Nov 2014 Financial News

KFC hikes its prices

Nov 20, 2014

Prestige Holdings Ltd (PHL), the parent company of KFC increased the price of four of its more popular menu items by between 7.7 per cent and 20.2 per cent, effective Sunday, November 16.

In a statement in the Sunday Guardian, the company announced that, a few carefully considered “cost adjustments” were expected to be made. The price increases range from 7.7 per cent to 20.2 per cent.

While the advertisement did not indicate how soon it would be adjusting the prices, its Independence Square branch had already implemented the changes by last weekend. While the manager at that branch did not want to divulge further details, she said supermarkets have increased the prices of certain commodities such as potatoes.

The increase in menu items is expected to boost KFC’s financial performance. 

According to its 2013 annual report, PHL at the close of 2013 operated 108 restaurants. For that same financial period the company opened two restaurants: KFC El Dorado and Subway in San Juan. The company continues to perform well as it reported profit after tax of $45.3 million with its, “Pizza Hut, Subway and TGI Fridays T&T restaurants achieving double-digit growth in operating profit compared to that of prior year.”

Despite the uptake in growth, the company said it was justified in making changes to its pricing scheme.

“We have upgraded our menu with new products, made existing products more abundant and reduced prices on select offerings. However, after two and a half years of absorbing increases in food costs and inflation, we have decided to make a few carefully considered cost adjustments.”

The company stated: “We have restructured our menu in this way in order to maintain affordability to our customers across the full spectrum of the menu with meal prices at attractive price points.”

Liquidity position of the company continues to be stable as it reported for the period ended December 31, 2013, cash and cash equivalents and bank overdrafts of  $55.5 million. 

Profit for the year from continuing operations is also stable. The figure: $44.3 million. This can be compared to 2012 when profits were recorded at $44.6 million.

In order to maintain its leadership position in all of its restaurants, the company stated in its 2013 financials that: “Capital expenditure totalled $36.4 million compared to $144.5 million in 2012. We renovated two Pizza Hut locations, five KFC and six Subway restaurants, and opened two new restaurants during the current financial year. In the comparable period our capital investment included the acquisition of the Subway business and related assets for $111 million.”

Customer is always right

With a presence in the T&T market for four decades, brand loyalty is just as strong as its brand. Business Guardian decided to find out whether KFC can withstand a price increase and continue to maintain brand loyalty.

Thirty-year-old Mark, a labourer in the energy sector, said he buys KFC almost every week. 

Although shocked that his dinner special now costs $44 compared to $40, he remains committed to KFC. Resorting to the competition is not an option for him as he feels the taste of KFC chicken is unique. Mark buys KFC at around four o’ clock in the afternoon and strongly believes that KFC has good service.

KFC is not justified in raising its prices, said 55-year-old Maria who is a mother of two. 

She said she first learnt about the increase in the news. It is not often that she buys KFC, but Maria wants value for money. She said the size of the chicken offered to customers is too small and the service is too poor. For her, the competition is not an option, as the taste would keep her returning to the brand.

While some were aware of the changes to KFC’s menu and the price adjustment, in some instances, 19-year-old Princess, was not aware of the price changes. Spending $26 for a breast and wing may mean she would have to take more money out of her pocket, she said. 

A parent of one, 24-year-old Adiah said she buys the $20 special which includes fries, biscuit, a piece of chicken and a drink. Adiah said she does not buy KFC often so she was comfortable with any price adjustments. 

Candice, 28-year-old parent of one, said she remains loyal to KFC. 

According to her: “KFC keeps calling me back” and buying a 12-piece bucket of chicken would not be an issue, though the price has changed.

Third quarter results, 2014

Prestige Holdings continued its upward growth for the nine months ended August 31, 2014.

According to its consolidated unaudited results, group revenue increased by four per cent, totalling $697 million. Prestige Holdings chairman Christian Mouttet, in his report to shareholders, said: “We continue to see positive trends in our TGI Fridays and Pizza Hut brands driven by exciting food offerings and improving customer experience.”

For the remaining 2014, he stated: “Based on the current performance we expect improved results for the current year.” 

The company reported that profit attributable to shareholders increased by 49 per cent, from $24.3 million to $36.3 million. 

 “A significant portion of this increase in profitability when compared to prior year is due to the $8.7 million write-off of our investment in the Barbados TGI Fridays restaurant in the same period last year,” Mouttet added.

 

Source:
Trinidad Guardian, BG7
Thursday November 20, 2014

http://www.guardian.co.tt/business/2014-11-20/kfc-hikes-its-prices