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Restaurant Brands readies for rival

By Duncan Bridgeman

Friday 23rd May 2003

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Restaurant Brands will convert another three restaurants into delcos (delivery/carry out) this year as part of its strategy to counter increasing competition.

Market jitters about the impending entry of Domino's Pizza, which plans to open to eight new outlets later this year, have hampered the company's share price in recent months.

The shares last traded at $1.40, well down on the 1997 listing price of $2.20.

Restaurant Brands, which owns the Pizza Hutt, Starbucks and KFC brands, made a net profit of $11.1 million last year ­ exactly the same as in its first year as a listed company in 1997.

Chairman Bill Falconer said the company expected to see improving results from the change to the delco format over the next two to three years.

A number of delco facilities would be relocated and refurbished, he said. "This is a medium-term plan that we are just one year into."

The company has been clear about reducing its dependence on KFC by building its other businesses.

That included last year's acquisition of 51 Pizza Hut stores in Victoria, Australia, and the introduction of the Starbucks chain of coffee houses.

Mr Falconer said there were growth opportunities in Victoria, which had a population of five million people, yet 25 fewer Pizza Hut outlets than in New Zealand.

"Victorians spend twice as much per person per year on pizza than New Zealand."

While the Victorian operations broke even last year, analysts expect them to be an earnings contributor in the 2004 or 2005 year.

There were also signs rival fast food outlets that sold beef products were being hit by negative market sentiment as a result of fresh BSE scares in Canada.

Mr Falconer said KFC, which saw store sales decline 1.4% last year, was still a stable business despite being affected by economic conditions.

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