Taco Bell’s Struggles Lead to Strategic Exit
Collins Foods, Australia’s largest KFC operator, has announced plans to divest its struggling Taco Bell business in the country. The ASX-listed company currently owns 27 Taco Bell outlets in Australia, including all four in Western Australia. The move follows years of underperformance in the competitive Mexican fast-food segment, particularly against rival Guzman Y Gomez.
Newly appointed CEO Xavier Simonet confirmed that discussions are ongoing with Taco Bell International regarding a potential sale to new ownership. The company aims to complete the transition within the next 12 months, subject to final agreements. If a suitable buyer cannot be identified, Collins Foods indicated that alternative exit strategies would be considered.
Taco Bell’s history in Australia has been fraught with challenges. Originally launching in 1981, the brand was forced out due to a trademark dispute with a local restaurant. A second attempt in 1997 also failed, and Collins Foods reintroduced the brand in 2017. However, the chain never gained strong traction. In its latest half-year report, Collins Foods cited a tough consumer environment, with Taco Bell’s revenue falling by 2% to $24.6 million in the six months to October 2024.
Refocusing on KFC and Expansion Plans
With Taco Bell on the way out, Collins Foods is doubling down on its core KFC business. The company operates 285 of the 750 KFC stores across Australia and considers the brand its most reliable and profitable venture. CEO Simonet’s strategic review has led to a renewed partnership with KFC’s parent company, YUM Brands, aimed at accelerating growth both locally and overseas.
A key component of the new strategy is expansion into Germany, where Collins Foods currently manages around 207 KFC outlets. Under a new binding agreement with YUM Brands, the company plans to open 40 to 70 additional locations in Germany over the next five years, tapping into what it sees as an under-penetrated market.
In Australia, Collins Foods remains committed to driving growth through innovation in products and services, digital engagement, and operational excellence. Simonet emphasized that the brand’s heritage and consumer trust are essential assets, especially during times of economic uncertainty.
Financial Impacts and Future Outlook
Despite optimism surrounding KFC’s performance, Collins Foods is grappling with financial challenges in its Netherlands division. The company warned of impairments of up to $32.7 million due to ongoing pressures such as cost-of-living increases, labor inflation, and development delays that have impacted profitability in the Dutch quick-service market.
Nevertheless, Simonet expressed confidence in the company’s future, stating that the recent strategic changes provide clarity and direction. “We remain laser-focused on delivering operational excellence in our core market, Australia,” he said, while also pointing to promising opportunities in Germany.
As Collins Foods pivots away from Taco Bell, investors responded cautiously. The company’s shares slipped 2.8% to $8.43 in early trading on Tuesday, reflecting market uncertainty amid the reshuffle. Still, the company believes that concentrating on KFC’s proven success is the best path forward in an evolving global food landscape.
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