This article first appeared in The Edge Malaysia Weekly on July 31, 2023 - August 6, 2023
AFTER over a decade of operations here, the US-based Texas Chicken quick service restaurant chain is ready to spread its wings. Singapore Exchange-listed Envictus International Holdings Ltd, the operator of Texas Chicken in Malaysia, is accelerating its expansion as it seeks to grab a bigger slice of the local “chicken” pie.
Texas Chicken is hoping to have opened its first 100 outlets by the end of 2023, up from 94 currently, and then take just seven years to double that number, says Texas Chicken Malaysia general manager Tham Yue Foon.
The group is expected to spend between RM159 million and RM212 million on reaching its target of 200 outlets by the end of the decade. This investment estimate is based on an average spending of RM1.5 million to RM2 million per store opening.
The planned expansion, coupled with a strategic business reset, is expected to help Texas Chicken Malaysia — which has been loss-making since the Covid-19 pandemic — see an improvement in its top-line sales and margin.
Texas Chicken, together with popular coffee chain San Francisco Coffee (SFCoffee), forms Envictus’ food services division. In the financial year ended Sept 30, 2022 (FY2022), the food services segment contributed 53% to the group’s revenue of RM515.58 million, with Texas Chicken accounting for 80% of the food services revenue. And of the RM515.58 million, 98.7% came from Malaysia.
“We aim to hit 100 stores by the end of 2023. In 2024, the target is to open around 15 new outlets,” Tham tells The Edge.
“The target is to have 200 restaurants by 2030,” she adds. The first Texas Chicken opened in January 2013 in AEON Bukit Tinggi, Klang, Selangor, while the latest opening, the 94th outlet, was in Bentong, Pahang in July.
The majority of the upcoming openings are expected to be in Peninsular Malaysia, although there are plans to make inroads into Sabah next year.
“Depending on the store format and location, the average contribution to top-line sales from each new store is between 1% and 1.5%,” Tham says.
The average size of the restaurants is 2,000 to 3,000 sq ft, depending on the format — whether it is a drive-through, mall or shopfront.
Texas Chicken was founded in San Antonio, Texas in 1952 by George W Church. Today, the restaurant chain has more than 1,500 outlets in 24 countries, generating system-wide sales of more than US$1 billion.
In July 2012, Envictus signed a 10-year agreement with US-based Cajun Global LLC for the exclusive rights to develop and operate Texas Chicken restaurants in Malaysia and Brunei. The agreement was renewed in May 2022 for another 10 years. In Malaysia, all the Texas Chicken outlets are developed and operated by Envictus.
“Texas Chicken was in the black in early 2020, but like most other businesses, we were adversely impacted by the pandemic,” Tham says, adding that restrictions in business hours and dine-in closures during the multiple lockdowns resulted in lower sales turnover and higher delivery commissions paid to its food delivery partners.
“The food supply shortages and labour challenges during this period also eroded our business results,” Tham explains.
Post-pandemic, the business was weighed down by other challenges. The restaurant chain saw the cost of doing business continue to rise due to a combination of factors — escalating raw material and labour costs, the depreciating ringgit, supply shortages because of climate-related issues and the Russia-Ukraine war, as well as higher financing cost due to an interest rate increase.
“But as the saying goes, in every crisis, there is an opportunity. Based on growth in revenue post-pandemic, we know that Texas Chicken has a strong brand acceptance in Malaysia,” Tham says, pointing out that in the six-month period ended March 31, 2023 (1HFY2023), Texas Chicken’s revenue rose 19.4% to RM131.2 million.
Moving forward, the group is committed to resetting its business. It plans to implement a set of measures to drive its top-line sales and improve its margins. Accordingly, it is reviewing its expenses across the board and identifying potential cost-saving opportunities; streamlining its menu offerings to better cater to consumer demand; optimising its restaurant capacity through right-sizing and exploring new restaurant layouts; managing manpower efficiencies to improve productivity and launching marketing campaigns to drive buzz and increase footfall to its outlets.
“The continued growth of our outlets and investment in brand-building efforts are expected to contribute positively to our business performance in the long run,” Tham says.
“More importantly, we will maintain the quality standards of our products and continue to offer great value to our customers,” she adds.
On the outlook for Texas Chicken this year and next, Tham says: “We remain cautious due to external factors and cost challenges, but with the ‘business reset’ initiative that we have in place, we believe we are well positioned to adjust to the changing market conditions and achieve our business objectives.”
Apart from food services, Envictus’ other divisions include trading, frozen food and premium food wholesaler, under the Pok Brothers brand. Another division is processed food, such as cold cuts and sausages under the Gourmessa brand, while the fourth business segment is dairy — selling and distributing sweetened creamer and evaporated creamer under the Su JOHAN brand.
As a group, Envictus’ revenue rose 17.3% in 1HFY2023 to RM280.06 million while revenue from its food services division climbed 18.7% to RM150.9 million during the period.
However, the group incurred higher operating expenses of RM114.9 million, up 17.7% from the previous corresponding period, due to higher selling and marketing expenses related to the expansion of Texas Chicken restaurants, an increase in labour costs, higher rent and the absence of rental rebates. As a result, Envictus recorded a net loss of RM12.5 million in 1HFY2023 compared with RM9.1 million a year earlier.
Meanwhile, total liabilities for the group stood at RM411.25 million, of which RM240.58 million were current. Total assets stood at RM583.75 million, which included receivables of RM56.18 million and cash and bank balances of RM19.55 million.
The share price of Envictus has risen 37% year to date and it closed at S$0.23 last Friday, giving the company a market capitalisation of S$70 million.
According to May 2023 data from Germany-based online statistics portal Statista, the retail value of fast-food or limited-service restaurants in Malaysia last year was an estimated US$2.66 billion from a total of 7,720 outlets, up from US$2.2 billion in 2021 from a total of 7,000 outlets. By 2026, the sales value of the fast-food restaurants in Malaysia is expected to reach US$4.35 billion from an estimated 9,720 outlets. And Texas Chicken plans to get a large bite of this growing market.
Fast-food restaurants are also known as quick-service restaurants (QSR).
How does Texas Chicken plan to compete in the highly competitive QSR market, one where many players offer fried chicken?
“We are a challenger brand, so we have to work smarter to gain a share of the QSR market,” Tham explains.
A challenger brand is defined as one that is neither a market leader nor a niche brand but one that strives to conquer the market.
“We rely on our unique attributes like product quality, boldness, innovation and flavour to leave a lasting impression on consumers, and create a deep craving for our offerings,” Tham adds.
“When it comes to food, consumers crave reliably great tasting and quality products serviced at great value. And today’s consumers are also convenience seekers, which means that the speed of service is essential,” she points out.
Simply put, Tham says, Texas Chicken channels its efforts into enhancing the customer experience by doing the existing things better. Its brand vision is to be the most loved global chicken brand.
“We provide convenient and quality comfort food the Texas way. At the same time, we celebrate our local identity by launching limited-time offerings that appeal to the Malaysian palate. When it comes to pricing, we have various ‘value’ platforms at different price tiers to drive affordability. For example, we launched the ‘Menu Rahmah at RM5’ in support of the government’s initiative to help lower the cost of living.”
Some of Texas Chicken’s best-performing stores are 24-hour drive-through restaurants located in Kelantan, Terengganu and Kedah. The top items on its menu are Spicier Spicy Chicken, its signature Honey-Butter Biscuits, the flavourful Mexicana Wrap and Jalapeno Bombers. The sale of chicken and biscuits accounts for almost half of total products sold on a daily basis.
Texas Chicken emerged a Gold Winner in the 2022 Putra Brand Awards under the Restaurants and Fast-Food category. According to Tham, this shows that despite being a relatively young player in the market, the brand has managed to cement itself as one of the favourite consumer brands in Malaysia despite the presence of bigger and more established players in the market.
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