Fighting talk from Restaurant Brands

By NZPA

Friday 28th February 2003

Investors have lost their appetite for fast food retailer Restaurant Brands following news of the arrival of a competitor later this year.

Pizza chain Domino's said on Monday it would open eight stores in New Zealand by October and build 50 new stores across Australia this financial year.

Restaurant Brands shares have fallen 18 percent since Monday to close at $1.25 today, their lowest level since November 2000.

Restaurant Brands chief executive Jim Collier said Domino's was a "capable competitor", but could not comment on whether news of the United States-based chain's arrival had squashed Restaurant Brands' shares.

"They're a US multinational, so it's US multinational versus New Zealand local company," Mr Collier said.

Restaurant Brands is the local owner of US brands Pizza Hut, Starbucks, and KFC.

"We have a very good system, we have a strong store network, strong brand, growing sales ... and we're the local guys, we understand New Zealand best, and New Zealand has been a graveyard for other retailers," he said.

Mr Collier estimated Restaurant Brands had between 60 percent and 70 percent of the New Zealand pizza market, and about 10 percent of the fast food market.

"We'd prefer they didn't get a beachhead, so we will be vigorously competitive, which is what you'd expect. We will compete with every available strategy."

Restaurant Brands continued to roll out Pizza Hut stores in the regions, with another three to five stores due to open in the calendar year.

"Pizza's pretty underdeveloped in New Zealand still so we're continuing to expand," he said.

Restaurant Brands bought Eagle Boys' stores in 2002. "It's the basis of our current success ... the brand's growing and margins are expanding."

Mr Collier said he could not comment further ahead of fourth-quarter sales figures to be released on Tuesday.

James Lindsay of New Zealand Guardian Trust said the fast food market was competitive and margins were slim.

"It's a tough business to be in. It's a pretty tight sort of industry, and the buying cycles go through as far as purchasing of takeaways just at the moment doesn't seem to be all going their way," Mr Lindsay said.

The expansion into Australia through the purchase of Pizza Hut stores had not been successful.

Restaurant Brands expanded into Australia in March, buying 51 of Victoria's 60 Pizza Hut outlets for $14.4 million.

Those franchises -- two of which were in receivership when Restaurant Brands took over -- have continued to bleed, but are expected to contribute to earnings within two years.

Barry Lindsay of First New Zealand Capital said the threat of competition had unsettled investors.

"They will be competition there (in Australia) and in New Zealand -- little wonder really that the market starts to think it's not so good.

"You'd think from July Domino's will test the water, and if it succeeds they'll presumably look to expand," Mr Lindsay said.

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