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Current as of 21/10/14 07:40PM NZST

Christopher Adams

The Business Herald’s markets and banking reporter.

Double Down burger eats into profits

KFC's Double Down was in big demand but at the expense of other, higher-margin Restaurant Brands products. Photo / APN
KFC's Double Down was in big demand but at the expense of other, higher-margin Restaurant Brands products. Photo / APN

While KFC's infamous Double Down was a promotional coup for fast-food operator Restaurant Brands, the company's chief financial officer says it had a negative impact on profits.

The limited edition bun-less chicken burger prompted a storm of media coverage and more than 16,000 were sold in the first three hours after they hit the market in May.

But it was not KFC's most profitable menu item, and as thousands of Double Downs were consumed, higher-margin products went unordered.

"It did cannibalise some of our better-margin products," said Grant Ellis, Restaurant Brands' chief financial officer. The company's chief executive, Russell Creedy, said last year that the bun-less burger also ate into sales at the listed company's Pizza Hut stores.

In October the firm - which also operates Starbucks stores - reported a net profit of $8.6 million for the first six months of its financial year, a 38.4 per cent drop on the previous comparable period.

The Auckland-based company released its fourth-quarter sales result yesterday, showing total revenue declined 5.5 per cent on the same period a year earlier to $69.8 million.

Sales for the year to February 27 came in at $308.2 million, a 5.2 per cent decrease on the previous comparable period, the company said.

Restaurant Brands attributed the drop in revenue to store closures in earthquake-hit Christchurch and a sell-down of Pizza Hut stores to independent franchisees.

Ellis said the economic environment also affected sales.

"Trading is still tight," he said, adding that the market was likely to remain soft over the course of this year.

On a same-store basis KFC's full-year sales fell 1.8 per cent, while at Pizza Hut they declined by 9.7 per cent.

Starbucks' same-store sales increased by 5.4 per cent over 12-month period, the company said.

KFC's fourth-quarter sales dropped 1.6 per cent, or $900,000 on the previous year to $53.3 million.

Sales at Pizza Hut during the final quarter fell 19.3 per cent to $10.2 million, while at Starbucks they declined 10.2 per cent to $6.4 million.

BT Asset Management's head of equities, Paul Harrison, said the fast-food operator's fourth-quarter result came in slightly worse than expected.

"I don't think anyone was expecting great numbers out of them because it's been pretty tough over that period," he said.

Restaurant Brands said its annual profit announcement would be made on April 3.

Shares closed down 7c, or 3.5 per cent, at $1.92 last night.

- NZ Herald

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