Domino's vs GYG vs KFC

Published Jan 10, 2025, 5:00 PM

Guzman y Gomez made a big splash in 2024 when it listed on the ASX. At the same time, Domino's Pizza is under pressure, and KFC owner Collins Foods is warning of tough times. Ben Gilbert, Head of Australian Research at Jarden, gives Sean Aylmer an investor's guide to the quick service restaurant sector.

This is Fear & Greed's summer investing series. All information is general in nature - you should seek independent professional advice before making investment decisions.

Welcome to Fear and Greed, summer investing series brought to you by vanta specialist in compliance lead growth. I'm Sean Aylmer. Mexican themed restaurant chain Guzman. He Gomes arrived with a bang on the ASEX last year, exceeding all expectations, but at the same time some other restaurants in the same area didn't do so well. Domino Is one of the sector store warts is under all kinds of pressure both here and overseas, throwing to the mixed. Colin's Foods the company behind two hundred and seventy odd KFC restaurants in Australia and it's a fascinating sector for investors. As always, this is general information only and you should seek independent advice before making investment decisions. Ben Gilbert is the head of Australian research at Jarden. Ben, welcome back to Fear and Greed.

Thanks for right Sean.

Great to be here, Ben. How do you look at the QSR sector quick service restaurant sector when you have high flyers like Guzman, but then other Domino's and Colins who really have struggled over the past twelve months.

It's a very good question. Sean, and I think it's one that a lot of investors and myself are sort of still sort of grappling and thinking about as we're looking forward from here. Look, I think in some industries it's good to be a challenger, some it's not. There comes a point of scale when concepts start to be proven up and people get excited, and look, I think we've seen a bit of a case of that in Australia. Goozman has obviously been a phenomenal success from a share price perspective since it's come on. Similarly, it's comp trends in terms of luck for like sales, but it's generating out of the same store year and year have been super strong and outperformed the peer set. The share price has reflected that you flicked at the other end of the spectrum and you've got Domino's. It's been under enormous pressure, a function of the fact probably that it's over complicated it's business a little bit in recent years. It's in Japan, it's probably pushed out too many stores, issues around the minimum wage and the Netherlands, et cetera. And then you've got a management change to boot. More recently, look, I think Collins has just probably been subject to just some challengers in terms of the pace at which it wants to grow, and a backdrop where some of the incumbents have probably got their pricing positions wrong. Albeit that is now starting to change. The question is moving forward. I think can sort of Dominoes and Colin sort of get some of that mojo back and close the gap to Guzman And that'll be the key question I think as we look forward from here.

Okay, so Domino's has always been one of my favorite stocks because it did so well. It had a very high profile CEO, who, as you just mentioned, is stepping down don May. What's it? I mean, what's the way forward for Dominoes at this point? Because it's got new management, it's got a chair which has a huge shareholding in the company, and he is certainly a very highly regarded businessman. But what do they do when they've got all these problems in Europe and Japan?

Yeah, Look, I think I think it's just a bit of a back to basics approach. I think you sit there and say, Okay, where are good stores? What's doing well? What do the customers love about us? Let's put that in front of them, do it consistently. Let some of these stores that maybe weren't trading as strongly as they should because we've rolled out too many start training up, get to a point where maybe not over trading, you create some pent up demand in the system. You start seeing profitability from franchise ees lift, and then ultimately that builds confidence which then starts getting the whole store network and innovation pipeline moving again. Now that takes time. We've been through a multitude of changes and announcements in terms of this strategy reset over the last eighteen months, from store closures to cost out to management change to changes in pricing strategy, all this sorts of stuff. Ideally, I think from a market perspective, we'd like to rip the band aid and see that happen all at once, But it hasn't. And look, I think that's obviously been to the detriment of the share price. In theory. Now we've potentially got one more event we've got to wait for. We've got to see once the new CEO SHO fully gets his feet under the desk, or but it has been consulting for twelve months, is there going to be a strategy reset. I don't think that there will, owing to the fact that he has been consulting, but I do think there's probably going to be more concerned approach and costs and maternal capital and look being CRESR operator that are capital light businesses. If we can get confidence around that, there's a material opportunity for this company to rerate and perform well over the next twelve plus months.

What about Colin's Foods then Taco Bells as well as KFC in this country, what's the outlook for them?

Yeah, so Collins is a little bit different from Domino's. Collins is a store operator and dealing with Young in Australia who is sort of the master franchise. Similarly, they've got a new master franchise in Germany that they're engaging with, so they're a little bit more beholden to others from a strategic and a marketing lens. Now that's not to say that it's still not a phenomenal business and has a massive opportunity and opportunity to generate significant returns, because it does. But I think what we've seen is is that some of the competitive or pricing architecture that's been put into these categories and look, McDonald's has been in the same boat. I think well publicized has made some challenges around breakfast and some of these other menus. Is getting their pricing, their marketing strategy right, and I think what we've started to seen more recently is that is coming through and you saw that in the comp trends from their result towards the end of last year, whereby you start to see SAMs or sales in Australia improved. So that's a tick, but it needs to keep going and if that does accelerate to three four five percent, the leverage I either generating revenue over a cost base means that profit should grow much more quickly. Is enormous. Germany, in terms of what's happening over there is more about I think getting there than you must franchise, engage or not engaged. The wrong word is getting that plan around roll out moving forward, and again that provides a big opportunity. Netherlands, I think is improvement. That's some big minimal age increases. So I think again lots of opportunities there, potentially more for Dominoes given where it's come from, but I do think similar opportunities for Commons as well.

Ben, thanks for joining me. Fear and Greed Summer Investing Series.

Thank you very much.

That has been Gilbert, head of Australian research at Jarden. Remember to get your own independent advice before making any investment decisions. This is Fear and Greece Summer invest Series, brought to you by Vanta. Vanta automates compliance for frameworks like ISO twenty seven one, SoC two, CPS two three four and ESGUL eight, saving time and money while building trust. Join over eight thousand companies like at Lassian, Dovetail and Fireant managing real time risk. Get one thousand dollars off at Vanta dot com slash Fear and Greed. I'm Sean Elmer. Enjoy your day,