Thursday 9th November 2000
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Jim Collier: This option has and will continue to be considered subject to continued share price movements.
Jim Collier: Where any presentation contains market sensitive information, it is released to the Exchange and thence to shareholders. There are considerable transaction costs in communicating to shareholders by traditional means and to do so every time a broker presentation is undertaken is impractical. We are in the process of upgrading our website and may take the opportunity to incorporate presentations of interest into this upgrade.
Jim Collier: The company is focused on creating value through a 3-part strategy:
KFC is providing consistently high cashflow with Pizza Hut and Starbucks delivering growth.
Jim Collier: The company has been fortunate in that it has until now been able to fund growth from existing cashflows as well as maintaining a relatively high dividend payout ratio and retiring some debt without looking for any further shareholder re-investment. There has to date been no significant requirement or indeed investor interest in any such proposal. There is therefore no immediate intent to introduce such a plan.
Jim Collier: We plan to open 50 Starbucks locations by the end of 2003 and it is possible that more stores could open beyond 2003. At that point, Starbucks is expected to represent 10-15% of Restaurant Brands earnings.
There are currently more than 2000 cafes in New Zealand so the target of 50 stores is very achievable. There are currently 17 Starbucks stores open in New Zealand.
Jim Collier: There have been no material changes to the Tricon agreements since their signing in 1997.
We have similar agreements in place with Starbucks.
Jim Collier: Our agreement with Starbucks does permit us to offer Starbucks Coffee in Pizza Hut. This is not under current consideration but is a strategy we may pursue in the future.
Jim Collier: Delcos (short for delivery/carryout) are primarily focused on home delivery which is the most convenient means of buying a pizza.
KFC already has a very convenient means of buying chicken - the drive thru. The drive thru fulfils many of the same customer needs as home delivery. Therefore there are no plans to build KFC delcos.
Jim Collier: At the time of the Eagle Boys acquisition, the company said that it expected a one-time loss of about 10% of Eagle Boys sales from customers who would not convert to Pizza Hut.
The conversion of Eagle Boys stores was completed on time at the end of September 2000 and at the time of writing we have only four weeks sales from the fully converted system. We will report sales performance over a more extended period at the end of the year.
Jim Collier: Current estimates are that New Zealanders spend NZ$27 per person per year on pizza. Spending per head in Australia is nearly double at NZ$50. Spending per head in United States is nearly 6 times at NZ$170. We are unlikely to achieve US consumption levels due to a range of factors but believe it reasonable that the pizza market can grow to Australian levels of consumption. Therefore we believe that the home delivery and takeaway pizza market will grow at 5-10% per year for the next several years.
Our strategy for growing the pizza market is consistent with major pizza chains worldwide - affordabality and availability.
Affordability - Pizza has become more affordable in the last five years with prices reducing from $25 for a takeaway pizza in 1995 to $11 today. Today's low pizza prices mean that everybody can afford to eat pizza regularly.
Availability - with the acquisition of Eagle Boys, Pizza Hut has a store within 8 minutes drive time of 90% of New Zealand's population. With access through our 0800 phone system, pizza has never been easier or cheaper to buy.
Jim Collier: The price of pizza has in fact been stable or reducing over the last 12 months. For most of 2000, the price of two delivered pizzas was $23.95. This has now been reduced to $22.95. Other pizza prices have similarly reduced.
Jim Collier: We have been trialing the delivery of beer and wine in two stores on Auckland's North Shore for the last couple of months. It is too early to estimate the revenue effect. The trial will be expanded to a larger part of the Auckland region late in 2000.
Jim Collier: All of the Pizza Hut restaurants we have retained are performing in that they have positive cashflow.
Jim Collier: Our website currently receives 25,000 hits per week and a small but growing proportion of Pizza Hut home delivery sales are conducted on line. It is relevant to note that the telephone is efficient technology for taking pizza orders.
Jim Collier: The cost of taking a pizza order on the internet is lower than a call centre due to the absence of labour costs on internet orders.
Jim Collier: Restaurant Brands is engaged in a range of e-commerce developments. Most of our major suppliers are on EDI (electronic ordering and payment). We are currently expanding the number of direct linked suppliers and have a vision of all suppliers direct linked inside 2 years.
We are current developing an e-procurement model which will seamlessly link all elements of the supply chain in a manner which will reduce overall costs.
We have a basic intranet in place and are seeking to expand its facility.
Jim Collier: There is no direct correlation between exchange rate movements and sales in the takeaway food category. However a rising cost of living puts pressure on disposable income and therefore on retail categories such as takeaway food.
Jim Collier: Sales in the takeaway food market are correlated to broader macro-economic factors such as retail sales, interest rates, consumer confidence and employment levels.
Jim Collier: All of Restaurant Brands debt is denominated in NZ$ and is at competitive interest rates.
Most of the items purchased by Restaurant Brands are New Zealand sourced and we are shielded from some of the effects of low NZ dollar. In some cases our suppliers use imported ingredients as part of items they make for us. The rising cost of fuel also adds to our costs. As a result, we expect some cost pressures in the next 6-12 months.
Jim Collier: Restaurant Brands uses a range of customer satisfaction measures to determine how individual stores and our total system is performing. We use a Mystery Shopper programme and crew and manager incentives are in part tied to results of the mystery shopper programme.
Jim Collier: Royalties are paid in New Zealand dollars at a fixed percentage of sales.
Jim Collier: Restaurant Brands is not considering adding any other brands at the current time.
Jim Collier: Restaurant Brands has no interest in Cobb & Co.
Jim Collier: The company's growth strategy is stated earlier in this Q&A session. We believe Restaurant brands has good growth prospects and the strategies in place will deliver that growth. We do not publish long term earnings growth forecasts.
Jim Collier: We have a vision statement which reads:
"We will become an enduring, innovative company respected as the leading operator of great brands.
This will be achieved with people and processes that replicate an experience that is loved by customers and envied by all."
When we have lived that vision, our dream will be on the way to being fulfilled.
Jim Collier: Nearly all of the soft drink sold in our stores is in post-mix or fountain form. V is not currently made in a concentrated syrup form suitable for post mix. If Frucor makes this product available we would consider it.
ShareChat thanks Jim Collier for taking part in this Investor Interview.
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