Herfy gives Big Mac a real run for its money

What's Up: Saudi Arabia's Herfy has been investing in the business at a time when diners worried about the economic outlook are carefully managing their capital expenditures.

Saudi Arabia's Herfy has been investing at a time when fast-food fans worried about the economic outlook are carefully managing their spending. The strategy has helped the local burger joint capture market share from international rivals.

Herfy opened four outlets in the first quarter to reach a total of 192. By 2014, the company will have 238 stores across the kingdom, according to analyst expectations. Herfy's market share is second only to that of McDonald's.

Herfy's strategy is not just about the number of restaurants it is opening, but also their locations. In addition to growth in large cities such as Riyadh and Dammam, it plans to extend its reach in rural areas, suburbs and smaller cities where no other restaurant chains are represented.

As a result, quarterly net income surged to 40.6 million riyals, a 25 per cent increase on the same period a year earlier. Herfy reported a net income of 32.5m riyals in the first quarter of last year.

"We expect Herfy to have another round of strong results in 2012 driven by healthy organic growth in restaurants division," said Khaled Al Ruwaigh, an analyst at Al Rajhi Capital in Riyadh.

Restaurant operators, including Herfy, struggled last year amid higher costs for beef and other ingredients.

The company introduced a menu with less expensive choices such as jumbo hotdogs.

Since then, commodity prices have fallen on concerns of another global economic slowdown, which could benefit Herfy. The results should translate into fatter margins in the second quarter, Mr Al Ruwaigh said.

Herfy's shares have risen about 6 per cent this year. Analysts are expected to pay out a cash dividend of 4 riyals per share.

Last year, Herfy was considering starting a cafe business. That idea has now evolved into a casual-dining concept, similar to a steakhouse. The company has opened one outlet in Riyadh and plans to open another in Qassim at the end of this year.

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