Aussie pizza prospects for Restaurant Brands

By Phil Boeyen, ShareChat Business News Editor

Wednesday 20th March 2002

Restaurant Brands (NZSE: RBD) is expanding into Australia with an agreement to acquire 51 underperforming Pizza Hut stores in Victoria.

The debt-funded deal, valued at $14.4 million, will see the fast food operator buy 11 stores from a receiver plus a further 40 outlets from seven Pizza Hut franchisees.

The company says the purchase agreement with the receiver is unconditional while agreement with the franchisees is conditional on final due diligence. Settlement is expected to occur in April.

Of the 51 stores 14 currently operate as restaurants while 37 are delivery/takeaway outlets (delcos). The average price per store is $281,700, which the company claims is lower than the estimated replacement costs.

CEO Jim Collier says the deal represents a low cost low risk entry to the Australian market, reflecting the fact that the stores, while profitable, are not currently performing to potential.

"The company has an immediate programme for improving both sales and margin performance. The immediate aim is to refurbish a number of delcos and restaurants, install new equipment to increase sales capacity, and to improve operational capability and advertising expenditure.

"Overhead efficiencies will be achieved, with the Victorian Pizza Hut outlets using the same operating systems as NZ. Accounting and payroll will also be run from NZ."

During the first 12 months the company plans to close a number of existing restaurants and build some new delcos to replace them.

The stores currently have annual sales of around A$30 million but RBD says they are expected to improve as the turnaround programme takes effect and fast food sales recover from the introduction of GST in Australia.

Mr Collier says he expects the Victorian business to be cash-positive at store level in the first year, and to contribute to Restaurant Brands' earnings from year two.

Although the stores being acquired account for the majority of Pizza Hut outlets in Victoria, the brand has only 15% of the state market, which Restaurant Brands says is fragmented and dominated by small independent operators.

"The company believes that there is considerable growth potential for the brand in Victoria. The level of development of Pizza Hut outlets is low compared to New Zealand and the rest of Australia," says Mr Collier.

The company says the Australian expansion continues its plans to diversify earnings away from the KFC business in New Zealand. After the acquisition, total Pizza Hut sales will be more than $110 million compared to over $170 million for KFC.

Mr Collier has previously worked for Pizza Hut in Australia as marketing director and vice president of business development between 1988 and 1994.

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