Successful recipes for fast food operators
05 November, 2015
Over the last year we've added Restaurant Brands and Domino's Pizza to our New Zealand and Australian share portfolios. While both have performed well, the fact that they operate in the challenging fast food sector is where the similarities end. The companies are pursuing quite different strategies to grow their businesses.
For some time Restaurant Brands was heavily reliant on its KFC store transformation process and other divisions (Pizza Hut, Starbucks and Carl's Jr) were struggling. However, through strong and experienced management we identified that Pizza Hut and Starbucks were being navigated towards a strong and sustainable lift in margins. The purchase of the sole competing Carl's Jr operator in New Zealand last year meant that it had a realistic chance of turning this operation around as well.
Last month the company announced profit growth of 14% for the half year, with all four divisions making a positive contribution. Having transformed its current stable of brands, the company is also examining other potential profit streams including Taco Bell, Asian fusion foods and possibly other coffee chains to add to its portfolio over time.
In contrast, technology is the key to Domino's Pizza success. One example is Domino's new mobile app that allows consumers to monitor the status of their online order as their pizza is prepared and delivered. Engaging consumers with information helps them to make purchase decisions, so the app has increased sales volumes. In addition, the app allows Domino's management to monitor every step of the order-to-delivery process, and to identify opportunities to improve service levels and reduce wasteful expenses. This will enable Domino's to deliver pizzas more quickly in the future, which will likely result in improved sales. While one might view Domino's as a simple pizza business, technology is increasingly the core strength that is driving higher sales and lower expenses, setting this successful company apart from its peers.