When KFC president Roger Eaton decided to ignore the Colonel’s tried and true bone-in fried chicken and instead focus on healthier fare, he managed to ruffle the feathers of many of his faithful franchise owners across the country. Now parent company Yum! Brands (NYSE: YUM) is being sued by angry KFC franchise owners over the Yum corporate plan – most notably, over the push for grilled over fried chicken.
KFC franchise owners have begun pointing fingers at company execs for the sweeping decrease in sales taking place after its new branding initiative “Unthink KFC.” YUM stock leaders launched the ad blitz to accompany the grilled chicken debut at KFC stores. The Association of Kentucky Fried Chicken Franchisees is blaming this ill-conceived marketing campaign as the reason for poor revenue streams and customers turning their backs on the Yum! Brands’ chain.
Franchisees have been sounding off as they watch customers become confused or unresponsive to the new “healthy” additions, angry that YUM appears to be distancing itself from the long tradition of southern fried chicken conceived by Colonel Sanders. As a result, the KFC National Council & Advertising Cooperative, representing all U.S. franchisees, sued KFC for control of the ad strategy.
As the chicken war continues, many owners are turning their attention to local advertising campaigns that return the franchise to its roots. The Association of Kentucky Fried Chicken Franchisees has enlisted the help of Larry Light, the one-time chief marketing officer for McDonald’s (NYSE: MCD) to spearhead these local market campaigns.
“While some franchisees may not be aligned with this strategy, Roger Eaton is executing a plan that will ensure the KFC brand remains relevant with consumers,” said company spokeswoman Laurie Schalow in a correspondence with
Businessweek. Eaton did not comment because of litigation.
While the move has put Yum Brands at odds with KFC franchise owners, the poor revenue experienced by KFC has not affected the bottom line for Yum Brands shareholders too much. The company also owns other iconic chains such as Pizza Hut and Taco Bell which saw second quarter sales increase this year. Thanks to steady growth in China and a consistent ability to edge out EPS estimates, YUM stock has enjoyed modest growth over the past six months with shares up +21.5% since March of this year. Add to that a steadily rising quarterly dividend, currently at $0.21 per share, and investors likely aren’t feeling the squeeze as much as the chicken chain owners.
But in the KFC universe, fried chicken remains king for many franchisees. This puts them at odds with a corporate strategy to expand the menu – a strategy that most industry insiders agree is the best way to grow sales in an era of obesity and evolving palates.
While it’s true that many Americans can’t get enough fried chicken, the reality is that KFC has probably reached a critical mass with this foodstuff. If franchisees succeed in reverting to the old focus on the Colonel’s original recipe, it could be the beginning of the end for KFC’s growth.
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