What do you do when your core chicken chain, one of the most venerable brands in the U.S., is struggling?
If you’re Yum Brands, you create another one.
Saucy, the chicken tenders concept that KFC opened in Orlando earlier this year, has apparently done well enough with its one location that Yum wants to open more. So it is planning more openings of the brand later this year.
It’s easy to understand why. Fast-casual chicken chains are all the rage right now. That sector alone generated 24% total sales growth last year. Raising Cane’s, which sells just chicken tenders, generates absurd $6.5 million average-unit volumes. Dave’s Hot Chicken just earned a $1 billion valuation in less than a decade. Wingstop is coming off arguably the most successful sales run any restaurant chain has ever had.
It's a bit surprising that more big brands don’t actually make a push to acquire one of these growing chicken chains.
But it’s difficult to look at that decision and not wonder whether it represents something of a white flag from KFC.
To say that the venerable chicken chain is struggling may be an understatement. Same-store sales fell 5% last quarter, the eighth straight period in which the key metric has been either flat or down. On a two-year basis, its same-store sales are down 10%.
Franchisees, which own the bulk of the chain’s 3,600 U.S. locations, have been closing them at a steady clip. Over the past five years, KFC has closed more than 10% of its domestic restaurants. It has long lost its title as the country’s largest chicken chain to Chick-fil-A, but it is now looking up at Popeyes and will soon be smaller than both Raising Cane’s and Wingstop.
Yum Brands has been looking for answers to its KFC problem for decades. It spent several years cobranding the concept along with formerly-owned chains Long John Silvers and A&W. Yum also targeted large-scale, legacy KFC franchisees for termination coming out of the Great Recession in part to cull some low-performing stores out of the system.
The brand appeared to be getting some traction before the pandemic, and even some unit growth, under former U.S. president Kevin Hochman. But then Hochman went to Chili’s—now the most-talked-about restaurant chain in the U.S.—and KFC went away from some of the marketing that drove its success and sales fell again.
Yum executives argue that Saucy’s first location has weekly sales that have “averaged materially higher than the pre-existing KFC since opening.” But that’s also the first location of a highly publicized concept in a tourist market comparing itself to a struggling legacy brand. That makes the comparison virtually irrelevant at this point, because the location is almost certainly getting heavy interest from curiosity seekers.
If Saucy does prove successful, it will potentially take business away from traditional KFC, not to mention effort and resources on the part of the company.
Yet even in the most optimistic of scenarios, it will take years before Saucy could have the kind of impact on Yum Brands earnings that simply getting KFC back into growth mode would have.
For instance, Saucy could become like Dave’s Hot Chicken, which within seven years went from startup to $650 million in domestic system sales. That is an extraordinary rate of growth.
Dave’s growth last year represented $224 million in system sales, which is great for Dave’s.
For KFC, $224 million would be just 4.5% sales growth. Or, in other words, no restaurant closures coupled with a marketing campaign that drives same-store sales of 5%. Difficult? Sure. Impossible? Not even close. And the best part is that KFC could achieve that in 2026, rather than 2033.
All that is assuming that Yum Brands could even grow the concept to that point. That’s hardly a slam dunk, and for evidence simply look at the growth chain Yum acquired in 2020.
Habit Burger has added $211 million in system sales since 2019, the year before Yum bought the concept. It had added $331 million in system sales the five years before that. Habit’s growth has slowed under Yum. It’s difficult for big companies to operate growth chains. It’s generally not their strength. And that is OK.
Saucy could also spend a couple of years as a pet project that is ultimately killed after management opts its efforts are better spent elsewhere, as McDonald’s has done with CosMc’s. But either way, the risk is that Yum focuses too much attention on its new toy and not enough on the core brand.