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FDD Talk 2016: The KFC Franchise Opportunity (Financial Performance Analysis, Estimated Costs, and Other Important Stuff You Need to Know)

by Franchise Chatter on May 25, 2016

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

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KFC Photo by James

In this FDD Talk 2016 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 2016 FDD
  • Section III – Presentation and analysis of KFC’s financial performance representations, based on Item 19 of the company’s 2016 FDD, including information on the:
  • 2015 average net sales, cost of product, and labor cost for the 161 single-brand company-owned KFC outlets open for at least one year as of December 31, 2015
  • 2015 average net sales for the 2,840 single-brand franchised KFC outlets open for at least one year as of December 31, 2015
  • 2015 average net sales for the 3,001 single-brand KFC outlets (company-owned and franchised) open for at least one year as of December 31, 2015

Section I – Background Information

KFC Going Back to the Real Original Recipe

KFC has taken a step back in time as the franchise returns to the chicken-cooking method used back when the original Colonel Sanders was in charge.

KFC President Jason Marker announced the change in April 2016, prior to a cooking demo featuring Rachel Dratch, a comedian and actor. The approach is part of what KFC calls “Re-Colonelization,” a reference to Colonel Sanders.

KFC head chef Bob Das said Harlan Sanders talked about the “right” or “hard” way of making Kentucky Fried Chicken. To get there, the chain started providing more than 100,000 training hours to revert to the old chicken preparation.

The “hard way” takes longer, so customers will have to wait about 25 minutes for their chicken to cook.

KFC, headquartered in Louisville, Kentucky, also is renovating more than 3,000 locations and running an ad campaign in which it asks customers to give the brand another chance.

In 2015, parent company YUM! Brands announced plans to invest $185 million over the next three years for a KFC turnaround. The funds are going toward marketing, product innovation, and upgrades.

KFC has more than 17,000 restaurants in the U.S. and worldwide, serving fried chicken, chicken sandwiches, wraps, sides, salads and more. YUM! Brands’ 40,000 locations make it the world’s largest restaurant company in terms of locations.

Dual Colonels Continue

The chain is continuing its ad campaign that started in the summer of 2015 when KFC dusted off the Colonel. The ads go back and forth between actors Darrell Hammond and Norm Macdonald for tongue-in-cheek portrayals of the iconic Colonel Sanders, who had not been part of KFC marketing for more than 20 years.

It’s part of KFC’s push to get millennials into the restaurants to reacquaint them with the Colonel and what he stood for from the time Harlan Sanders opened the first KFC restaurant in 1952 with his special recipe, made with a secret list of herbs and spices he scratched on the back of his kitchen door.

“Young people are growing up with distrust in institutions, distrust in big brands,” KFC Chief Marketing Officer Kevin Hochman told the Associated Press. “It makes it very difficult to sell in conventional ways that might have worked for my generation or my parents’ generation.”

KFC data shows that only two of five millennials have even tried the chain.

Indeed, KFC slid to No. 41 on the Entrepreneur Franchise 500 list for 2016, dropping from No. 16 in 2015.

Fourth Chicken Flavor Debuts

KFC announced a new chicken dish, Nashville Hot Chicken, in January 2016. It’s only the fourth chicken recipe in the chain’s history, after Original Recipe, Extra Crispy and Grilled. Nashville Hot Chicken features cayenne pepper and smoky paprika.

‘Finger-Lickin’ Good’ … Nail Polish?

KFC’s Hong Kong customers are getting a literal taste of the brand’s “Finger Lickin’ Good” slogan through two flavors — that’s right, flavors — of nail polish announced in May 2016. The Original is a pinkish-beige color, while Hot & Spicy is red. After painting their nails and letting them dry, customers can lick their nails over and over again for the taste of KFC chicken.

The polish is “sourced from natural ingredients,” according to KFC, and has its own music video on YouTube as part of the social media campaign.

Section II – Estimated Costs

  • Please click here for detailed estimates of KFC franchise costs, based on Item 7 of the company’s 2016 FDD (updated).

Section III – Financial Performance Representations (Item 19, 2016 FDD) and Analysis

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