If Kentucky Grilled Chicken was helping to drive increased traffic and profitability for its franchise operators, I think they would be in full support of the product.
It was reported earlier this week that KFC franchisees have initiated court proceedings against YUM over a debate as to the current direction of the company’s marketing campaigns. According to a Washington Post article published on January 9th, a coalition of franchisees is not happy with the company’s focus on the new grilled chicken platform and decision to devote the advertising budget to promoting Kentucky Grilled Chicken.
YUM rolled out its Kentucky Grilled Chicken product nationally in 2Q09, supported by advertisements that told consumers to “Unthink KFC.” When YUM reported positive 2Q09 same-store sales growth for KFC, it seemed that the company had finally found a way to drive traffic back into KFC. That positive growth, however, quickly turned negative during 3Q09 when KFC’s comparable sales declined 2% (And, KFC was lapping an easy comparison of -4% from 3Q08). The initial success of Kentucky Grilled Chicken was actually even more short-lived than that with management citing an “unprecedented” 30-point swing in same-store sales growth at KFC during the first month of the launch versus pre-launch, followed by a flattening of sales immediately after the introductory launch. YUM’s 4Q09 same-store sales in the U.S. continued to be weak with management guiding to -8% in early December.
I don’t know how many of the 4,000-plus U.S. franchised KFC units are included in the coalition that is taking legal action YUM, but this type of “noise” in the system is never good for business and does not convince me that the grilled chicken product is yet as successful as management has claimed. On the 3Q09 earnings call, YUM management stated, “At KFC, Kentucky Grilled Chicken has been an unqualified success.” If this statement was entirely true and the grilled product was helping to drive increased traffic and profitability for its franchise operators, I think they would be in full support of the product and the advertising spending being used to increase trial of the product.
During the company’s 2Q09 earnings call (the first quarter of the new launch), management stated in regard to Kentucky Grilled Chicken, “another reason why it’s very popular, not only with our customers but with our franchisees is the margins are actually better on a grilled piece of chicken versus a fried piece of chicken.” As I stated before, during 2Q09, the grilled chicken launch helped to drive positive comparable sales growth so franchisees may have been happy with the product, but at this point, the franchise community does not seem to be in complete agreement with the company about the push behind grilled chicken.
KFC’s sales have been weak for some time now so management had to do something to try to turn around the brand. Broadening the menu seemed like a good idea to me, but I do think it is always somewhat risky for a concept to pursue a strategy that moves away from its core competencies and its core users. Yes, chicken is KFC’s core product, but that chicken has always been fried in the past and when people think KFC, they still think fried chicken. It will take a while to train consumers to think anything else, which explains why the company needs to spend behind the grilled chicken platform. In the meantime, the company needs to be careful not to abandon its core users who continue to want fried chicken. Even if the Kentucky Grilled Chicken launch has driven grilled chicken to become an impressive 30% of KFC’s sales mix, fried chicken still represents a bigger piece of sales. And, the company’s campaign to “Unthink KFC” may not appeal to the concept’s current users who were perfectly happy with the brand.