FDD Talk 2017: What You Need to Know About the KFC Franchise Opportunity (Financial Performance Analysis, Costs and Fees)

In this FDD Talk 2017 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 2017 FDD

• Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a KFC franchise, based on Items 5 and 6 of the company’s 2017 FDD

• Section IV – Presentation and analysis of KFC’s financial performance representations, based on Item 19 of the company’s 2017 FDD, including information on the:

• 2016 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 26, 2016

• 2016 average net sales for the 2,815 single-brand franchised KFC outlets open for at least one year as of December 26, 2016

• 2016 average net sales for the 2,976 single-brand KFC outlets (company-owned and franchised) open for at least one year as of December 26, 2016

• average, high, and low weekly gross sales for the 11 “American Showman Outlets,” KFC’s new image for outlets rolled out in late 2015, that have been built as a new outlet

Section I – Background Information

14 Things You Need to Know About the KFC Franchise

Plans to Serve Antibiotic-Free Chicken by End of 2018

1.  In early April, KFC announced that the company would only serve chicken that was raised without antibiotics by the end of 2018. In a 2016 report released by Chain Reaction II, a group of six nonprofit activist organizations, KFC received an “F” grade for its antibiotic policies and practices. The report addressed health concerns over raising livestock with antibiotics.

2.  According to a press release from the Public Research Interest Group, KFC’s newfound commitment to buying antibiotic-free chicken will push chicken farmers to stop using antibiotics because the company is “among the largest buyers of chicken in the United States.”

New President for KFC’s U.S. Division

3.  At the end of March, Yum Brands Inc., KFC’s parent company, announced that Kevin Hochman had been appointed as President and Chief Concept Officer of KFC U.S.

4.  In his new position, Hochman will be responsible for driving overall brand strategy and performance of KFC in the United States. Hochman will focus on KFC’s customers, franchisees, innovation, and operational efficiency. Hochman had been working as Chief Marketing Officer for KFC U.S. since 2014.

5.  According to Yum, Hochman’s leadership helped KFC grow same-store sales and transactions for 10 consecutive quarters. Greg Creed, CEO of Yum Brands, says that Hochman is also responsible for the brand’s re-launch and for bringing back the iconic Colonel Sanders to KFC’s advertising in the past few years.

KFC to Launch New Zinger Sandwich Into Space

6.  In late April, KFC ran a new TV ad featuring actor Rob Lowe as Colonel Sanders to generate buzz about the April 24 launch of its Zinger sandwich in the U.S., and to announce that the company would be launching the sandwich into space over the summer. In the ad, Lowe is wearing a spacesuit version of Colonel Sanders’ iconic white suit and asks if KFC can actually launch the Zinger sandwich into space.

7.  At the time of the ad’s showing, details were scarce over whether KFC would actually go through with the ad’s claim. However, in early May, a wireless consulting engineer named Steve Crowley tweeted about Tucson, Arizona-based World View’s application to the FCC for Special Temporary Authority (STA) to take KFC’s Zinger sandwich to the edge of space.

8.  World View is planning to put together a stratospheric balloon launch to take the sandwich up into space. The company hopes to conduct ground testing sometime between May 29 and July 14, a time frame that covers both ground testing and the actual launch and flight of the balloon for the designated mission. World View plans to conduct the actual launch sometime in June.

Company History

9.  Harland Sanders opened a small restaurant in 1930 in Corbin, Kentucky by converting the small storeroom of a Shell filling station into a dining room where he could serve meals such as steaks and country ham to travelers. In 1934, Sanders took over a larger filling station across the street and began to sell fried chicken. His food was a success and in 1936, Sanders received the honorary title of Kentucky Colonel from Governor Ruby Laffoon.

10.  Over the next decade, Sanders sought ways to make frying his chicken quicker while still retaining its high quality. By 1940, Sanders perfected what would come to be known as his Original Recipe of 11 herbs and spices and had found a way to cook chicken faster through a modified commercial pressure cooker.

11.  In 1952, Sanders awarded the first franchise of his chicken recipe to Pete Harman of South Salt Lake, Utah. Harman hired sign painter Don Anderson, who coined the name “Kentucky Fried Chicken.” Sanders adopted the name and applied it to future franchises.

12.  Harman is also credited as the “virtual co-founder” of KFC due to his early contributions to the company such as coming up with the company’s slogan: “It’s finger lickin’ good” and being the first to offer the 14-piece chicken bucket with rolls and gravy as a complete family meal.

13.  Today, KFC is a globally recognized restaurant company with over 17,000 locations in the U.S. and internationally.

Entrepreneur’s Franchise 500

14.  KFC has ranked every year on Entrepreneur’s annual Franchise 500 list in the last decade, except for 2007. The company’s highest rank was No. 7 in 2008, while its lowest rank was No. 498 in 2017. KFC also ranked No. 48 on Entrepreneur’s Fastest Growing Franchises list in 2008.

Section II – Estimated Costs

• Please click here for detailed estimates of KFC franchise costs, based on Item 7 of the company’s 2017 FDD (updated).

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

• Please click here for detailed information on KFC’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2017 FDD.

Section IV – Financial Performance Representations (Item 19, 2017 FDD) and Analysis