KFC will Switch to Lettuce in a Few Weeks

Article by: Hari Yellina

According to major KFC operator Collins Foods chief executive Drew O’Malley, iceberg lettuce will fully return to KFC burgers by spring. He also notes that the fast-food company will increase prices for the third time this year as a result of rising produce costs. Early this year’s flooding along Australia’s east coast led to a shortage of numerous fresh produce items, including lettuce, with prices as high as $12 per head prompting fast-food restaurants like KFC or Subway to either completely forgo it or partially substitute it with cabbage.

Currently, KFC restaurants utilise a 60/40 mixture of lettuce and cabbage, with the exception of those in the Northern Territory and South Australia, but O’Malley predicted that this will soon no longer be necessary. KFC Europe, which saw revenue increase 41.2 percent to $190.4 million, was the primary driver of the overall revenue increase of 11.1%. KFC Australia saw a little increase in sales, rising 6.1% to $955.5 million. Following the outcome, Collins Foods’ stock price soared, and at roughly 2:30pm, it had increased by more than 11% to $9.98 on the ASX.

O’Malley credited KFC’s expansion to its positioning as a company that offers good value. He noted that advertising strategies like the “Did someone mention KFC?” commercials had helped consumers remember the company. But according to O’Malley, the business is considering a third price increase this year as it struggles with growing input expenses, such as those for packaging and gasoline, in addition to skyrocketing produce prices.

KFC has already increased prices twice this year—once in January and once in June—in line with its regular annual increase of 1 to 2 percent. In the current fiscal year, which began in May, “we do think that another additional menu pricing rise may be required,” O’Malley said. “Some inflation is possible here; we’re not immune.” The company has a “neutral” rating from UBS analysts, who noted that it had a “particularly outstanding start” to the new fiscal year and a “solid finish” to the previous one. They wrote in a note, “But we need more clarification on costs and the amount of potential margin impact.

With more than 250 KFC locations there, O’Malley predicted that the company would continue to rely on Australia as a “key growth engine” in the future. However, it also aspires to “turbocharge expansion” in Europe and boost Taco Bell’s brand recognition in Australia. There are 34 Taco Bell locations in Western Australia, Queensland, NSW, and Victoria. In three years, O’Malley predicted, “we hope to get it to size, and then we expect the brand to be performing well.” In Australia, there are more than 700 KFC locations run by three different businesses: Collins Foods, Yum! Brands, and Restaurant Brands.