KFC operator Collins Foods punished as inflation bites

KFC operator Collins Foods is bearing the full brunt of inflationary pressures, with the company’s managing director saying the business is working hard to hold the line on menu prices.

Shares in the company, which operates over 250 KFC outlets in Australia as well as Taco Bell in Australia and Sizzler in Asia, plummeted by 18.6 per cent on Tuesday, after it revealed a big drop in its net profit for the six months to October.

Underlying net profit for the period slumped 14.2 per cent to $24.8 million, with Collins Foods managing director Drew O’Malley saying that its margins had been crunched by “unexpected increases in some of our core inputs in the first half.”

While the company does not detail the cost increases for individual ingredients, O’Malley said prices had gone up across a range of areas, including key ingredients served in products across KFC.

“When you think of some of the key inputs for KFC, it would be areas like chicken, oil, french fries,” he said.

Earlier this year, Collins Foods was also hit by produce shortages due to flooding and KFC stores took the temporary step of partially substituted iceberg lettuce with cabbage. 

However, O’Malley said that any further price rises on menu items would be a last resort for the company, given consumers are tackling higher cost of living pressures of their own.

“Maintaining the trust of customers is key. And KFC has worked hard over the past decade to keep value perception high,” he said.

Any change of pricing runs the risk of impacting transaction volumes, he said, at a time when same store sales growth was up by 5.6 per cent in Australia for the half.