Restaurant Brands: Vicki Salmon

By Jenny Ruth

Thursday 12th February 2004

Fast food operator Restaurant Brands has confirmed Vicki Salmon, a director of six years, as its new chief executive. In December, after four months acting in that role, Salmon announced that the company's sales for the 12 weeks ended December 1 were down 1.6% at $67.6 million compared with the same quarter a year earlier. The big problem was the company's major earner, KFC, where sales fell 6.2% to $37.6 million in the quarter. However this was a better result than the 7.5% decline the company had forecasted in mid November.) The company's coffee shop chain Starbucks also saw same store sales fall 1.1% in the quarter, although that was a considerable improvement from the 6.5% drop in the previous quarter. By contrast, Pizza Hut's sales rose 6.7% to $18.4 million.

SC: You've been buying shares. Why? Are you disappointed with the way the shares have performed since?

Restaurant Brands chief executive Vicki Salmon (VS): Obviously, I believe in buying shares in the company. That was the window I was allowed to buy in. I think the whole market's move quite a lot back and we're just part of that. It's nothing to do with us at all. You can't live on a share price every day. The trouble is there's just not a lot of buyers out there. There's only about half a dozen people trading in our stock per day.

SC: You've just come back from visiting the Victorian operations. How did you find them? Can the problems there be fixed? How?

VS: It was really good to go and see it. I saw almost half of the stores. I spent most of the day with the area managers and at the end of the day we would go out to the stores which they're operating. There's an enormous amount of work going into the facilities. Just actually physically seeing what we've done, the outcome has been fantastic. I met a lot of store managers. There's been a lot of staff turnover. Some of our managers are extremely capable. People are starting to notice Pizza Hut again from being really run down to being a real brand in the market place. We're making improvements all the time. We under-estimated the time it would take to fix and do all of the things we needed to do. We bought 50 stores and we still only have 51. We relocated 11, built four new ones, refurbished six and closed about four or five. During all that time, we've been improving operations, improving sales and customer expectations. It's a very tough market to work in with a A$6.95 pizza price. It's much different from here in New Zealand. It's incremental, store by store. You've got to deliver to customers. The delivery speed has improved dramatically and therefore we will get repeat customers. We're starting to see some of that but that takes time. You can't move it overnight. We've made progress in the right direction.

SC: What about the strong independent competition?

VS: They don't all home deliver at all. Most of them are pick up. There are lots of small operators. They're not necessarily in the areas we're in. We knew what we were buying into. It's not any more intense than it was when we purchased the business.

SC: Doesn't Domino's also struggle in Victoria (it has three outlets in Victoria compared with more than 100 in New South Wales)?

VS: They're country stores. They're not in Melbourne itself. They didn't go into Victoria early enough and finding sites is very difficult. We're constantly looking for new locations.

SC: Isn't the fact that Domino's has so few stores in Victoria a comment on how tough that market is?

VS: I don't know. I suppose so. They've only just started. They've only just gone into Victoria in the last month.

SC: Will Restaurant Brands have to write-down or write-off its investment in Victoria?

VS: It's still early days. We're making progress in the right direction. We're winning customers. We can focus on sales now that we've improved the facilities. We've still got some time to go before we give it all up. It's not that desperate.

SC: How is progress on lifting standards at KFC?

VS: We said in our December release that we had started to get our customers back with the launch of the Chicken Sub. After going through a torrid period of poor sales, our customers have come back through our doors again. We've focused on serving customers and improving standards. Hopefully our product is more consistent. We have been measuring that. We have a mystery shopper program. It's a big chain. We've made some good progress and we're still working on it. We launched Crispy Chicken Salad just before Christmas. It's for people who want more choice and who may not have been in for a long time. We didn't do TV promotion. With 88 sites, we have to be careful about the supply chain. We wanted to do a soft launch in store. We've done leaflet drops to certain households. We're ahead of our projections, based on that soft launch. We're very happy with the product and how it's been received by customers.

SC: Is KFC back on track now or is there more work to do?

VS: Focus would be a good word. We are back on track. I think there's still more focus required to get an even better outcome. We can do better, this is just the start. We are quite excited about the work that has been done and we're not going to let it get back to a stable state and say that's it. We would be kidding ourselves. In a retail market, we should always be working on it. You can be sidetracked by thinking of 88 stores - rather than saying the whole of KFC has dropped 6.2%, that's just the average - some are worse than that and some are miles better than that.

SC: Is the root of the problem under-staffing?

VS: We weren't focused on serving the customer. We have to balance between staff and margins and customers. If you over-staff it, you don't make any money. It's about having the right people there at the right time. The experience of standing in a queue for too long, New Zealanders aren't good at doing that. We've put more staff into the right areas at the right time. That's just one of the things we've done from cleanliness, product quality to making sure we serve great products all the time. We've got some underlying things worked out. We're still working on the business, as we always should be. Some facilities need upgrading and that will take some time. There are some major upgrades for stores that are not looking the way we need them to look.

SC: Are you opening more Starbucks stores? What about the problem of cannibalisation?

VS: We will when we find the right locations. Starbucks is dependent on good locations and they're not always easy to find. When we opened a whole lot of stores at once - that was more than 18 months ago when we opened 10 stores in one year - we couldn't train people quickly enough to open new stores properly. The experience people were getting wasn't great. We needed to get stores and we grew up to 35. We needed to take a breather. Especially in the last six months, there have been major improvements at Starbucks.

SC: It seems the board wasn't aware of the true state of the company's affairs when Jim Collier left. How did that happen?

VS: You get involved in issues. It depends when you escalate it to the board. Do you wait for the next board meeting or do you ring the board members every day? It depends what the issue is. It's probably best for me not to comment on that.

SC: How confident are you that you won't have to issue yet another profit warning?

VS: We had underlying operational issues we thought we had worked out. After that, we also had a sales issue. That wasn't easy to predict. You have to work out at what point this isn't meeting market expectations and how large it is. As soon as we realised it was significant, we let the market know. We're open to market conditions. There will be the odd time when these things happen. Hopefully they're not as dramatic. We were caught in that we didn't have alternative promotions and marketing to arrest that decline, which is not going to happen any more. We've got a different kind of way we run our marketing. If something's not working, we can move to the next thing or do something different. I don't think we were robust enough or flexible enough. We kept dying in the ditch and we couldn't do anything about it.

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