Market gobbles up pizza

Investors snapped up shares of Shakey’s Pizza Asia Ventures Inc. (SPAVI)  Thursday, allowing it to defy the stock market downturn on its trading debut, on upbeat prospects of rising consumer affluence, higher margins and potential to scale up the business.

SPAVI, which debuted on the PSE under the ticker “PIZZA,” gained 7.46 percent to close at P12.10 per share from its initial public offering (IPO) price of P11.26 per share even as the local stock market index fell by 1.05 percent.

In a briefing after the listing ceremonies, SPAVI president Vicente Gregorio said that with the expanding middle class in the country, the pizza parlor chain could grow its nationwide network to 250 to 300 in the next three to five years from around 180 at present.

Apart from the Philippines, SPAThursdayVI also owns perpetual rights to use the Shakey’s brand in the Middle East, Asia (excluding Japan and Malaysia), China, India, Australia and New Zealand. It recently signed a joint venture deal to bring the brand to Kuwait.

“Everyone knows that Shakey’s offers a variety of pizza flavors, but its best seller remains the ‘Manager’s Choice.’ However, when the company conducted its IPO last week, Shakey’s became the ‘investors’ choice’ given the very well-received IPO. Investors are not only familiar with the brand, but they have affinity for the food and service that is uniquely Shakey’s,” PSE chair Jose Pardo said in his welcome remarks during the listing ceremony.

Thursday’s closing rate gave SPAVI a market capitalization of P17.24 billion.

While Shakey’s is an American brand, SPAVI is now completely independent from its “mother” entity in the United States. It earlier acquired the trademark and the intellectual property. Since it does not pay royalty or licensing fees, it is expected to post good margins.

“We agreed to work closely (with the US counterpart) to jointly develop the brand internationally but we haven’t been paying royalties since 1999,” Gregorio said.

Before such trademark right was acquired, the local restaurant chain remitted 5 percent of total sales to the US as royalties.

After the P3.96-billion IPO, SPAVI is expected to close this year with 184 stores.  It aims to expand its store network by 20 next year and by 12-15 new stores starting 2018.

Established in California in 1954, Shakey’s operation in the Philippines is now bigger than in the United States, where the brand has 70 stores. The Philippine market is also Shakey’s biggest market in the world.

“Pinoys love pizza a lot,” Gregorio said.

“It’s a difficult market in the United States.  Somehow we’re lucky we found our niche here.  Shakey’s in the Philippines is really a well-established brand, having been in the business for 41 years and continuously growing,” he said.

The Shakey’s brand was brought in by conglomerate San Miguel Corp. in 1975 as a strategy to promote a new draft beer line. It was afterwards sold to the Prieto family, which in turn sold a controlling stake to the Po family early this year.

SPAVI expects to expand its footprint in the Visayas and Mindanao, where it has very little presence to date.  The group was 16 stores in Visayas and eight in Mindanao as of end-June.  This network outside Luzon could easily be doubled or tripled in the next three to five years.

For its overseas expansion, SPAVI also favors the franchising route in order to keep an asset-light business model.  Locally, about 40 percent of its stores are also franchised.

Its first offshore venture will be in Kuwait as it is still on the look-out for good local partners in other overseas markets.

Of the proceeds from the primary offering, P1.25 billion will be used for debt repayment, P137 million for commissary expansion and relocation of corporate headquarters and P111.8 million for working capital or potential acquisitions.