KFC is basically two brands: The struggling U.S. concept that most Americans know and the insane, global powerhouse that exists outside the U.S.
Consider this: By the end of this year, KFC will likely have opened 3,000 new restaurants around the world. In the U.S., the brand has only about 3,600 locations. So in just over one year, the fast-food chicken chain will have opened the equivalent of KFC’s entire U.S. market.
Parent company Yum Brands is taking steps to get investors focused more on that international growth, not to mention sister chain Taco Bell. The company this week announced plans to sell its struggling Pizza Hut unit, which should shift Wall Street’s full attention toward the two big, thriving brands.
For that plan to work to its fullest extent, however, KFC U.S. will need to pull its weight. And that will require a reversal of the trends of most of the past decade or two. “The KFC brand, we want to be on a better trajectory in the U.S.,” Yum CEO Chris Turner told analysts.
KFC U.S. took a big step toward that end last quarter, reporting 2% same-store sales growth in the period. The result was particularly notable for three reasons: The market is tough for fast-food right now, it was the first positive number in two years, and rival Popeyes just reported a 2% decline in same-store sales and replaced its brand president.
The chain launched spicy wings and brought back potato wedges, which both pulled in customers. “You saw them take a different approach to social marketing with the launch of spicy wings and wedges,” Turner said. “We got great engagement, brought a lot of new customers who hadn’t engaged with the brand in more than a year.”
KFC’s domestic challenges have been well-documented in these pages, but the chain’s sales have largely stagnated over the past two decades, paving the way for competitors like Chick-fil-A, Raising Cane’s, Wingstop and Popeyes to take market share. Once the biggest restaurant chain in the U.S., KFC is now No. 20, and will likely fall further when Technomic Top 500 numbers come out next year.
KFC’s U.S. struggles have contrasted with the growth of the chicken market domestically. Chicken is the most popular protein in the country, and a surprising percentage of the fast-food business is hell-bent on selling more of it. It’s a market the country’s first and best-known chicken chain should own. Instead it’s been watching other brands thrive in its place.
Yum took key steps to change that earlier this year, starting with hiring Scott Mezvinsky to be the KFC CEO. “You can be assured that he is bringing many of the big ideas around brand relevance from Taco Bell,” Turner said.
Catherine Tan-Gillespie was then named president of KFC U.S., after having served as global chief marketing officer for KFC. Turner called her “one of our biggest marketing thinkers.”
“We did a lot of work over the last couple of years,” Turner said. “We really assessed what it would take. We did a lot of testing and investigation. We think it starts with brand relevance.”
Outside the U.S., KFC continues to thrive. Internationally, system sales are up 7% so far this year, compared with a 3% decline in system sales in the U.S. Every other major market outside the U.S. has grown system sales by at least 3% so far this year, including China (5%), Europe (7%), Asia outside of China (8%) and Latin America (11%).
Mezvinsky will work to maintain KFC’s international momentum, building sales in key markets, such as the U.K., where same-store sales rose 9% last quarter, while maintaining its unit growth trajectory. KFC operates about 33,000 global restaurants, and Yum believes there’s room in the world for as many as 75,000.
But getting that U.S. market on track will be key given that Yum is a U.S.-based company with a largely U.S. investor base. And no Pizza Hut means those investors will be even more focused on KFC, assuming a sale does indeed take place.
The sales last quarter were a step in the right direction, Turner said, even if he acknowledged that it’s early. “We’re pleased with the green shoots,” he said. “A long journey ahead, but we’re pleased with the progress in KFC U.S.”
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