Brisbane-based Collins Foods (ASX: CKF) has long been overshadowed by its river city rival Domino's Pizza Enterprises (ASX: DMP) when it comes to global expansion, but the KFC operator is now set to take a larger bite out of the Dutch market thanks to a new corporate franchise agreement (CFA).
One of Collins Foods' subsidiaries has signed an agreement with Yum! Brands Inc's European business to become KFC's corporate franchisee in the Netherlands, setting out plans to develop up to 130 new stores over the next decade.
The expansion, comprising a mix of independent franchisees and company-owned restaurants, would more than quadruple Collins' current Dutch store count of 29.
Unlike its Australian operations that saw sales growth rise of 13.8 per cent to more than $900 million in FY21, Collins Foods' European operations struggled with COVID-19 restrictions with only a marginal revenue increase to $134.9 million.
In same-store terms the group's sales in Europe - including 17 German stores - declined slightly in FY21, and in its annual report Collins reported its stores in the Netherlands were outperformed by their German counterparts, although drive-thru results were strong in both countries with sales up 12.6 per cent and 9.5 per cent respectively.
In FY21 the Brisbane company endeavoured to lift its game in Europe with the appointment of a new CEO for the continent in Hans Miete, but its size still pales in comparison to Domino's which notched a 23 per cent jump in European sales to almost $1.5 billion and EBIT of $87.6 million.
In contrast Collins' underlying EBITDA in Europe was just $1.1 million, and its EBITDA margin in the continent is just 7.3 per cent compared to 22 per cent in Australia.
But the company is not about to chicken out, and under the new CFA it will acquire all relevant assets, contracts and employees of KFC required to run KFC Netherlands.
The agreement will start with an initial term of five years from the effective date, with a conditional option for Collins Foods to extend the term by a further five years.
"Today’s announcement marks a true milestone in the progression of Collins Foods’ strategy in Europe," says Collins Foods managing director and CEO Drew O'Malley.
"The corporate franchise agreement in the Netherlands is an exciting opportunity that allows us to more fully leverage our scale, experience, and operational capabilities in Europe for the benefit of both the Company and the KFC brand.
"We believe there is substantial opportunity for restaurant growth in the Netherlands, given KFC’s low penetration rate relative to developed markets and other Quick Service Restaurant brands."
O'Malley highlights the excellent track record of the group's management team for Europe, describing the latest deal as a "natural extension for them and our business".
"We enjoy a strong partnership with KFC in Europe and globally, and this agreement is testament to the quality of that relationship. We look forward to working closely with KFC to make this a success," he says.
KFC's managing director for Europe, Oleg Pisklov, says the company is delighted to put in place a corporate franchise agreement with Collins Foods covering the Netherlands.
"We have full confidence that Collins Foods will be able to drive rapid growth of the KFC Netherlands restaurant network, rolling out new restaurants that they will operate, while supporting existing and new franchisees," Pisklov says.
"We look forward to partnering with Collins Foods to provide more Dutch consumers with the opportunity to enjoy KFC’s craveable chicken in a variety of convenient formats."
CKF shares were up 6 per cent at $12.70 at 12:35pm AEDT.
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