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 2020 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 2020 FDD
- Section IV – Number of franchised and company-owned KFC outlets at the start of the year and the end of the year for 2017, 2018, and 2019, based on Item 20 of the company’s 2020 FDD
- Section V – Presentation and analysis of KFC’s financial performance representations, based on Item 19 of the company’s 2020 FDD, including information on the:
- 2019 average (and median) net sales, cost of product, and labor cost for the 44 single-brand company-owned KFC outlets open for at least one year as of KFCLLC’s fiscal year ended December 30, 2019
- 2019 average and median net sales for the 2,982 single-brand franchised KFC outlets open for at least one year as of KFCLLC’s fiscal year ended December 30, 2019
- 2019 average and median net sales for the 3,026 single-brand KFC outlets (company-owned and franchised) open for at least one year as of KFCLLC’s fiscal year ended December 30, 2019
- average, median, high, and low weekly net sales for the 85 “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 30, 2019
Section I – Background Information
34 Things You Need to Know About the KFC Franchise
Provides One Million Pieces of Chicken to Feed Communities Across America
1. At the end of March 2020, KFC announced its plans to send one million pieces of chicken to KFC restaurants across the country, earmarked specifically to support local communities in need through donation during the ongoing COVID-19 pandemic. KFC and its franchisees operate more than 4,000 U.S. restaurants, serving Americans in all 50 states, and have continued feeding America through delivery, drive-thru, and carryout during this unprecedented crisis.
2. Since the crisis began, many KFC franchisees, who live in and employ more than 80,000 team members in their local communities in America, were already showing up to support their local communities in a big way. From donating one thousand meals to frontline healthcare workers in southern Indiana (AJS, Inc., a 42-year KFC franchisee) to delivering KFC meals to essential workers (KBP Foods, KFC’s largest franchisee), KFC restaurant teams across the country are setting an example of what it means to band together in a time when it’s needed most.
3. KFC U.S. is supporting its nationwide workforce and providing the means to do even more in their communities by shipping every KFC in the U.S. additional chicken supply – at no cost – that’s specifically purposed for good.
4. Kevin Hochman, president, KFC U.S., said, “Seeing our franchisees coming together and helping their neighbors during this crisis has inspired us to do more. Many KFC restaurants across the U.S. are small, family-owned businesses, and while they are facing uncertainty, they continue to keep their restaurants open every day to feed our customers. During this unprecedented time, our franchisees are also helping make sure those in need are able to enjoy the comfort and familiarity of a hot meal.”
5. Thomas Broome, president of KFC franchisee Scottish Food Systems, Inc., and a member of the KFC family for more than 25 years, added, “During this crisis, we’ve experienced first-hand the power of our local communities and their heroes. I’m incredibly proud of the work the KFC family is doing, and this effort will help us do even more.”
6. KFC restaurants across the country will be empowered to cook and serve KFC’s world famous fried chicken however they decide will best help in their communities, whether they are donating to local hunger organizations, providing meals to those who are helping keep us safe, or merely spreading joy – whatever their hometown needs most.
7. KFC has also made the following commitments to support its people, communities, and franchisees during the COVID-19 pandemic:
- Continuing to keep America fed with drive-thru, carryout, and free delivery: KFC is open and ready to feed your family via drive-thru, carryout, or delivery, which was free through April 26. KFC’s $20 Fill Up feeds a family of four, a $30 Fill Up offer launched on April 1.
- Contactless delivery options are available, and KFC is using tamper-evident seals so that customers’ food travels safely.
- Industry-leading food safety practices and standards: KFC has increased the frequency of cleaning and sanitizing in its restaurants and are reinforcing its already strict sanitation, handwashing, and health and wellness policies. Also, more of KFC’s team members are wearing gloves for safety.
- Prioritizing the wellbeing of its employees: As KFC announced on March 13, the company is offering sick leave for all employees affected by COVID-19 at corporate-owned restaurant locations. KFC’s parent company, Yum! Brands, announced the creation of the Yum! Brands Foundation Global Employee Medical Relief Fund, which will provide hardship grant opportunities for team members of all restaurants impacted by the coronavirus pandemic.
- Supporting communities in need: Giving back is one of KFC’s core values. KFC recently announced a $400,000 donation to Blessings in a Backpack to provide meals to children who may otherwise go hungry due to school closures. Additionally, KFC’s Harvest program continues during this time of increased food insecurity, with participating restaurants donating unsold food to local food banks for those in need. Across the country, KFC franchisees have donated and delivered thousands of meals to staff at hospitals, COVID-19 testing sites, first responders, and more in their local communities – and the brand says that it will continue these efforts.
- Providing relief to franchisees: KFC will grant franchisees a 60-day grace period on current royalties, giving peace of mind during growing concerns and unknowns tied to operational challenges during this time. KFC’s parent company, Yum! Brands (including KFC, Pizza Hut, and Taco Bell), has also deferred all 2020 capital obligations for remodels and new unit development through the end of this year. KFC U.S. and its franchise leadership are working to implement additional support for its franchisees, most of which are small, family-owned businesses.
‘Beyond Fried Chicken’ Expands to Two New Markets
8. At the end of January 2020, KFC and Beyond Meat announced an expanded test of Beyond Fried Chicken, plant-based chicken. Beginning February 3, select KFC restaurants in Charlotte, Nashville, and surrounding areas offered new Beyond Fried Chicken menu items, available through February 23 or while supplies lasted.
9. The expanded test came on the heels of the overwhelmingly successful test launch in Atlanta last summer, making KFC the first national U.S. QSR to introduce plant-based chicken in partnership with Beyond Meat. With customers lining up hours before the restaurant opened and cars double-wrapped around the drive-thru and down the block, Beyond Fried Chicken was in high demand and sold out in less than five hours.
10. The success of the initial test motivated both brands to make additional improvements to Beyond Fried Chicken, creating a plant-based protein that looks and tastes like KFC’s world-famous fried chicken, but with the attributes of plant-based meat. The new recipe is designed to deliver on the taste and texture of whole muscle chicken.
11. According to Andrea Zahumensky, chief marketing officer, KFC U.S., “The iconic flavor of Kentucky Fried Chicken is one that has never been replicated, despite many imitations, until now. We’ve really pushed the limits to develop plant-based chicken that I think will have KFC and plant-based protein fans saying, ‘That’s finger lickin’ good.’”
12. Ethan Brown, founder and CEO of Beyond Meat, added, “The response in Atlanta continues to underscore the growing consumer demand for high-quality, delicious plant-based meats. Together with KFC’s team, we have created a plant-based chicken that looks, tastes and pulls apart like a chicken breast. I am very proud of what our R&D teams have accomplished and look forward to continuing to lead the charge on plant-based chicken.”
13. Beyond Fried Chicken came with dipping sauce, like KFC’s signature Finger Lickin’ Good sauce, or tossed in one of three tasty sauce options: Honey BBQ, Buffalo, or Nashville Hot. Offers ranged from four to 12-piece a la carte and combo options.
Franchisees to Provide $500,000 Worth of Groceries to KFC Restaurant Employees Across the Country
14. At the end of April 2020, KFC announced that it will provide $500,000 worth of groceries to team members across its more than 4,000 U.S. restaurants to celebrate its workforce who are continuing to keep America fed amidst the COVID-19 pandemic. KFC franchisees have joined forces to create a Grocery Assistance Fund through the KFC Foundation, which will provide $100 grocery gift cards to thousands of U.S. employees.
15. With kids home from school and college, many are feeling a pantry pinch during this time. KFC recently surveyed restaurant employees to learn more about how it could better assist restaurant-level team members during the crisis, and groceries for employees and their families consistently ranked among the top responses as a preferred means of support.
16. KFC franchisees all over the country, many of whom are small, local business owners, have been working to support and celebrate their individual teams through bonuses, hourly pay increases, meals for their employees and their families, pay continuation for employees impacted by COVID-19, and a variety of other financial incentives.
17. Notably, KFC franchisees Dick West (West Quality Foods) and Todd and Justin Stewart (Stewart Restaurant Group), among others, granted a $2 per hour appreciation incentive to employees. Franchisee Brandon Robertson provided all team members with $20 Fill Ups, enough food to feed a family of four, to take home for their families, along with a coupon to share one with someone in need within their local community, while restaurants in the Harman system, KFC’s oldest franchisee, provided meals and an appreciation bonus to each of their hourly employees, as well as their restaurant general managers and above unit managers.
18. Justin Stewart, board chair, KFC Foundation, said, “Our team members are going above and beyond to keep America fed and spread goodwill throughout our communities, whether that’s by donating thousands of meals to frontline healthcare workers or feeding children missing school meals. As a small thank you, and in addition to many individual franchisee efforts, we have come together as franchisee leaders to care for restaurant employees through the Grocery Assistance Fund.”
19. The Grocery Assistance Fund is just another way KFC and its franchisees are working to support team members across the country. For this initiative, franchisees and employees in all U.S. restaurants can recommend co-workers in need to receive a grocery gift card from the KFC Foundation, in partnership with the YUM! Foundation. Team members can choose to recommend others for any reason.
20. 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.
21. 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.
22. 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.
23. 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.
24. 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.
25. 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.
26. 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.
27. 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.
28. 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.
29. 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.
30. 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.
31. 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.
32. 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.
33. 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 by sales.
Entrepreneur’s Franchise 500
34. KFC ranked No. 24 on Entrepreneur’s 2020 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 2020 FDD.
Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees
- Please click here for detailed information on Uno Pizzeria & Grill’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2020 FDD.
Section IV – Number of Franchised and Company-Owned Outlets
- 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: 3,980
- Outlets at the End of the Year: 3,969
- Net Change: -11
- 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
- Outlets at the Start of the Year: 55
- Outlets at the End of the Year: 56
- Net Change: +1
Section V – Financial Performance Representations (Item 19, 2020 FDD) and Analysis
- Of the 3,026 domestic, single-brand Outlets open for the entirety of KFCLLC’s fiscal year ended December 30, 2019 (“FYE 2019”), 44 were owned and operated by KFCC and 2,982 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 2019. The sub-set consists of Company-Owned Outlets and all single-brand Outlets which were owned or operated by KFCLLC’s 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 2019.
- 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 44 Company-Owned Outlets included in this Item 19, 19 or 43.2% attained or exceeded the stated average result. Of the 2,982 Outlets owned and operated by franchisees that are included in this Item 19, 1,300 or 43.6% attained or exceeded the stated average. Of the 3,026 single-brand Outlets as of FYE 2019, 1,319 or 43.6% 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 $373,481.
- Of the 44 Company-Owned Outlets included in this Item 19, 25 or 56.8% 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 $389,627.
- Of the 44 Company-Owned Outlets included in this Item 19, 26 or 59.1% attained a Cost of Labor lower than the stated average result.
- The range of Net Sales for Company-Owned Outlets is $707,972 to $1,959,271.
- The range of Net Sales for Franchisee-Owned Outlets is $401,622 to $3,265,077.
- The range of Net Sales for all single brand Outlets is $401,622 to $3,265,077.
- 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.
2019 Average Performance of Single-Brand KFC Locations Open During FYE 2019
Company-Owned KFC Outlets