RBD - Restaurant Brands

[Snoopy]

STILL up and making Money..

Anyone see the NBR article on 19th December? The parent franchise company of Burger King and Hell Pizza in NZ, TPF Restaurants, is looking to sell both assets.

Burger King has "long been losing money as it struggles to find a market niche between the low end and gourmet food chains."

I must admit I never knew that. Always thought BK was profitable in N.Z.

Meanwhile TPF has been in trouble with the Hell Pizza master franchise creators for cheapening the brand.

"Earlier this year the company sent a memo entitled 'Improving Gross Profit Through Pizza Topping Standardisation'. to stores, telling franchisees to reduce toppings by 10-255 to boost margins , at the same time as it announced a price rise."

"The order to cut toppings was cancelled after complaints from Hell Systems, the company started by Hell founders Callum Davies, Warren Powell and Stu McMullin who sold the master licence to TPF for about $15m in 2006."

The article goes on to say that the licence was sold on the proviso that certain quality standards were maintained and that TPFs memo advice threatened to tarnish the brand image as Hell Pizza looked to international expansion.

Meanwhile the price of RBD shares has jumped significantly in the last few weeks on no news. Perhaps the private equity companies who have been running the ruler over their competitors now realise how undervalued RBD is? I am picking an RBD share price of 80c by the end of this summer.

SNOOPY

discl: hold RBD

[shasta]

Anyone see the NBR article on 19th December? The parent franchise company of Burger King and Hell Pizza in NZ, TPF Restaurants, is looking to sell both assets.

Burger King has "long been losing money as it struggles to find a market niche between the low end and gourmet food chains."

I must admit I never knew that. Always thought BK was profitable in N.Z.

Meanwhile TPF has been in trouble with the Hell Pizza master franchise creators for cheapening the brand.

"Earlier this year the company sent a memo entitled 'Improving Gross Profit Through Pizza Topping Standardisation'. to stores, telling franchisees to reduce toppings by 10-255 to boost margins , at the same time as it announced a price rise."

"The order to cut toppings was cancelled after complaints from Hell Systems, the company started by Hell founders Callum Davies, Warren Powell and Stu McMullin who sold the master licence to TPF for about $15m in 2006."

The article goes on to say that the licence was sold on the proviso that certain quality standards were maintained and that TPFs memo advice threatened to tarnish the brand image as Hell Pizza looked to international expansion.

Meanwhile the price of RBD shares has jumped significantly in the last few weeks on no news. Perhaps the private equity companies who have been running the ruler over their competitors now realise how undervalued RBD is? I am picking an RBD share price of 80c by the end of this summer.

SNOOPY

discl: hold RBD

Snoopy

I see the KFC in Manners Mall Wellington has closed...

Any issues with leasing, selling off franchises etc?

As far as i know that leaves the Wellington CBD, with just the one on Kent Terrace?

[lakedaemonian]

I'm surprised as well that Burger King isn't profitable.

I'm actually finding that hard to believe......I was of the thought that, anecdotally, Burger King had far more remaining growth potential in NZ than McDonald's...even factoring in the McCafe growth potential.

On the pizza side of the house, it would be interesting to learn what pricing the franchisor is getting for cheese. I'm of the opinion that they may still be paying quite high cheese prices as they do not seem to have dropped with the dairy payouts.

I still wouldn't touch this company with a barge pole at the moment as I think it has room to move lower in 2009 and into 2010.....but I do think your concept of there being a "fortune at the bottom of the pyramid" is a valid one....in fact there's a great book on that topic

[Stranger_Danger]

Snoopy,

Out of interest, have you ever had a good look at ASX listed DMP?

To me, Domino's passes the "sniff test" - in my view, at store level they are clearly beating the pants off RBD.

They are well run by an experienced team - with significant shareholdings - and whilst not as "cheap" as RBD, I see them as fundamentally a lot "cheaper" as you are getting a rapidly expanding quality business, rather than a dying relic run by salary jocks with bugger all skin in the game (ie Pizza Hut).

I realise that RBD is more than just pizza, but I wonder if you've considered DMP for the fast food part of your portfolio?

Personally, the difference between the Domino's stores and Pizza Hut stores that I see (delivery times, is the pizza hot?, is the store clean?, do the staff care?) is night and day which is why I continually pass on RBD, no matter how "cheap" it is.

[Snoopy]

Snoopy

I see the KFC in Manners Mall Wellington has closed...

Any issues with leasing, selling off franchises etc?

As far as i know that leaves the Wellington CBD, with just the one on Kent Terrace?

Shasta, RBD has a stated policy of closing unprofitable stores. Apparently Wainuiomata in 'outer Wellington' was closed. I thought that odd because I considered that suburb would reflect the demographic target market of KFC quite well. I suppose it is 'cooler' to cruise into nearby Lower Hutt to pick up your KFC now?

No idea whether Manner's Mall was profitable for RBD or not. RBD may just not be happy with a new rent deal the landlord has put on the table. Or they may have found a better site nearby. It does seem odd to leave only one KFC within the Wellington CBD. Nevertheless in Christchurch KFC only have one store - within the four avenues - at the top of the High Street Mall a block away from Cathedral Square. So perhaps that is de rigeur for City centres these day?

SNOOPY

[shasta]

Shasta, RBD has a stated policy of closing unprofitable stores. Apparently Wainuiomata in 'outer Wellington' was closed. I thought that odd because I considered that suburb would reflect the demographic target market of KFC quite well. I suppose it is 'cooler' to cruise into nearby Lower Hutt to pick up your KFC now?

No idea whether Manner's Mall was profitable for RBD or not. RBD may just not be happy with a new rent deal the landlord has put on the table. Or they may have found a better site nearby. It does seem odd to leave only one KFC within the Wellington CBD. Nevertheless in Christchurch KFC only have one store - within the four avenues - at the top of the High Street Mall a block away from Cathedral Square. So perhaps that is de rigeur for City centres these day?

SNOOPY

Im not sure Lower Hutt could ever be considered "cool", even compared to Wainui!

Manners mall is in a prime location but there is MacDonalds & Burger King on the same block.

I havent had KFC since Shrewd Crude came up to Wellington, & before that god knows.

Must say though i did get Pizza Hut delivered a while back, & was very impressed.

[Snoopy]

Out of interest, have you ever had a good look at ASX listed DMP?

To me, Domino's passes the "sniff test"

They are well run by an experienced team - with significant shareholdings - and whilst not as "cheap" as RBD, I see them as fundamentally a lot "cheaper" as you are getting a rapidly expanding quality business, rather than a dying relic run by salary jocks with bugger all skin in the game (ie Pizza Hut).

Personally, the difference between the Domino's stores and Pizza Hut stores that I see (delivery times, is the pizza hot?, is the store clean?, do the staff care?) is night and day which is why I continually pass on RBD, no matter how "cheap" it is.

I understand where you are coming from Stranger Danger. The counter point to your argument is to ask at what price point RBD *does* become cheap enough. 60c obviously didn't do it for you, so what about 50c? 40c?..20c? Provided the company is still making a profit it *has* to be cheap enough at some point, provided RBD don't start to run out of capital for reinvesting in the business (which isn't happening). In hindsight you could say that 'the market' found the company cheap enough at 60c- even if you didn't-, given the known business risks.

People ask where the growth is going to come from within RBD. Well, if a store is losing money, all you have to do is close it. Perverse as it may sound, in financial terms that is growth. And it would seem RBD still have some of these 'growth' opportunities available.

DMP operate a different largely franchise model. It stands to reason that -on average- the people who own the stores as managers on site will look after them better than some manager in head office Auckland. That doesn't mean the corporate pizza model *cannot* work of course - just that it is harder to make it work. Nevertheless there are anecdotally scores of pizza store individual operators looking to exit the industry.

Personally I have never had problems with delivery times with either Pizza Hutt or Dominos. Also I have never had problems with how hot the pizzas are, although it must be said I usually pick up my own. Pizza Hutt in Upper Riccarton have a warming oven where they stick the Pizzas after they have been cooked. Dominos in Addington IIRC do not.

To answer your question on DMP directly, yes I have looked at it. I turned it down mainly because of their track record not being long enough. I don't think we know how DMP will handle a recession and there is still a growth premium priced into the share (or was when I last looked, admittedly a year or so ago). I haven't taken DMP off the radar and will look again. But I saw better income prospects with RBD and better growth prospects with YUM (RBD's parent master franchise holder lised in the USA). So that is where I put my money.

SNOOPY

[Nitaa]

Snoppy. You do not get growth from closing stores. You may increase bottom line but you reduce your revenues.

60 to 70 cps seems about rght for this stock at the mo imo

[fungus pudding]

Snoppy. You do not get growth from closing stores. You may increase bottom line but you reduce your revenues.

60 to 70 cps seems about rght for this stock at the mo imo

If every $1 of turnover costs $1.05 then the best thing you can do is reduce revenue - pronto.

[Nitaa]

If every $1 of turnover costs $1.05 then the best thing you can do is reduce revenue - pronto.

Firstly, can the store be turned around?

My previous post is what i was implying. i.e comment about increasing the "bottom line"?