its KFC Australia division, sales rose 2.7 per cent to $536.8m, with same-store sales growth down 0.1 per cent and underlying earnings of $67.7m, down from $72.7m. Its KFC stores in Europe posted a 3.4 per cent fall in sales and 15.2 per cent fall in underlying earnings to $17.1m.

Taco Bell, which continues to struggle in Australia since Collins Foods relaunched the brand here, recorded a 2 per cent fall in sales to $24.6m, and a loss of $900,000 in underlying earnings, against a loss of $100,000 in the first half of 2024.

In a trading update accompanying its results for the half year to October 13, it said sales in the first seven weeks of the second half reflected the continuation of a weaker consumer environment in Australia and Europe and the conflict in the Middle East, which continued to affect sales, particularly in The Netherlands. KFC Australia’s total sales rose 3.9 per cent in the first seven weeks, with same-store sales up 0.8 per cent, representing a continuation of the gradual improvement in sales trends during the half. It also forecast lower group margins for 2025, with margins expected to be in range of 14.2-14.7 per cent, down from 15.4 per cent in 2024.

“The first-half result was largely in line, with cash flow a notable highlight,” Wilsons Advisory analyst James Ferrier said.

“We remain attracted to the strong brand (KFC), cash generative business model, and potential for significant store growth over time and particularly in ­Europe.

“The share price remains fundamentally undervalued based on historically normal margins.”