KFC to lift prices as inflation bites, says Collins Foods CEO
Collins Foods, which owns KFC and Taco Bell stores in Australia, says menu prices will climb amid rising costs. The shares rallied on strong earnings.
Collins Foods chief executive Drew O’Malley says the fast-food restaurant owner will likely lift menu prices at its local KFC stores for the third time this year as costs mushroom, but will keep increases below headline inflation to maintain value for consumers.
And as the nation faces a continued shortage of lettuce, the boss of 261 KFC stores in Australia said the chain would need to maintain a blend of cabbage and lettuce for its burgers for at least the next four to six weeks until supplies are replenished.
But Mr O’Malley, who oversees KFC, Taco Bell and Sizzler chains, said the restaurant owner was in a strong financial position coming out of Covid-19 with KFC now viewed as providing better value and quality than arch rival McDonald's’s.
A bumper full-year result posted by Collins Foods on Monday that beat market expectations sent the shares leaping almost 15 per cent in morning trade.
Collins Foods, whose network of fast-food restaurants is spread across Australia, Asia and Europe, recorded an 11.1 per cent increase in full-year revenue to $1.2bn for the 12 months to May 1, with profit up 68 per cent to $54.8m.
Mr O’Malley said the full-year performance was driven by KFC which was cycling record sales in 2021, at a time when soaring inflation, tipped to hit 7 per cent by year end, and tightening household budgets pressure discretionary spending.
“Overall we are pleased with where the (KFC) brand is. But I think the most important dynamic is maintaining this value positioning for KFC to make sure that we’re really relevant and top of mind for consumers during what’s certain to be a more challenging time,” Mr O’Malley told The Australian.
Collins Foods is attempting to mitigate the rising cost of doing business by raising some menu prices but also keeping increases below the inflation rate to protect the fast food brand’s reputation as a value purchase.
“Certainly on the cost side, the inflationary pressures are probably top of mind for everybody. So from a business perspective, we’ve seen increases in the modern wages award rate, close to close to 5 per cent, you’ve seen everything up from food prices, energy, petrol prices.
“And while we can mitigate a fair amount of that with menu pricing, we also have to be really conscious that the consumer is also seeing increased costs.
“The average Australian consumer right now maybe seeing $50 or $100 or more per month in higher petrol and mortgage prices. We want to make sure that we are well positioned for any of those consumers who are seeking value during a time like that.”
Mr O’Malley added that the company tended to be “very careful” when lifting menu prices.
“This is a brand that for the last 10 years has taken menu prices below CPI every year. And while this year we do think we are going to need to take a bit more than is normal, that’s still an overall strategy we want to stay with.”
Collins Foods has already lifted prices in January and will likely push through another price increase this year.
The soaring cost of lettuce, with some supermarkets selling lettuce at $12 a head, has also made life tough for fast food chains, with many like KFC using cabbage instead.
“We have introduced a blend of 60-40, lettuce and cabbage. We think that‘s probably going to be required for the next four to six weeks or so. But ultimately, we look forward to returning to the traditional iceberg lettuce,” Mr O’Malley said.
Meanwhile, at its KFC Australia operations, revenue rose 6.1 per cent to $955.5m with same store sales growth of 1.4 per cent and underlying earnings of $206.9m, up 3.5 per cent.
KFC Europe, which has chains across the Netherlands and Germany, saw revenue rise 41.2 per cent to $190.4m as underlying earnings more than doubled to $27.6m.
Its small but growing portfolio of Taco Bell stores reported a 28 per cent jump in revenue to $35.8m and an underlying loss of $400,000 after taking into account start up and overhead costs.
Collins Foods declared a fully franked final dividend of 15 cents per share, up from 12.5 cents, payable on August 1.
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