RBD - Restaurant Brands

**winner69** · 03-07-2015, 04:46 PM

How much cut does RBD get from the independents, assuming there is one on an ongoing basis?

**Harvey Specter** · 03-07-2015, 07:18 PM

Originally Posted by winner69

How much cut does RBD get from the independents, assuming there is one on an ongoing basis?

The Pizza Hut franchisees? Standard for food franchises is 10-12% split between royalty and advertising fee. Also profit from supply sales if sourced from HO.

**Rep** · 03-07-2015, 08:22 PM

Originally Posted by Harvey Specter

The Pizza Hut franchisees? Standard for food franchises is 10-12% split between royalty and advertising fee. Also profit from supply sales if sourced from HO.

Harvey, you are forgetting that the independent franchisees have a Pizza Hut franchise with Yum not with RBD. Both the independents and the franchisees contribute to the advertising - although the arrangement between Yum, the independent franchisee and RBD over royalties isn't something that has been published as far as I am aware. RBD is apparently providing some services to the independents such as the Area Manager but for how much isn't apparent and probably commercially sensitive.

Also in terms of sales for the independents vs RBD stores - I am not totally convinced that this is the appropriate measure. We don't know the EBITDA margins of the independents and whatever fee that RBD banks for services is almost probably in the segment result in the accounts distorting their margins. If a store is open for longer, it can have more revenue but not necessarily more profitably.

OTOH Independent PH franchisees are probably not bound by the collective contract that RBD has with the union either so there will be variations in labour costs. RBD stores are nearer urban centres - I can't imagine that RBD and the franchisees have a transport model like Fonterra where these are equal. Moving bulk ingredients to the Invercargill franchise is going to cost more than a store in West Auckland. And almost certainly the ingredients have to come from RBD to pass all the franchisor accreditation for consistency (I seem to recall Russel mentioning that local sourcing for Carl's Jr was hampered by delays in this area.)

**Harvey Specter** · 03-07-2015, 09:19 PM

Rep - haven't checked specifically but I think the independents only have a relationship with RBD as area master franchisee, and not with YUM. RBD would then pass on a portion of that to YUM.

**Snoopy** · 04-07-2015, 02:35 PM

Originally Posted by Rep

In terms of sales for the independents vs RBD stores - I am not totally convinced that this is the appropriate measure. We don't know the EBITDA margins of the independents and whatever fee that RBD banks for services is almost probably in the segment result in the accounts distorting their margins. If a store is open for longer, it can have more revenue but not necessarily more profitably.

OTOH Independent PH franchisees are probably not bound by the collective contract that RBD has with the union either so there will be variations in labour costs. RBD stores are nearer urban centres - I can't imagine that RBD and the franchisees have a transport model like Fonterra where these are equal. Moving bulk ingredients to the Invercargill franchise is going to cost more than a store in West Auckland. And almost certainly the ingredients have to come from RBD to pass all the franchisor accreditation for consistency (I seem to recall Russel mentioning that local sourcing for Carl's Jr was hampered by delays in this area.)

Rep, I feel that you are correct in that 'sales' do not necessarily provide a good guide on 'store profitability' for all of the reasons you mention. However sales are the only figures disclosed for the non-company owned stores. Because the independently owned stores are just that -independent- we will never know exactly what the individual franchisees profitability is. So although sales is not necessarily a good guide to profitability, it is the only guide we have, or are likely to get. Nevertheless more sales does at least provide a potential leverage to more profitability, even if that is not guaranteed.

You aren't right about the service fees RBD earns from independents being buried in the accounts though. It is listed under note 4 as a separate item. Revenue from independents may also be found in the segmented results (note 3) under the heading "All other segments",and so neatly separated from the RBD owned store revenue.

SNOOPY

**Snoopy** · 04-07-2015, 02:54 PM

Originally Posted by winner69

How much cut does RBD get from the independents, assuming there is one on an ongoing basis?

Winner, the definition of 'cut' has changed this year (FY2015). If you look at note 4, 'the cut' has jumped from $1.130m in FY2014 to $13.075m this year. The main reason for this jump is that RBD has taken direct control of the distribution of ingredients to all stores, including independents, whereas previously this service was contracted out. I would argue that distribution of raw materials to allow a business to function does not come under the heading 'cut'. Nevertheless I would argue that the basic overseeing function, as billed in FY2014, could be classed as a 'cut'. Unfortunately it seems RBD did not release the overall sales (including independent franchisee) sales in FY2014. So we can't calculate the independent franchisee sales. And therefore we can't calculate the 'cut'.

From the FY2013 annual report, sales of services amounted to $0.912m. These would relate to the (at the time)

a/ 8 franchised KFC stores (cf 9 at EOFY2012) and
b/ the 26 franchised Pizza Hut Stores (cf 13 at EOFY2012).

So 'on average' over the year you could say that $912k was spread over 8.5 KFC stores and 19.5 Pizza Hut Stores. That works out to be an average of:

$912,000 / (8.5 + 19.5) = $32,571 per store.

I have already calculated (post 2132) that the average independent PH store turnover for that year was $550,000.

On that basis, the 'cut' that RBD makes on those independently owned PH stores in FY2013 was:

$32,571/ $550,000 = 5.9%

I suspect there would be another 'cut' due to master franchisee YUM that is additional to that figure.

SNOOPY

**winner69** · 23-07-2015, 05:05 PM

Shareprice keeps falling

Out of favour is RBD - bloody heck even The Queen is selling down

Disaster if it falls to 4 bucks.

**RGR367** · 23-07-2015, 05:44 PM

Originally Posted by winner69

Shareprice keeps falling

Out of favour is RBD - bloody heck even The Queen is selling down

Disaster if it falls to 4 bucks.

Don't worry W69, as this is just our old reliable stock way of calling us back to buy it again after selling it at as high as $4.50 just about 6 weeks ago. The gut-o-meter pull to buy it again is strong at $4.10. Wow, this stock would just keep giving