In this FDD Talk 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 2018 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 2018 FDD
- Section IV – Number of franchised and company-owned KFC outlets at the start of the year and the end of the year for 2015, 2016, and 2017, based on Item 20 of the company’s 2018 FDD
- Section V – Presentation and analysis of KFC’s financial performance representations, based on Item 19 of the company’s 2018 FDD, including information on the:
- 2017 average (and median) net sales, cost of product, and labor cost for the 41 single-brand company-owned KFC outlets open for at least one year as of KFCLLC’s fiscal year ended December 25, 2017
- 2017 average and median net sales for the 2,918 single-brand franchised KFC outlets open for at least one year as of KFCLLC’s fiscal year ended December 25, 2017
- 2017 average and median net sales for the 2,959 single-brand KFC outlets (company-owned and franchised) open for at least one year as of KFCLLC’s fiscal year ended December 25, 2017
- average, median, high, and low weekly net sales for the 28 “American Showman Outlets,” KFC’s new image for outlets rolled out in late 2015, that have operated for at least 13 weeks as of KFCLLC’s fiscal year ended December 25, 2017
Section I – Background Information
17 Things You Need to Know About the KFC Franchise
KFC Foundation Creates Financial Advice Program for Workers
1. In early April 2018, KFC’s independent, non-profit organization, the KFC Foundation, which is fueled by franchisees, announced a personal finance program intended to help employees improve their financial lives through skills training and other programs. Called MyChange, the company’s latest charitable offering for employees is a partnership with mobile financial wellness service Sum180.
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3. MyChange pairs a confidential financial wellness app with a personal adviser to empower employees to take charge of their money. Some of the program’s features include:
- Budgeting tools and weekly budgeting tips;
- Personalized budgeting plans and actionable, highly personalized next steps;
- Helpful videos and easy instructions;
- Notifications to encourage accountability;
- Personal and private access to financial advisers to provide coaching; and
- An online community for peer support and encouragement.
4. According to KFC, employees picked financial counseling as a primary need during its latest company-sponsored “Your KFC Voice” engagement survey. The other request ahead of counseling was college scholarships.
5. In addition to MyChange, the KFC Foundation has several other offerings for employees, including Rise with GEDworks (personalized high school credential assistance); the KFC Family Fund, which helps with hardships away from work; and the REACH Educational Grant Program (college tuition assistance at $2,000, $2,500, and $3,000 award levels).
6. The KFC Foundation receives the majority of its financial backing from the Cole Slaw Donation Program, a voluntary initiative where KFC franchisees elect to have a portion of the sales of cole slaw in their restaurants used to engage in and support the Foundation’s initiatives (averaging out to a $1 per employee per month contribution).
Jason Alexander Picked as Newest Celebrity to Portray the Colonel
7. In recent years, KFC has started running ad campaigns featuring celebrities, such as Reba McEntire, Norm Macdonald, George Hamilton, Rob Lowe, Ray Liotta, and Billy Zane. These humorous ads have been a hit with customers and in early August 2018, KFC debuted their latest colonel, Seinfeld star Jason Alexander.
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9. According to a press release, “Modern families want and need mealtime to be simple and stress-free. KFC knows this can be a feat when the clock strikes 5 p.m. and wants to help families solve the dinnertime challenge without sacrificing taste. To do just that, KFC has enlisted sitcom king Alexander to offer its $20 Fill Ups four different ways, including a new boneless fillet $20 Fill Up.”
Company History
10. Kentucky Fried Chicken, commonly called KFC, traces its roots back to 1930 when Harland Sanders converted a storeroom in the Shell gas station that he owned into a small eating area. Sanders initially served steaks and country ham to travelers stopping by his gas station, which was located just outside North Corbin, a small city near the Appalachian Mountains. A few years later, in 1934, Sanders took over the Pure Oil gas station across the street from his Shell station and began selling fried chicken.
11. Sanders’ two businesses were successful and in 1936 he was given the honorary title of Kentucky Colonel – which he would later use to brand his future fried chicken franchise – by Governor Ruby Laffoon. As his food drew in more customers, Sanders decided to expand his restaurant and in 1940, he bought the motel near his gas stations and named it the Sanders Court & Café.
12. Around this time, Sanders became unhappy with how long it took to cook his chicken in a cast iron pan, but he did not want to deep fry because the chicken cooked unevenly with the latter method. In 1939, Sanders decided to buy one of the newly-released commercial pressure cookers, which were being used to steam vegetables, and modified it into a pressure fryer. This new method worked and reduced the cooking time while retaining the quality of Sanders’ pan-fried chicken. A year after developing the pressure fryer, Sanders finalized what is now known as his Original Recipe of 11 herbs and spices, one of the most closely-guarded restaurant secrets ever.
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14. After this, the company bought out its 600 franchisees and began directly operating the franchises. Throughout the end of the 1960s and early 1970s, Brown pushed the company’s expansion but eventually, its success began to overwhelm him. Brown decided to sell KFC in 1971 to Heublein, a packaged food and drinks corporation, for $285 million.
15. Heublein continued to operate KFC until 1982, when the company was sold to the tobacco giant R.J. Reynolds. R.J. Reynolds only held on to the company for a few years before selling it in 1986 for $850 million to PepsiCo, where KFC joined Pizza Hut and Taco Bell. At the beginning of the 1990s, the company officially adopted the KFC name, although people had been referring to the restaurant by this name for years.
16. KFC continued to grow around the world over the next decade and introduced new menu items such as popcorn chicken, hot wings, and a spicy chicken fillet burger called the Zinger. In 1997, PepsiCo spun off its restaurant division under the name Tricon Global Restaurants (which changed its name to Yum! Brands in 2002). KFC has grown to become one of the largest food franchises in the world with over 20,000 locations globally.
Entrepreneur’s Franchise 500
17. KFC ranked No. 233 on Entrepreneur’s 2018 Franchise 500 list.
Section II – Estimated Costs
- Please click here for detailed estimates of KFC franchise costs, based on Item 7 of the company’s 2018 FDD.
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 2018 FDD.
Section IV – Number of Franchised and Company-Owned Outlets
Franchised
2015
- Outlets at the Start of the Year: 4,138
- Outlets at the End of the Year: 4,018
- Net Change: -120
2016
- Outlets at the Start of the Year: 4,018
- Outlets at the End of the Year: 3,926
- Net Change: -92
2017
- Outlets at the Start of the Year: 3,926
- Outlets at the End of the Year: 4,011
- Net Change: 85
Company-Owned
2015
- Outlets at the Start of the Year: 203
- Outlets at the End of the Year: 203
- Net Change: 0
2016
- Outlets at the Start of the Year: 203
- Outlets at the End of the Year: 201
- Net Change: -2
2017
- Outlets at the Start of the Year: 201
- Outlets at the End of the Year: 54
- Net Change: -147
Section V – Financial Performance Representations (Item 19, 2018 FDD) and Analysis
- Of the 2,959 domestic, single-brand Outlets open for the entire year of KFCLLC’s fiscal year ended December 25, 2017 (“FYE 2017”), 41 were owned and operated by KFCC and 2,918 were owned or operated by KFCLLC franchisees.
- This financial performance representation reflects the averages for a sub-set of all single-brand Outlets in the United States as of FYE 2017. The sub-set consists of Company-Owned Outlets and all single-brand Outlets which were owned or operated by KFCLLC’s franchisees.
- During KFCLLC’s last fiscal year, 120 Company-Owned Outlets were transferred to franchisees (“Refranchised Outlets”). Refranchised Outlets are represented in the sub-set of data for Outlets owned by franchisees.
- The financial performance representation does not include non-traditional, Express, multi-brand, seasonal, or any type of KFC location other than single-brand KFC locations.
- All KFC Outlets included had been open a minimum of 1 year as of FYE 2017.
- Characteristics of the included locations may differ materially from the characteristics of the Outlet(s) that you may develop or acquire depending on your experience; competition in your trade area; the physical condition of the included locations as compared to the Outlet(s); employment and labor conditions in your trade area; and the length of time that the included locations have operated as compared to the Outlet(s).
- “Average Net Sales” is the mathematical average of the total annual cash or other payments received after discounts and promotions for the sale or use of any products, goods, or services that were sold from the Outlets included within the group.
- Of the 41 Company-Owned Outlets included in this Item 19, 18 or 43.9% attained or exceeded the stated average result. Of the 2,918 Outlets owned and operated by franchisees that are included in this Item 19, 1,276 or 43.7% attained or exceeded the stated average. Of the 2,959 single-brand Outlets that are included in this Item 19, 1,297 or 44% attained or exceeded the stated average.
- “Average Cost of Product” is the mathematical average of the total annual delivered cost of food, beverages, paper, and promotional items to the Outlets included within the group (“Cost of Product”), expressed as a percentage of Average Net Sales. This does not include any financial results from Outlets that were owned and operated by franchisees of KFCLLC.
- The median Cost of Product was $366,011. Of the 41 Company-Owned Outlets included in this Item 19, 21 or 51.2% attained a Cost of Product lower than the stated average result.
- “Average Cost of Labor” is the mathematical average of the total annual hourly labor costs; the salaries and related costs of management; payroll taxes; health insurance; vacation; sick pay; bonuses; and workers’ compensation insurance for all employees at the Company-Owned Outlets included within the group (“Cost of Labor”), expressed as a percentage of Average Net Sales. This does not include any financial results from Outlets that were owned and operated by franchisees of KFCLLC.
- The median Cost of Labor was $344,004. Of the 41 Company-Owned Outlets included in this Item 19, 22 or 53.7% attained a Cost of Labor lower than the stated average result.
- The operations of Company-Owned Outlets are similar to those of the franchised Outlets offered by the Disclosure Document, except that Company-Owned Outlets do not have certain expenses that franchised Outlets have, such as payment of royalties. Company-Owned Outlets also benefit from economies of scale that are not available to outlets that are owned singly or in small groups by a franchisee.
2017 Average Performance of Single-Brand KFC Locations Open During FYE 2017
Company-Owned KFC Outlets
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