In this FDD Talk post, you’ll learn the following:
- Section I – Estimated initial investment (franchise costs) for a KFC franchise, based on Item 7 of the company’s 2022 FDD
- Section II – Initial franchise fee, royalty fee, and marketing fee for a KFC franchise, based on Items 5 and 6 of the company’s 2022 FDD
- Section III – Number of franchised and company-owned KFC outlets at the start of the year and the end of the year for 2019, 2020, and 2021, based on Item 20 of the company’s 2022 FDD
- Section IV – Background information on the KFC franchise opportunity, including relevant news updates
- Section V – Presentation and analysis of KFC’s financial performance representations (average revenues and/or profits), based on Item 19 of the company’s 2022 FDD, including information on the:
- 2021 average (and median) net sales, cost of product, and labor cost for the 39 single-brand company-owned KFC outlets open for at least one year as of KFCLLC’s fiscal year ended December 27, 2021
- 2021 average and median net sales for the 2,972 single-brand franchised KFC outlets open for at least one year as of KFCLLC’s fiscal year ended December 27, 2021
- 2021 average and median net sales for the 3,011 single-brand KFC outlets (company-owned and franchised) open for at least one year as of KFCLLC’s fiscal year ended December 27, 2021
- average, median, high, and low weekly net sales for the 62 “American Showman Outlets,” KFC’s new image for outlets rolled out in late 2015, which have been open for periods ranging from 13 to 104 weeks as of fiscal year ended December 27, 2021
- Section VI – Key ratios, comparables, computations, and analyses for the KFC franchise opportunity (exclusive content for Platinum subscribers)
Section I – KFC Franchise Costs
- KFC franchise costs, based on Item 7 of the company’s 2022 FDD:
- Background Check Fee: $350 to $500 per person
- Deposit Fee: $20,000
- Option Fee: $25,000
- Training Expenses: $5,000 to $8,000
- Permits, Licenses, and Security Deposits: $50,000 to $100,000
- Real Property: $400,000 to $1,100,000
- Building and Site Costs: $534,000 to $1,300,000
- Equipment, Signage, Decor, POS, and MERIT: $329,000 to $500,000
- Start-Up Inventory: $10,000
- Grand Opening Expense: $5,000
- Insurance: $7,250 to $10,050
- Miscellaneous Costs: $5,000 to $10,000
- Additional Funds: $50,000 to $75,000
- Total Estimated KFC Franchise Costs: $1,440,600 to $3,163,550
Section II – KFC’s Initial Franchise Fee, Royalty Fee, and Marketing Fee
- KFC’s initial franchise fee, royalty fee, and marketing fee, based on Items 5 and 6 of the company’s 2022 FDD:
- Royalty: 4% to 5% of Gross Revenue or a minimum of $1,350, whichever is greater, per month (minimum fee subject to adjustment based upon the Consumer Price Index)
- National Co-Op: 4.5% of Gross Revenue
Section III – Number of Franchised and Company-Owned KFC Outlets
- 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: 3,969
- Outlets at the End of the Year: 3,860
- Net Change: -109
- Outlets at the Start of the Year: 3,860
- Outlets at the End of the Year: 3,872
- Net Change: +12
- Outlets at the Start of the Year: 55
- Outlets at the End of the Year: 56
- Net Change: +1
- Outlets at the Start of the Year: 56
- Outlets at the End of the Year: 47
- Net Change: -9
- Outlets at the Start of the Year: 47
- Outlets at the End of the Year: 47
- Net Change: 0
Section IV – Background Information on the KFC Franchise
22 Things You Need to Know About the KFC Franchise
Unveils New Modernized Packaging
1. In late May 2021, KFC announced that it was launching new sleek, clean, and modernized packaging that began showing up in restaurants early last summer. The new packaging reflects the brand’s identity with a more modern take on the KFC signature red and white stripes. It features reheating instructions – because KFC’s fried chicken is just as good the next day – and the brand’s iconic “Finger Lickin’ Good” slogan.
2. The updated buckets showcase a fresh “Fried with Pride” design featuring a story on the history of KFC’s world-famous fried chicken told in a way only the Colonel could tell it. KFC’s box meals and cups are getting a new look as well, to better reflect KFC’s famous bucket.
3. KFC’s updated packaging is a step forward in the balance of business growth and environmental sustainability, offering 100 percent certified sourcing of paperboard by either Sustainable Forestry Initiative or Forest Stewardship Council (FSC), and four of KFC’s new packaging items are approved for labeling by How2Recycle.
Introduces New Quick Pick-Up Ordering
4. In mid-November 2021, KFC introduced Quick Pick-Up to combat the long drive-thru lines affecting the entire fast food industry. According to SeeLevel HX’s annual Drive-Thru Study, drive-thru guests often have to wait in lines on average for six minutes and 22 seconds from the time they enter the line to when they drive off with their food. With KFC’s Quick Pick-Up, customers can order ahead, park in a dedicated parking spot, grab their hot order, and go.
5. Kevin Hochman, president, KFC U.S., said, “Quick Pick-Up is changing the game by making fast food even more convenient and easy for busy customers. Santa may not be able to give you the gift of time this holiday season, but KFC can.”
6. To introduce Quick Pick-Up, KFC has created a holiday-focused advertising campaign featuring frazzled families whose sanity is saved when they realize the convenience and speed of KFC’s new Quick Pick-Up service. Included in these campaign spots is a Quick Pick-Up-inspired jingle that reminds hungry fried chicken lovers about all the joyous activities they’ll have time to experience when bypassing the line at KFC by using Quick Pick-Up.
Names Nick Chavez Chief Marketing Officer
7. In early November 2021, KFC named Nick Chavez chief marketing officer of KFC U.S. Chavez will lead marketing, advertising, public relations, media, and consumer insights, as well as the brand’s digital initiatives. He will be responsible for developing and executing innovative marketing strategies to achieve the next chapter of growth for KFC U.S.
8. Chavez has spent more than 11 years with Nintendo of America (NOA), where he most recently served as senior vice president of sales, marketing, and communications, and held responsibility for retail and direct sales, marketing, advertising, and communications in the U.S. and Canada. During his time at Nintendo of America, he led sales and marketing for Nintendo’s popular Nintendo Switch gaming system, evolved the iconic gaming brand’s product launch processes, and led marketing for over two hundred new game titles, while helping to drive Nintendo’s digital marketing and ecommerce capabilities.
9. Before joining NOA, Chavez spent over nine years at Yahoo! Inc., holding various marketing leadership roles, including vice president of brand marketing.
10. Kevin Hochman, president of KFC U.S., said, “Nick is a proven leader who has a track record of demonstrating the smart, heart and courage leadership needed at Yum! & KFC. He has launched blockbuster new products at an iconic brand, and he’s an expert in migrating retail brick-and-mortar business into e-commerce. His experience will help us to deliver KFC’s next chapter of growth.”
11. Chavez said, “It is an incredible honor to join the KFC family and contribute to its iconic and enduring legacy of great people serving great fried chicken at great value to everyone. The opportunity to help chart the future of the KFC brand, and how it delights and satisfies the millions of people it serves every day, is a dream for me.”
Debuts Much-Anticipated Beyond Fried Chicken Nationwide
12. At the beginning of January 2022, KFC and Beyond Meat launched the highly-anticipated plant-based Beyond Fried Chicken nationwide. Beginning Monday, January 10, KFC restaurants across the U.S. offered Beyond Fried Chicken for a limited time, while supplies were available. The plant-based Beyond Fried Chicken was developed by Beyond Meat exclusively for KFC. It’s packed with delicious flavor and the juicy satisfaction that you’d expect from KFC’s iconic fried chicken but in a plant-based option that’s still finger lickin’ good.
13. Kevin Hochman, president of KFC U.S., said, “The mission from day one was simple – make the world-famous Kentucky Fried Chicken from plants. And now over two years later we can say, ‘mission accomplished.’”
14. KFC was the first national U.S. QSR to introduce plant-based chicken when it tested its first iteration of Beyond Fried Chicken in August 2019 as a part of a limited-run test in Atlanta. The launch was an overwhelming success with the test store selling out in less than five hours. In 2020, Kentucky Fried Chicken and Beyond Meat expanded the test to select restaurants in Nashville and Charlotte. That summer, KFC shared a sneak peek of Beyond Fried Chicken at select restaurants in Southern California, which led to another sell-out in just one week.
15. Ethan Brown, founder and CEO of Beyond Meat, added, “We couldn’t be prouder to partner with KFC to offer a best-in-class product that not only delivers the delicious experience consumers expect from this iconic chain, but also provides the added benefits of plant-based meat. We are truly thrilled to make it available to consumers nationwide.”
16. KFC traces its history to 1930 when Harland Sanders bought a Shell gas station just outside of North Corbin, Kentucky. Sanders converted the storeroom into a small dining area and began serving country ham and steaks to travelers. After a few years, in 1934, Sanders bought the gas station across the street that had greater visibility to motorists. At that time, he began selling fried chicken.
17. To improve his skills, Sanders took an eight-week restaurant-management course at the Cornell University School of Hotel Administration. Sanders’ chicken restaurant was a success and he expanded by purchasing the motel across from the second gas station in 1940. He named it the Sanders Court & Café, which is cited as the first KFC restaurant.
18. Dissatisfied with the time it took to fry chicken without deep frying, Sanders began experimenting with commercial pressure cookers. Sanders modified a pressure cooker into a pressure fryer and felt that this new method produced the best fried chicken. Also around this time in 1940, Sanders finalized his Original Recipe of 11 herbs and spices.
19. In 1955, Sanders sold his properties because the new Interstate 75 planned to bypass North Corbin. Sanders began traveling around the country and sold his fried chicken to independent restaurants. A few years earlier, in 1952, Sanders had franchised his fried chicken recipe to Pete Harman of South Salt Lake, Utah, the operator of one of the city’s largest restaurants. Harman is considered the “virtual co-founder” of KFC as many of his early ideas were adopted by the company. Harman came up with the tagline “It’s finger lickin’ good,” as well as the family meal bundle and the classic bucket packaging for the chicken.
20. Over the next few decades, KFC grew rapidly around the United States. In 1963, Sanders sold KFC to a group of investors because he had no one in his family to pass the restaurant to. Although Sanders stepped down from day-to-day operations and was supposed to step back from the company, Sanders maintained significant influence over KFC’s operations and image. However, despite some disagreements, the new leadership team fueled KFC’s growth further by standardizing the company’s practices. This helped KFC grow both domestically and internationally.
21. In 1986, KFC was acquired by PepsiCo for $850 million and became a part of its restaurant division along with Pizza Hut and Taco Bell. The new parent company was named Tricon Global Restaurants, which eventually became Yum! Brands in 2002. Yum! Brands still owns KFC, Pizza Hut, and Taco Bell and the restaurants often appear in co-branded locations. Today, KFC is one of the largest chicken chains in the world with locations in over 118 countries and territories.
Entrepreneur’s Franchise 500
22. KFC ranked No. 26 on Entrepreneur’s 2022 Franchise 500 list.
Section V – Financial Performance Representations (Average Revenues and/or Profits) for the KFC Franchise (Item 19, 2022 FDD)
- Of the 3,011 domestic, single-brand Outlets open for the entirety of KFCLLC’s fiscal year ended December 27, 2021 (“FYE 2021”), 39 were owned and operated by KFCC and 2,972 were owned or operated by KFCLLC franchisees.
- Although the Outlets were considered open for the entirety of FYE 2021, some of these Outlets experienced temporary closures during the fiscal year.
- This financial performance representation reflects the averages for a sub-set of all single-brand Outlets in the United States as of FYE 2021. 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 for FYE 2021 were open a minimum of one year as of FYE 2021.
- 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.
- “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”), which is then 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 during FYE 2021 was $401,376.
- Of the 39 Company-Owned Outlets included in this Item 19 for FYE 2021, 24 or 61.5% 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”), which is then 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 during FYE 2021 was $431,835.
- Of the 39 Company-Owned Outlets included in this Item 19 for FYE 2021, 22 or 56.4% 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.
2021 Average Performance of Single-Brand KFC Locations Open During FYE 2021
Company-Owned KFC Outlets
- Count: 39
- Average Net Sales: $1,374,888
- Median Net Sales: $1,296,190
- Average Cost of Product: $412,094
- Average Cost of Product as % of Net Sales: 30.0%
- Average Labor Cost: $441,113
- Average Cost of Labor as % of Net Sales: 32.1%
Franchised KFC Outlets
- Count: 2,972
- Average Net Sales: $1,348,059
- Median Net Sales: $1,279,276
Total KFC Outlets
- Count: 3,011
- Average Net Sales: $1,348,407
- Median Net Sales: $1,280,615
Part 2 – Average Weekly Net Sales for American Showman Outlets
- In late 2015, KFC rolled-out a new image for Outlets. The Outlets built in accordance with the new image are called “American Showman Outlets.”
- As of FYE 2021, there were 81 American Showman Outlets (the “ASOs”) that were built as a new Outlet (whether as a new restaurant, or as a torn down and reconstructed Outlet) during the fiscal years ended December 28, 2020 and December 27, 2021.
- KFCLLC discloses information below relating to Average Weekly Net Sales for 62 ASOs, which have been open for periods ranging from 13 to 104 weeks as of FYE 2021.
- KFCLLC excluded 19 Outlets that opened in 2021 and have operated for less than 13 weeks due to an insufficient period of operations.
- Of the 62 ASOs (i) 34 were built from the ground-up (“Ground Up ASOs”); (ii) 12 were converted from a different restaurant brand (“Conversion ASOs”); (iii) 1 was permanently closed and later remodeled and re-opened (“Re-Open ASOs”); (iv) 6 were relocated to a different location (the “Relocated ASOs”); and (v) 9 were torn down or scraped and rebuilt at the Outlet’s existing location (the “Rebuild ASOs”).
- KFC calculated the Average Weekly Net Sales by dividing the sum of Outlet Average Weekly Net Sales for the ASOs by the number of ASOs in each category identified below. The “Outlet Average Weekly Net Sales” for each ASO Outlet is the total sales for such Outlet since opening, divided by the number of weeks such Outlet has been open as of FYE 2021.
- Average Weekly Net Sales: $37,200
- Median Weekly Net Sales: $35,686
- Lowest Weekly Net Sales: $15,207
- Highest Weekly Net Sales: $119,248
- Percentage That Met or Exceeded the Average Weekly Net Sales: 39%
- Annualized Sales: $1,968,686
- Percentage Increase Over Single Brand Outlets: 45.1%
- Average Increase in Net Sales: N/A
Ground Up ASOs
- Average Weekly Net Sales: $40,194
- Median Weekly Net Sales: $36,451
- Lowest Weekly Net Sales: $15,207
- Highest Weekly Net Sales: $119,248
- Percentage That Met or Exceeded the Average Weekly Net Sales: 32%
- Annualized Sales: $2,090,102
- Percentage Increase Over Single Brand Outlets: 54.0%
- Average Increase in Net Sales: N/A
- Average Weekly Net Sales: $31,389
- Median Weekly Net Sales: $26,478
- Lowest Weekly Net Sales: $18,382
- Highest Weekly Net Sales: $54,271
- Percentage That Met or Exceeded the Average Weekly Net Sales: 42%
- Annualized Sales: $1,632,235
- Percentage Increase Over Single Brand Outlets: 20.3%
- Average Increase in Net Sales: N/A
- Average Weekly Net Sales: $36,115
- Median Weekly Net Sales: $36,115
- Lowest Weekly Net Sales: $36,115
- Highest Weekly Net Sales: $36,115
- Percentage That Met or Exceeded the Average Weekly Net Sales: N/A
- Annualized Sales: $1,877,954
- Percentage Increase Over Single Brand Outlets: 38.4%
- Average Increase in Net Sales: 57.9%
- Average Weekly Net Sales: $34,663
- Median Weekly Net Sales: $34,663
- Lowest Weekly Net Sales: $27,695
- Highest Weekly Net Sales: $44,062
- Percentage That Met or Exceeded the Average Weekly Net Sales: 33%
- Annualized Sales: $1,802,458
- Percentage Increase Over Single Brand Outlets: 32.8%
- Average Increase in Net Sales: 33.2%
- Average Weekly Net Sales: $35,447
- Median Weekly Net Sales: $33,844
- Lowest Weekly Net Sales: $25,436
- Highest Weekly Net Sales: $43,860
- Percentage That Met or Exceeded the Average Weekly Net Sales: 44%
- Annualized Sales: $1,843,219
- Percentage Increase Over Single Brand Outlets: 35.8%
- Average Increase in Net Sales: 51.1%