Update on Coronavirus
The coronavirus (COVID-19) was first reported from the Wuhan province in China on 31 December 2019. The World Health Organisation data shows a total of confirmed cases of 1,844,863 and 117,021 deaths globally. As of today (15 April 2020), there have been over 6,416 confirmed cases in Australia.
Collins Foods Limited (ASX: CKF)
Collins Food Limited (Collins Food) is a KFC franchisee in Australia and Europe, a Taco Bell franchisee in Australia as well as the owner of Sizzler restaurants in Australia and the franchisor for Sizzler in Asia. Collins food has a market capitalisation of A$807 million.
What has been Collins Food response to COVID-19?
Collins Food announced (18 March 2020) that Australian KFC stores will only be operating the drive-through service at KFC stores. This is to limit people gathering in KFC stores to stop the potentially spreading COVID-19 to KFC employees. KFC Australia drive through accounts for approximately 80% of sales, which is positive news for Collins Food as most of their sales should continue, given that all stores do not have to be closed in the short-term. KFC Australia will continue to utilise home delivery services such as Menulog and Deliveroo to ensure that consumers have access to KFC Australia.
Further to Collins Food announcement (16 March 2020) to all KFC European stalls closing, the Dutch Government is now allowing restaurants to operate take-away, drive-through and delivery channels. In addition, all of Collins Food’s KFC restaurants in the Netherlands provide take-away, two-thirds are drive-through and over half provide a delivery service. Germany KFC stores will be allowed to continue utilising the drive-through services and permitted to utilise home delivery services.
Collins Food also announced recently that sales growth in the first 20-weeks of HY20 in KFC Australia, KFC Germany and KFC in the Netherlands is 3.5%, 5.6% and -3.6% respectively.
What is the outlook for Collins Food?
The long-term outlook for Collins Food is positive with several new stores from KFC and Taco Bell opening around Australia and Europe. However, it is important to note that discretionary spending on fast food is depend on income generation of economic agents. If wage growth continues to be stagnated, and domestic economic conditions in Australia and Europe continue to weaken, this could limit the ability for consumers to purchase this type of food, as it is not a necessity and as cheap as other food sources.
Dominos Ltd (ASX: DMP)
Domino’s Pizza Enterprises Ltd (Dominos) is an Australian-owned master franchise holder for Domino’s in Australia, New Zealand, Belgium, France, the Netherlands, Japan, Germany, Luxembourg and Denmark. Domino’s has a market capitalisation of A$5.5 billion.
What has been Dominos response to COVID-19?
Dominos announced (19 March 2020) a voluntarily close all stores in France for a 15-day period, this is considering growing concerns surrounding the spread of COVID-19 in France. In addition, Dominos announced (25 March 2020) stores in New Zealand have been closed for a 4-week period. This is considering the New Zealand government announcing that all food delivery and takeaway will be prohibited.
Dominos other markets remain open, with a focus on delivery services to consumers.
What is the outlook for Dominos?
The outlook for Domino’s is positive. Domino’s has opened another 11 stores in the first weeks of the next half year with significant store openings planned in the later parts of the half year that should continue Domino’s expansion in domestic and global markets.
Investors that want exposer to the fast food industry could consider Collins Food and Dominos, as both these companies have exciting growth prospects.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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