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FDD Talk 2015: The KFC Franchise Opportunity (Financial Performance Analysis, Estimated Costs, and Other Important Stuff You Need to Know)

by Franchise Chatter on September 10, 2015

in Chicken Franchises, FDD Talk 2017: Food Franchises, Franchise Earnings

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KFC Photo by James

In this FDD Talk 2015 post, you’ll learn the following:

  • Section I – Background information on the KFC franchise opportunity, including relevant news updates
  • Section II – Estimated initial investment for a KFC franchise, based on Item 7 of the company’s 2015 FDD
  • Section III – Presentation and analysis of KFC’s financial performance representations, based on Item 19 of the company’s 2015 FDD, including information on the:
  • 2014 average net sales, cost of product, and labor cost for the 156 single-brand company-owned KFC outlets open for at least one year as of December 31, 2014
  • 2014 average net sales for the 2,842 single-brand franchised KFC outlets open for at least one year as of December 31, 2014
  • 2014 average net sales for the 2,998 single-brand KFC outlets (company-owned and franchised) open for at least one year as of December 31, 2014

Section I – Background Information

Return of the Colonel at Core of KFC Campaign

KFC is looking to revitalize itself amid U.S. declines and the popularity of Chick-fil-A, and a big part of the push comes from the return of KFC’s iconic leader, Colonel Sanders.

A tongue-in-cheek advertising campaign first showed former Saturday Night Live star Darryl Hammond as the Colonel. Hammond’s turn was followed by a switch to Norm Macdonald, also an alumnus of SNL, who claims in the campaign that someone has been impersonating him.

Savvy video watchers have also noticed that as Macdonald says he is the real Colonel Sanders, he also shakes his head, which could indicate that the campaign calls for multiple Colonels and other twists and turns. Macdonald’s Colonel is earthier and more laid back than Hammond’s, who is more irreverent.

The chain hasn’t used Colonel Sanders in a national TV ad for 20 years. Now, not only is the Colonel back in the driver’s seat in the campaign, he is also the star of a retro 8-bit video game offered by KFC.

KFC has lost more than 1,000 stores in the U.S. in the past 10 years. It has also lost its spot as the largest chicken chain in the U.S. by sales to Chick-fil-A.

Yum Brands is battling this decline by spending $185 million on its marketing campaign, which will also involve menu changes, electronic boards that will tell diners the farms their chicken came from and who is cooking it, and incentives for franchisees to adopt KFC’s new decor, featuring red and white stripes and lighting that resembles chicken buckets. “Finger lickin’ good” is back, too.

Struggles in China, Too

Amid its U.S. struggles, KFC also has problems in China. Chinese diners started cutting back on chicken because of avian flu outbreaks in 2013 and 2014 that killed more than 20 people, and because of reports of a supplier who overused antibiotics. KFC is addressing this with menu additions and a makeover that includes new uniforms, new packaging and new decor.

KFC was the first Western restaurant chain to enter China, in 1987. The chain expanded rapidly in what is now KFC’s largest market. KFC today has more than 18,000 locations in 115 countries and territories, the majority of which are outside the U.S.

Started in a Gas Station

KFC, headquartered in Louisville, Kentucky, was founded in 1930 by Harland Sanders, popularly known as Colonel Sanders. Sanders’ first restaurant was a single dining table within a gas station in North Corbin, Kentucky. His next move brought him up to six tables.

Sanders had failed at several career pursuits in the past, but his challenge to the hamburger popularized chicken as a fast-food offering. He served his Original Recipe (later to be joined by Extra Crispy) of chicken with his special blend of secret herbs and spices, cooked quickly with pressure cookers. While the menu has evolved over the years to include chicken sandwiches, wraps and more, the starring role of chicken has not changed.

In 1936, Sanders was named a Kentucky colonel, the highest title of honor the Commonwealth of Kentucky bestows.

International Pioneer

The first franchised location of what was then known as Kentucky Fried Chicken opened in 1952 in Utah. One of the first fast-food chains to move into international locations, KFC had restaurants in Canada, Mexico, Jamaica and the United Kingdom by the mid-1960s.

Sanders sold the company in 1964 to investors who were led by John Y. Brown Jr. and Jack C. Massey. The original Colonel Sanders died in 1980 and wore his famous white suit at all times in public in the last two decades of his life.

Section II – Estimated Costs

  • Please click here for detailed estimates of KFC franchise costs, based on Item 7 of the company’s 2015 FDD.

Section III – Financial Performance Representations (Item 19, 2015 FDD) and Analysis

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