Forum Archive Index - September 2000

[jkds@ihug.co.nz]

I wouldn't want to comment on whether it's a sell or a buy, or 
whether others are trying to ramp this share, but here's my 2c on 
what you wrote :

> It has very little upside potential.Why? Firstly the
> market is capped so their sales aren't going anywhere
> startling.  Secondly the pizza market has a low
> barrier to entry, so RBD will be continually battling
> the latest Italiano start up, or challenging
> McDonalds.  Thirdly their business model requires huge
> investment in upgrades, fit-outs, and competitor
> acquisitions and this destroys shareholder value.

This is true but keep in mind that Pizza Hut is only a part of their 
operations.  The key for RBD IMHO is Starbucks.  If you've been 
overseas, particularly in North America in the last decade or two, 
you will have noticed that there are coffee or coffee and donught 
shops on every corner.  It's a lifestyle thing - once you get used to 
having coffee in the car, etc., it becomes a part of your life.  The 
ubiquity of Starbucks there means that even in a highly saturated 
market there is still room for growth - and NZ is not saturated with 
the type of restaurant/cafe that Starbucks provides.

> Any budding entrepreneur can set up a Dial a Dinos
> operation, and so just when RBD think that their
> margins are ok along comes a new entrant and sloggs
> them.  Their response is to buy them out and then try
> and restore their margins ( Remember when Pizza Hutt
> charged $20.00 per pizza?).  This requires investment
> to recover what use to be RBD's customers. The spin
> from the company is that they are establishing a
> platform for growth but in reality they are re
> -establishing their platform.  They are simply running
> up a slippery slope!

I hardly think that the purchase of Eagle Boys was meant to be 
normative for how Pizza Hut plans to deal with competition!  I get 
the impression that it was a two-birds-with-one-stone deal where 
they got to shift their emphasis away from dine-ins to take-outs 
without having to set up shop in every town.  The fact that they 
eliminated a competitor was gravy.
 
> It's also true that they can't their concepts outside
> NZ.  So sales are capped. They only have a market of
> 3.8 million.  

Sales are capped in terms of each brand, but the room for growth 
comes in acquiring new brands.  Again, a look at more developed 
countries like Canada or the US would show how many dozens of 
fast-food chains are around, and that NZ spends little in 
comparison on fast food.  If NZ ever makes it to the postmodern 
age IMHO we will have heaps more brands of takeaway than we 
have now.  

> Disclosure I buy the products but not the shares.

I am addicted to the products and buy the shares to recoup my 
expenditure.

JKS


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