Investors to relish the resilience of ASX listed Fast-Food Operators

  • May 07, 2020 04:00 PM AEST
  • Team Kalkine
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Investors to relish the resilience of ASX listed Fast-Food Operators

Covid-19 induced crisis has resulted in a disruptive time for various sectors, where old ways of doing things have become obsolete fast, and businesses are exploring new routes to cope with the dramatic changes in customer needs and business requirements. On that note, when most of the people are working from home, there has been growing popularity for the fast-food companies that offer quick meals at a low price while the restaurants and cafes are still shut worldwide.

Besides, rising demand for nutritious fast food marks a new wave in the fast-food industry. This new trend is expected to drive revenue growth for take-away food services and perhaps even more for the home deliveries in the fast-food industry over the next five years.

The pandemic has undoubtedly made consumers highly conscious of their health, and they have learnt to take proper care through exercising and choosing healthy lifestyle.

Thus, the businesses making transition to cater to changing customer preferences are expected to sustain their market presence. This means that the industry performance for traditional fast food operators is bound to be impacted if they do not catch up with this new trend as consumers limit the consumption of unhealthy food.

Moreover, government restrictions on dine-in transactions and social distancing norms are boosting the take-away and home delivery services. Interestingly, most popular cuisines among Australian food lovers are Japanese, Korean, Italian, Chinese, Thai, Indian, Vietnamese, and Mexican.

Casting Eye on Collins Foods Amidst the Pandemic

Image Source: Company's website

Collins Foods Limited (ASX:CKF), the fast-food operator has recently announced the impact of the pandemic on its business and sales trends for the last five weeks starting from 30 March to 3 May 2020, FY20.

Collins Foods seems to be adjusting quickly to the changing environment due to the pandemic. When Covid-19 began to spread, the food operator enhanced its procedures to ensure the safety and health of employees and customers. At the same time, it also worked towards increasing sales and managed expenses during the uncertain business environment.

KFC Australia is braving the storm of the crisis with continuous sales trends improvements during the difficult period. Over these last five weeks of FY 20, apart from the negative impact of the pandemic on KFC Food Courts and same store sales (SSS) dipping marginally (0.9% versus prior year), the remainder of the network traded positively. However, the KFC Food Courts business is impacted heavily due to lockdown and social distancing norms.

Other than food courts, the rest of the network that mostly includes drive-thru restaurants has shown SSS growth of +4.0 per cent over the prior year. The company stated that the rise in take-away and home delivery sales compensate more than any negative impact of government restrictions on dine-in transactions.

In Germany also government restrictions on dine-in have reduced the sales, while the KFC restaurants continue to do business through home delivery, take-away and drive-thru channels. The sales have increased over previous weeks and despite sales resilience after initial sales drop during the onset of COVID-19, the SSS for last five-week period was down by 28 per cent.

If we talk about the Netherlands, the business continues to run through take-away, delivery and drive-thru measures amid the government ban on dine-in transactions. The SSS for last five-week period has declined by 40 per cent mostly due to the impact of Netherlands’ KFC in-line restaurants in city centres. Other than this, overall sales numbers have performed comparatively better, thanks to take-away services during the restrictions. Excluding in-line city centre restaurants, SSS declined 15 per cent over this period of FY20.

Taco Bell has shown improvement in sales after the initial decline. In fact, in the last few weeks of FY20, Taco Bell has recovered to the pre-pandemic levels.

Furthermore, Sizzler Australia, which shows a decrease in sales due to dine-in restrictions, has begun to provide home delivery and take-away services.

Managing Director & CEO Graham Maxwell said the business is showing a strong recovery in this tough time and the company is well-positioned to manage on its own during the recovery period.

CKF traded at AUD 7.730 with a market cap of AUD 893.01m, up by 0.9 per cent (AEST:02:43 PM) on 7 May 2020.

Domino’s Pizza adapting well to the changing market conditions

Image Source: Company's ASX Announcements

Domino’s Pizza Enterprises Ltd (ASX:DMP) is strictly practicing all hygiene measures to keep the staff and customers well protected from any infections, committed to position itself well for future growth after the pandemic phase gets over. It aims at providing relaxation of debtor payment terms and targeted support for impacted franchisees.

The fast-food operator has also provided more than 100,000 pizzas in charity for the community, across all territories, and they intend to continue such support during the challenging times.

Group CEO & Managing Director Don Meij said the franchise network intends to come out stronger and sustainable from Covid-19 crisis and wish to be recognized as a significant part of the community.

As per the company reports, consumer behaviour is changing. They prefer home delivery over the take-away meals, and the company is hiring more team members to fulfil this demand.

Mr Meij said the focus is on helping our stores to adapt to the changes and manage more order volumes, while following hygiene practices and social distancing at the same time. Also, the group aims at giving tangible support to the stores which are likely to decline in near-term specific to their local market conditions.

Notably, around 70 per cent of Domino’s stores have reopened in France. Management is encouraged with the positive response from customers, franchisees, and team members.

With New Zealand easing its restrictions to alert level 3, the Domino’s stores reopened on 28 April. Management is working to ensure zero contact delivery and take-away services are provided following government guidelines.

Germany and Japan stores have reported strong sales performance in their last trading update.

Same Store Sales for Australia during the pandemic remained consistent at the country level, and it includes noteworthy changes in individual stores sales depending on their local trading conditions, both negative and positive.

Amid all the changing market scenario, Domino’s balance sheet remains strong with sufficient headroom for covenants and its committed debt facilities. The company is free from any committed short-term debt with committed debt facilities due for renewal in H1 in financial year 2023.

DMP traded at AUD 56.930 with a market cap of AUD 4.91bn, down by 0.07 per cent (AEST:02:43 PM) on 7 May 2020.

Bottomline: While consumer food choices are reflecting a transition towards immune-boosting and hygienic food delivered on the doors in a seamless and contactless mode, businesses are adapting well to the changed customer preferences. All this has created a common ground between the food operators and their buyers to manage the covid-19 related challenges, while businesses with great success stories ensuring best fast food services to the food lovers.

 

 


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