The Collins Foods Ltd (ASX: CKF) share price is climbing after it announced a franchise agreement for KFC Netherlands.
Collins Foods Netherlands agreement
Collins Foods has been appointed by Yum! Brands Inc. (NYSE: YUM) as KFC’s corporate franchisee in the Netherlands through a corporate franchise agreement (CFA).
Under the CFA deal, Collins Foods will develop, manage, market, support and operate the KFC business in the Netherlands. This will include managing existing and future franchisees.
Collins Foods said that the CFA sets out a framework for the development of up to 130 new KFC restaurants in the Netherlands over the next 10 years. This will be a mix of independent franchisees and company owned restaurants.
Nitty gritty details
The company described that the deal as an “innovative franchising model”, Collins Foods will receive a fee from KFC towards their costs of running the market. There is also the opportunity to earn performance-based incentives over the term of the CFA.
Collins Foods said that due to the variable nature of the incentives built into the CFA, it cannot precisely estimate the economic benefits for the company.
The CFA is expected to be effective from 31 December 2021 with an initial term of five years. Collins Foods will have a conditional option to extend by a further five years.
Collins Foods Managing Director and CEO Drew O’Malley said:
“Today’s announcement marks a true milestone in the progression of Collins Foods’ strategy in Europe. The corporate franchise agreement in the Netherlands is an exciting opportunity that allows us to more fully leverage our scale, experience and operational capabilities in Europe for the benefit of both the company and the KFC brand.
“We believe there is substantial opportunity for restaurant growth in the Netherlands, given KFC’s low penetration rate relative to developed markets and other quick service restaurant brands.”
Summary thoughts on Collins Foods share price
I think that Collins Foods is a solid business and it has pleasing compound growth potential as it combines same store sales growth with an expanding KFC network across Australia and Europe. Its Taco Bell segment is an encouraging growth avenue.
This Netherlands deal sounds promising and the market seems to agree, with the Collins Foods share price rising by 5.8%.
At the current price, it seems a little high for how much profit growth that it is likely to achieve over the next two to three years. However, if I were already a shareholder I would be happy with this and continue to hold Collins Foods shares.
I’m looking for other ASX growth shares as ideas to buy and hold for the long term.
