Picture: Zak Simmonds

Collins Foods, which operates stores under the KFC and Taco Bell brands, is on the hunt for more stores.

Australia’s fast food industry has seen more than $136m in investment transactions completed in the past financial year as major players move to increase or take advantage of robust conditions in the sector.

Burgess Rawson’s Fast Food Industry Insights report noted a total of $136.3m worth of deals in the 12 months to June 30 as more Australians down trade to cheaper and convenient options amid the cost of living crunch.

It also found that cap rates continue to firm, dropping from 4.46 per cent in the second half of 2023 to 4.42 per cent in 2024.

Burgess Rawson national partner Yosh Mendis said regional fast food outlets recorded strong results due to newly developed investment properties being sold at auction and limited freehold opportunities in the metropolitan areas. Cap rates for regional centres were 3.62 per cent compared to 4.72 per cent for metro fast food outlets.

“Historically, metro cap rates have outperformed regional transactions. However, starting in 2021, this trend reversed primarily due to more top brands such as McDonald’s being sold in regional towns,’ he said. “Investors are holding on to their premium metropolitan assets creating a flurry of activity in the regional counterparts.’

It comes as Mexican-themed chain Guzman y Gomez had the hottest ASX float in several years, skyrocketing to a market value of more than $3bn after gaining 36 per cent on its IPO price in its first session.

Mr Mendis said the industry had proven to be the most sought after asset class for investors, offering a blend of secure returns and robust growth despite headwinds from rising interest rates and inflation.

“Global giants like McDonald’s and KFC with well-developed networks in Australia benefit from strong brand recognition with investors, leading to lower capitalisation rates. In contrast, niche brands might face higher rates due to perceived risks relating to their permanence and longevity,’ he said.

ASX-listed Collins Foods, which operates KFC and Taco Bell stores in Australia, told investors last month that it wanted to open KFC restaurants as well as acquiring other franchises in the country.

“We’ll looking for stores (in Australia) that may come up for sale, where we can basically buy and build which have excess capacity to grow those stores,’ interim chief executive Kevin Perkins said in June.

Australia has one fast food outlet per 880 individuals, according to the report.

Mr Mendis said premium locations play a pivotal role in the success of fast food investments, with establishments strategically positioned in high-traffic areas near major highways, shopping centres, and tourist destinations.

Matt Bell – The Australian Business Network