Restaurant Brands sees pizza failures, seeks talks with Yum

Jonathan Underhill

Thursday 19th June 2008

Restaurant Brands NZ, the New Zealand franchise holder for KFC, Pizza Hut and Starbucks, says competition in the pizza market will cause some rivals to fail as the economy slows.

"The next 12 months will be critical for the national pizza market and we expect a number of our competitors' franchises to close or go to the wall," chairman Ted van Arkel told shareholders at their annual meeting today.

Sales at Pizza Hut have dragged on the company's earnings, which rose 69% to NZ$11 million last financial year. Restaurant Brands will consider the sale of the unit if it doesn't succeed with a turnaround, van Arkel said.

Part of a recovery may come from talks with franchisor Yum Restaurants International because current royalty payments don't recognise changing consumer tastes in New Zealand and there is a 250% increase in the number of branded pizza outlets in the past five years, he said.

"There is room for renegotiating our Pizza Hut arrangements," van Arkel said.

Restaurant Brands stock last traded at 85 cents, down from its 52-week high of 94 cents. The stock may be as much as 68% under-valued, given the company's improved performance and rising dividends, he said, citing analysts' estimates.

Still, sales so far in the second quarter are "slightly behind" the year-earlier period, he said. A slowing or shrinking economy in the next six to 12 months, "will inevitably have some impact" on an industry already facing higher costs for fuel, ingredients and wages.

"We see the economy in the next 12 months as being challenging but not dire," van Arkel said.

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