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 2019 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 2019 FDD
- Section IV – Number of franchised and company-owned KFC outlets at the start of the year and the end of the year for 2016, 2017, and 2018, based on Item 20 of the company’s 2019 FDD
- Section V – Presentation and analysis of KFC’s financial performance representations, based on Item 19 of the company’s 2019 FDD, including information on the:
- 2018 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 24, 2018
- 2018 average and median net sales for the 2,863 single-brand franchised KFC outlets open for at least one year as of KFCLLC’s fiscal year ended December 24, 2018
- 2018 average and median net sales for the 2,904 single-brand KFC outlets (company-owned and franchised) open for at least one year as of KFCLLC’s fiscal year ended December 24, 2018
- average, median, high, and low weekly net sales for the 49 “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 24, 2018
Section I – Background Information
29 Things You Need to Know About the KFC Franchise
Pledges More Sustainable Packaging Worldwide
1. At the beginning of January 2019, KFC announced a new global sustainability commitment that all plastic-based, consumer-facing packaging will be recoverable or reusable by 2025. The Yum! Brands chicken chain said the goal supports its long-term plan to implement a more sustainable packaging strategy systemwide – a task it’s tackling through the development and use of sustainable packaging options. The goal also builds on progress already made in some markets to eliminate plastic packaging items, KFC said.
2. According to Tony Lowings, chief executive officer of KFC, “As a global brand that operates more than 22,000 restaurants in over 135 countries, KFC is in a position to have a real impact on how the industry approaches waste and packaging management overall. With environmental sustainability as a core aspect of how we do business, this commitment represents a public acknowledgment of the obligation we have to address these serious issues.”
3. KFC reached this point by developing a roadmap that includes partnering with major suppliers and franchisees globally to identify plastic alternatives in each market. The company said it’s working on several key initiatives related to achieving these goals, including conducting an audit of current systems with franchisees to identify plastic waste reduction opportunities; partnering with suppliers to identify sustainable packaging alternatives for items like straws, plastic bags, cutlery, and lids; and setting market-specific goals to reduce, reuse, and recycle.
4. KFC said it would support franchisees to define and implement their own sustainability agenda to address the unique needs of local markets and customers. Markets will also continue to have their own, additional local sustainability goals that vary based on local market conditions and regulations, KFC said.
5. In addition to the new plastics goals and Yum!’s current target to source 100 percent of fiber-based packaging from certified or recycled sources by 2020, KFC said it has committed to global packaging innovation by signing on as a supporting partner with NextGen Consortium. NextGen is a multi-year, multi-industry global consortium that aims to advance the design, commercialization, and recovery of food packaging alternatives. KFC said it hopes to “identify fiber packaging solutions that are recoverable across global infrastructures,” through the deal.
6. This latest push joins a list of sustainability initiatives for KFC. In April 2017, KFC said that by the end of 2018, all chicken purchased by the company’s U.S. stores would be raised without antibiotics important to human medicine (a goal it has reached). KFC also claims to be the first major chicken chain to extend its antibiotic-free commitment to bone-in chicken. The company has worked with more than 2,000 farms nationwide to achieve this target.
Appoints New Chief Operating Officer
7. In mid-May 2019, KFC named Monica Rothgery chief operating officer of KFC U.S. As the COO, Rothgery will oversee operational strategy and execution to drive operations simplification, improved processes, new labor models, and technology integration. In addition, she will assume overall responsibility for leading franchise and equity field operations for the brand’s restaurants across the country.
8. Kevin Hochman, president of KFC U.S., said, “In her nearly three decades with Yum! Brands, Monica has demonstrated outstanding operational leadership. Her knowledge of the business, passion for people, and ability to drive results make her the perfect choice to be our COO.”
9. Rothgery joined KFC U.S. in August 2018 as the company’s chief restaurant productivity officer, taking on the responsibility of developing (alongside franchise leadership) new operations processes to deliver on improved restaurant productivity. She spent her first several months in the field, immersing herself in restaurant operations and working closely with franchisees and restaurant teams across the U.S. to identify opportunities to simplify operations and improve brand compliance initiatives. Rothgery takes over the COO role following the recent retirement of KFC’s former U.S. COO Phil Klezmer.
10. Rothgery said, “It has been an honor to contribute to the enhanced operations for Yum! Brands, and I’m thrilled to step into this new role as COO. KFC is a leader in its category because of the passion and dedication of each and every one of our team members, and I’m looking forward to continuing to work closely with our franchisees, operators and leadership team to strengthen the brand and restaurant operations.”
Launches First Exclusive Drink with Mountain Dew
11. In mid-June 2019, KFC announced that it had partnered with Mountain Dew to release a new exclusive beverage called Sweet Lightning, which features a punch of peach and a touch of honey flavors. MTN DEW Sweet Lightning is the first exclusive beverage to be offered at KFC. For Mountain Dew, this is only the second time the brand has partnered with a quick-service restaurant – the first being the hugely successful Baja Blast which debuted at KFC’s sister restaurant, Taco Bell, nearly a decade-and-a-half ago.
12. Nicole Portwood, vice president of marketing for Mountain Dew, said, “Like KFC, MTN DEW is inspired by bold ideas and flavors, making this an authentic relationship from the start. To come together on an exclusive product – Sweet Lightning – is a thrill, and we look forward to delighting our customers’ taste buds and pushing the envelope on creativity.”
13. Sweet Lightning was developed in partnership with the food and beverage innovation experts at KFC and Mountain Dew to create the perfect pairing for KFC’s Original Recipe fried chicken. Original Recipe is a KFC brand staple, and the innovation experts for each brand wanted to create a beverage that is as unique as the fried chicken it was created to complement. MTN DEW Sweet Lightning is set to become a permanent part of KFC’s menu nationwide.
14. Andrea Zahumensky, chief marketing officer of KFC U.S., said, “With the addition of Sweet Lightning, we now have a drink that is as unique to KFC as the Colonel’s secret blend of 11 herbs and spices. And like our world-famous fried chicken, Sweet Lightning will keep fans coming back for more.”
15. KFC traces its origins to 1930 when Harland Sanders, before he became the Colonel, began selling food out of his gas station in North Corbin, Kentucky. Sanders served travelers the recipes he had learned to cook as a child, including fried chicken, steaks, and country ham. A few years after he began selling food, Sanders purchased another gas station that had greater visibility across the street from his first store.
16. In 1936, as Sanders’ business boomed, he was given the honorary title of Kentucky colonel by governor Ruby Laffoon. A few years later, in 1940, Sanders purchased a motel near his gas stations and converted it into a full-time restaurant, which he named the Sanders Court & Café.
17. Around this time, Sanders had become dissatisfied with how long it took to cook the fried chicken all the way through, which was about 35 minutes. Although deep frying would be faster, Sanders believed that this cooking method made the chicken dry and unevenly cooked. In 1939, Sanders bought one of the first commercial pressure cookers released to the market and modified it into a pressure fryer. The new pressure fryer reduced cooking time while maintaining the quality of the pan fried chicken.
18. A year after building the pressure fryer, Sanders finalized his Original Recipe of 11 herbs and spices, which is still a closely-guarded company secret. In 1950, Sanders was recommissioned as a Kentucky colonel by Governor Lawrence Wetherby, and Sanders began dressing the part and calling himself Colonel Sanders.
19. Although the Sanders Court & Café was doing well, a new interstate route was planned and it would bypass Corbin. Since Sanders served travelers, he decided to close the restaurant and start traveling around the United States, licensing his chicken concept. In exchange for a franchise fee, independent restaurant owners received Sanders’ Original Recipe spice blend, his cooking method, and the right to advertise using Sanders’ name and likeness.
20. One of Sanders’ first franchisees was Pete Harman of South Salt Lake, Utah. Harman hired a sign painter named Don Anderson to advertise the chicken and Anderson is credited with coming up with the Kentucky Fried Chicken name. Harman also made several other innovations that are now KFC staples, including the phrase “It’s finger lickin’ good” and the family meal that included 14 pieces of chicken, five rolls, and a pint of gravy all served in a cardboard bucket.
21. By 1956, Sanders had over half a dozen franchisees, including Dave Thomas, who would go on to found Wendy’s. Thomas also helped Sanders with KFC and developed the rotating red chicken bucket sign and introduced a bookkeeping form that Sanders rolled out across the chain. Thomas also supported Harman’s take-out family meal idea.
22. Over the next decade, Sanders continued to franchise KFC and by 1963, there were 600 franchises around the country. Around this time, Sanders decided to sell the company because he had no willing heirs among his relatives. Kentucky encyclopedia salesman John Y. Brown Jr., with the help of financier Jack C. Massey, as well as contributions from Pete Harman and company officials Lee Cummings and Harlan Adams, bought KFC in 1964.
23. Under Brown and Massey’s leadership, KFC became standardized and franchisees were ordered to remove their own menu items and focus only on KFC products. The restaurants were also re-branded with a distinctive red-and-white striped color pattern.
24. After going public, KFC ramped up expansion and by 1970, the chain had grown to 3,000 locations in 48 countries. However, the rapid expansion proved too much for the company and John Y. Brown (Massey had already left in 1966). In 1971, Brown sold KFC to Connecticut-based Heublein, a packaged food and drinks corporation. Under Heublein, KFC introduced new menu items, including its Extra Crispy chicken in 1972, and continued to expand.
25. For the first few years under Heublein’s leadership, KFC struggled and Sanders, who was no longer involved with the company at all, began publicly attacking the company for all of its changes. While Sanders’ attacks were out of line, KFC was struggling and unprofitable until Michael A. Miles came in to lead the company in 1977. Miles is credited with saving the ailing company by instituting its back-to-basics formula.
26. With the changes, KFC became profitable again and expanded internationally in the late 1970s and throughout the 1980s. In 1983, KFC was acquired by tobacco firm, R. J. Reynolds, after Heublein feared a hostile takeover when General Cinema Corporation acquired 18 percent of the company. R.J. Reynolds would only retain KFC for a few years, before selling the company to PepsiCo in 1986 for $850 million. KFC joined Pizza Hut and Taco Bell under PepsiCo’s ownership.
27. At the beginning of the 1990s, KFC officially adopted the KFC name as it had only been a nickname for Kentucky Fried Chicken until then. The company continued to grow around the world and new menu items like popcorn chicken, hot wings, and a spicy chicken fillet burger called the Zinger were introduced.
28. In 1997, PepsiCo spun off its restaurant division under the name Tricon Global Restaurants (which changed its name to Yum! Brands in 2002). Yum! Brands still owns KFC today, along with Pizza Hut and Taco Bell – the brands often appear together in co-branded units. Today, KFC is one of the largest chicken franchises in the world.
Entrepreneur’s Franchise 500
29. KFC ranked No. 23 on Entrepreneur’s 2019 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 2019 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 2019 FDD.
Section IV – Number of Franchised and Company-Owned Outlets
- Outlets at the Start of the Year: 4,018
- Outlets at the End of the Year: 3,926
- Net Change: -92
- Outlets at the Start of the Year: 3,926
- Outlets at the End of the Year: 4,011
- Net Change: +85
- Outlets at the Start of the Year: 4,011
- Outlets at the End of the Year: 3,980
- Net Change: -31
- Outlets at the Start of the Year: 203
- Outlets at the End of the Year: 201
- Net Change: -2
- Outlets at the Start of the Year: 201
- Outlets at the End of the Year: 54
- Net Change: -147
- Outlets at the Start of the Year: 54
- Outlets at the End of the Year: 55
- Net Change: +1
Section V – Financial Performance Representations (Item 19, 2019 FDD) and Analysis
- Of the 2,904 domestic, single-brand Outlets open for the entirety of KFCLLC’s fiscal year ended December 24, 2018 (“FYE 2018”), 41 were owned and operated by KFCC and 2,863 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 2018. 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, 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 2018.
- 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 2,863 Outlets owned and operated by franchisees that are included in this Item 19, 1,232 or 43.0% attained or exceeded the stated average. Of the 2,904 single-brand Outlets as of FYE 2018, 1,250 or 43.0% attained or exceeded the stated Average Net Sales.
- “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 $362,666. Of the 41 Company-Owned Outlets included in this Item 19, 22 or 53.7% 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 $359,523. Of the 41 Company-Owned Outlets included in this Item 19, 24 or 58.5% 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.
2018 Average Performance of Single-Brand KFC Locations Open During FYE 2018
Company-Owned KFC Outlets