IT is no secret that the cost of dining out has risen. Channel checks show that some restaurants have raised prices by about 30%, as they face supply chain constraints and inflationary pressures.
Inflation impacts restaurants in many ways, but it hits them the hardest when it comes to basic food items. Note that the government has intervened to place ceiling prices for some basic food items such as chicken.
But for Berjaya Food Bhd (BFood), the current challenging environment is still an opportune time to expand its operations.
“There are many more opportunities for expansion. For Starbucks, we plan on continuing our expansion into smaller towns, highways and neighbourhoods. As for Kenny Rogers, SALA and our other brands, we will continue our focus on smaller-format stores in prime locations with lower overheads,” BFood chief executive officer Datuk Sydney Quays tells StarBizWeek.
The group plans to invest RM300mil over the next three years for store expansion, including 16 new Starbucks stores, and about three to five stores for other brands under BFood.
Quays does not rule out mergers and acquisitions (M&As). With the growing popularity of plant-based products, BFood recently acquired a controlling stake in vegan ice-cream maker Kelava.
“We now own a 51% stake in the business and will be contributing the strength of our resources and distribution networks to grow this brand.
“We are always on the lookout for new opportunities to enhance our group’s portfolio,” Quays says.
The group holds the worldwide Kenny Rogers Roasters (KRR) franchise, after its parent company Berjaya Group Bhd acquired KRR International Corp in the United States in April 2008. As at June 30, 2021, there were a total of 75 KRR restaurants across Malaysia.
BFood also owns other famous franchises in Malaysia, namely, Starbucks, Jollibean and plant-based restaurant SALA.
Earlier this month, Seatle-based Starbucks announced plans to hike prices this year, its third increase since October. It had raised prices in China for some food and beverage products.
Food prices have surged around the world amid higher inflation, and companies have responded by raising prices of their products.
The same hasn’t happened yet here. BFood operates StarBucks Coffee in Malaysia. Quays says, “So far, there has been no price increase for any of the companies under BFood”.
He added that the group is looking at ways to reduce its operational expenses to cope with higher costs. “We are expecting a reduction in overheads through better cost control and cost-saving measures,” Quays says.
As of June 30, 2021, there were a total of 327 Starbucks stores nationwide.
Quays says that BFood is confident that the industry is on track to perform better this year. “We hope to see the opening of our international borders, which will support the growth of the industry in the latter part of the year,” he adds.
Quays says the Covid-19 pandemic has made BFood more adaptable to provide convenience to customers via drive-thru stores, increased sales through digital initiatives, and innovative marketing programmes that enhance the customer experience.
“In the wake of lockdowns and stay-at-home orders, we see that more consumers are eager for that human connection from the friendly service our businesses provide. With the further easing of restrictions, we are hopeful that the industry will regain its momentum,” he says.
The gradual re-opening of the economy since last August has bode well for BFood. The pick-up in consumer spend has translated to higher sales and profitability.
BFood’s net profit for the second quarter ended Dec 31, 2021 (Q2) tripled to RM38.88mil from RM11.12mil a year earlier, on the back of a higher-than-expected sales volume at its Starbucks outlets and an earnings turnaround for KRR.
For the first half of financial year 2022 (FY22), its net profit doubled to RM50.5mil from RM21.49mil previously. Analysts have upgraded their earnings forecast for the company for FY22-FY24.
Maybank Investment Bank research analyst Jade Tam has raised her earnings estimate for FY22, FY23 and FY24 by 76%, 48% and 42%, respectively, after imputing higher earnings before interest and tax margins for KRR and Starbucks.
While BFood’s outlook remains positive, she expects its earnings to be lower for the second half of FY22 as it expects average consumer spending to normalise post-Covid-19.
“Following pent-up demand in Q2, we understand that January 2022 sales have eased by 10%. The upcoming Ramadhan period (April 2-May 2) is also expected to see a lower sales volume of 10% to 20% based on historical trends.
“Nevertheless, the eventual reopening of international borders for in-bound tourism could lead to another leg up in sales growth,” she says in a report.
AmInvestment Bank Research expects that BFood’s future earnings growth will be supported by the opening of new Starbucks outlets and the turning around of KRR through the relocation of its stores and a revamp of product offerings.
Recall that this week, the National Recovery Council proposed to reopen Malaysia’s international borders as soon as March 1, without the need for compulsory quarantines.
This in turn has lifted positive sentiment on the local bourse that saw recovery in many consumer-related stocks, such as Malaysia Airports Holdings Bhd, Genting Bhd and its subsidiary Genting Malaysia Bhd, Capital A Bhd, Padini Holdings Bhd and BFood.