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Can this new KFC store boost Collins Foods Ltd? 

Collins Foods Ltd (ASX: CKF) owns and operates 169 KFC and 26 Sizzler restaurants in Australia. In addition, the company has 61 franchised Sizzler restaurants around Asia and also owns 50% of Snag Stand.

KFC has been the leading performer of these brands and this should continue, albeit in a competitive market. KFC could be viewed as one of those Warren Buffett ‘forever brands’. Not that this carries a guaranteed formula for success, as evidenced by Coca-Cola’s struggles, but it certainly provides an edge.

Through its parent company, Yum! Brands, KFC is executing a worldwide trial of stores it dubs the ‘small-box project’. The stores are aimed at establishing a footprint in the tighter spaces of a CBD. The first Australian concept store in Parramatta is contemporary in its design with a trendy menu selection aimed at primarily 20- to 30-somethings. A liquor licence application is still being considered by the NSW government to further target this market. While it won’t please everyone, if approved, this could provide another competitive advantage for the ‘small-box project’ stores.

If the concept proves successful, other project stores are likely to be established throughout Australian cities. KFC intends on retaining its family-friendly drive-through suburban restaurants where the space to operate is available. With the success of the brand marketing through the KFC Big Bash competition and plenty of merit behind the ‘small-box project’, Collins Food could stay one step ahead of its competition.

Late last year, Collins Foods experienced disagreement at board level, particularly regarding the Sizzler strategy. Sizzler has been weighing the company down and led one of its largest shareholders and former non-executive directors to step down. The former director still retains a 16% holding in Collins Foods and the current board will be hoping they can vindicate pursuing the ‘Get Refreshed’ Sizzler strategy and its foray into Asia.

Nevertheless, Collins Foods has just reached a 52-week high and is still well worth considering with its 4.2% fully franked dividend yield and attractive price-to-earnings ratio of 14 times.

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Motley Fool contributor Max Cooper owns shares in Collins Foods Ltd.

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