Collins Foods to exit Taco Bell brand in a new global shake-up that ramps up KFC growth in Germany

Collins Foods (ASX: CKF) has bitten the bullet with plans to abandon the Taco Bell brand in Australia as part of a shake-up of its global operations that includes expansion of the KFC brand in Germany and a review of its struggling Netherlands business.

Collins Foods, which has also affirmed a focus on its core KFC growth market in Australia, has announced plans to sell its Taco Bell operations over the next 12 months. However, the company reveals that “other exit options will be explored” if a buyer can’t be found.

Discussions are currently under way with master franchisor Taco Bell International to transition the business to a new owner.

Collins Foods operates 27 Taco Bell outlets in Australia after establishing its first location in Brisbane in 2017. The fast-food business, which is popular in the US, has struggled to gain traction in Australia for Collins Foods.

While the business recorded sales growth in FY24, Taco Bell posted an underlying loss for the period. Critically, EBITDA margins were also significantly lower for the period.

More recently, the Taco Bell business suffered a deterioration in earnings as revenue fell 2 per cent to $24.6 million for the six months to 13 October 2024, led by a marginal drop in same-store growth compared with a 7.9 per cent gain a year earlier.

Collins Foods CEO Xavier Simonet, who stepped into the leadership role in October last year, is driving the new business strategy which the company says could include potential mergers and acquisitions down the track.

The new global strategy is centred on a push to make the company’s KFC operations in Germany its second pillar of growth behind the Australian KFC business.

The company says it has secured a binding agreement with US-based master franchisor Yum! Brands Inc to accelerate its growth in Germany with the addition of between 40 and 70 new KFC restaurants over the next five years.

Collins Foods also reveals that the German deal opens up potential acquisition opportunities as well as new markets in Europe.

But after stepping into Netherlands in 2021 to become KFC's largest corporate franchisee in the country, Collins Foods has today revealed it will book an impairment of between $25.5 million and $32.7 million on its Dutch operations after facing “headwinds from cost-of-living pressures, labour inflation, and development constraints”.

Collins Foods is looking to improve cost efficiencies in its Netherlands KFC operations, while also optimising its existing restaurant portfolio and scaling back its new site developments in the near term to “reflect more challenging market conditions”.

As it moves to scale its operations in Germany, Collins Foods also plans to step up its focus on Australia where KFC remains a “highly profitable growth market” for the company.

The company, which operates about 280 KFC outlets nationally, says it will continue to drive growth organically and through new openings under its current development agreement with Yum! Brands.

“Collins Foods has successfully operated KFC restaurants for over 50 years, building a reputation as a trusted operator,” says Simonet, who was formerly CEO of Austrade prior to his appointment to lead Collins Foods.

“The initiatives announced today provide strategic clarity and renewed purpose. We remain laser focused on delivering operational excellence in our core market, Australia, where we continue to successfully adapt to a dynamic consumer landscape.

“We are excited about accelerating expansion into Germany where the market remains underpenetrated, offering a clear runway for growth. Our partnership with YUM will fast-track our ability to scale in Europe, and we remain open to broader opportunities in this region.

“We maintain a disciplined approach to capital deployment and operational excellence, optimising our existing network with carefully targeted expansion to ensure ongoing value for customers, partners, and shareholders.”

The new business strategy announced today has been accompanied by two high-profile departures for Collins Foods, including European CEO Hans Miete who has stepped down after more than four years in the role.

Miete drove the group’s expansion into Europe, while also managing and positioning the KFC brand in the Netherlands.

European chief operating officer (COO) Chris Johnson has been appointed acting general manager of Collins Foods’ European operations while a search for Miete’s replacement is under way.

Meanwhile, Helen Moore, the COO of KFC Australia, has also resigned after almost four years with the business.

Krystal Zugno, general manager of Taco Bell and a 24-year veteran with Collins Foods, has been promoted to general manager of Australian operations overseeing both the KFC and Taco Bell brands.