KFC operator Collins Foods set to float

Franchise operator Collins Foods, operator of KFC outlets in Queensland, will join the Australian Securities Exchange next month with a capitalisation of about $235 million.

The company, owned by Pacific Equity Partners, operates 119 KFC outlets in Queensland and 26 Sizzler restaurants nationally.

The initial public offering has been priced at $2.50 per share or nine times earnings and Collins  is expected to make its market debut on August 4.

Priced at the lower end of the purported $2.50 to $2.92 range, the sale is said to have attracted a mixed register, with retail investors accounting for 25%.

Jason Gehrke, director of the Franchise Advisory Centre, questioned PEP’s motivation with regard to Collins Foods’ IPO.

PEP is also parent company of REDgroup Retail, which was placed into administration in February.

“A cynical observer could consider it an attempt by PEP to balance their books after the demise of REDgroup Retail,” Gehrke says.

Regardless of PEP’s motivation Gehrke doesn’t believe the IPO will have an impact on the day-to-day operations of Collins’ KFC outlets.

“I can’t speak for Sizzler but Collins’ KFC outlets aren’t like a chain with individual franchisees – they’re all company-owned outlets,” he says.

Gehrke says the IPO timing is surprising.

“All the market commentary I’ve read is that it’s not the market you want to be launching an IPO in – these guys are very much going alone,” he says.

“It’s not a business that is necessarily among the sorts of businesses you would expect to float at this time – you’d expect it more from a mining company or dotcom companies.”

Gehrke says while the franchise sector is doing OK in the current economic climate, poor-performing systems need to lift their game.

“Across the sector there are examples of excellence and examples where excellence is a destination they are yet to achieve,” he says.

“I don’t think it’s about the state of the market but the effectiveness of the branding and leadership within that to explore that market potential.

“Good systems have the capacity to support their franchisees to lead from the front and offset the impact of consumer confidence.”

Gehrke wouldn’t name specific franchises but he says franchised food businesses continue to perform well, particularly as consumer spending continues to tighten.

“Food branded through high volume outlets will still have significant appeal because it’s cheap and affordable … however the convenience factor is ultimately the one driving those purchasing decisions,” he says.