Collins Foods’ KFC restaurants declining in popularity

It looks like consumers are finding Oporto tastier than KFC.

Research house Roy Morgan is out with some interesting findings regarding the fast food chicken market. According to Roy Morgan Research, Kentucky Fried Chicken, or KFC as it is now known, and Red Rooster restaurants have both been experiencing declining visits from customers for the past five years.

In stark contrast, fast-food chicken competitors Nando’s and Oporto have both enjoyed growth in customer visits over the past five years. For shareholders in Collins Foods (ASX: CKF) which is the operator of around 120 KFC restaurants, the findings from this research are disturbing, however they should be kept in the context that KFC still remains the leading fast-food chicken chain in Australia, particularly amongst customers in the under 25 age group.

Foolish takeaway

One question investors should always ask themselves when they buy into an initial public offering (IPO) is why are the sellers selling? Collins Foods listed three years ago and the shares still trade 14.4% below their listing price despite a 15% increase in the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO). Given that at listing, KFC restaurants had apparently already experienced two years of declining patronage it would appear likely that the sellers knew a lot more than the buyers.

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Motley Fool contributor Tim McArthur does not own shares in any of the companies mentioned in this article.

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