Yum CEO says there’s no ‘quick fix’ for struggling KFC operations in US

Wednesday, October 6, 2010

Yum CEO: No ‘quick fix’ at KFC in US

LOUISVILLE, Ky. — The recipe for a turnaround is proving elusive at KFC, the chain made famous by the secret mix of herbs and spices coating its Original Recipe chicken.

A day after KFC posted an 8 percent quarterly sales drop at U.S. restaurants open at least a year, the top executive of its parent company acknowledged that rejuvenating the ubiquitous brand will take time.

“There is no quick fix,” Yum Brands Inc. Chairman and CEO David C. Novak said Wednesday during a conference call with industry analysts. “We are absolutely committed to turning KFC around. And we’re seeing slow but steady progress.”

KFC’s struggles were magnified by solid U.S. sales growth at two other Yum chains — Pizza Hut and Taco Bell. At Pizza Hut, sales at stores open at least a year rose 8 percent in the third quarter, while the figure rose 3 percent at Taco Bell.

Overall, Yum said Tuesday that its third-quarter profit grew 7 percent on surging overseas sales, especially in China.

For KFC, its sales disparity has become a tale of two countries.

In China, KFC has become a dominant fast-food brand, and its restaurant count tops 3,000 and continues to grow steadily. But in the U.S., the chain has struggled to sustain profit growth.

“The system is hurting,” franchisee Bill Eubanks, who owns 11 KFC stores in New Jersey and one in Delaware, said by phone Wednesday. “We’ve got to do something to reinvigorate the system.”

KFC executives thought they found the formula with their national rollout of Kentucky Grilled Chicken in the spring of 2009. For a time, grilling put some sizzle back at KFC by producing higher U.S. sales.

But the company’s preoccupation with grilled chicken caused a rift with some franchisees who worry that the chain’s traditional fried chicken was being snubbed in marketing.

The dispute is even playing out in a Delaware court, where a judge is being asked to determine whether KFC or a council composed mostly of franchisees will dictate marketing strategy.

KFC spokesman Rick Maynard said Wednesday that the company is confident of winning in court. He said the company routinely seeks input from franchisees on product introductions, promotions and advertising.

“We very much value that input and many great ideas have come from this collaborative effort,” he said.

Novak on Wednesday laid out the strategy to boost KFC sales in the U.S. — improving restaurant operations, offering value items and providing “balanced options” with grilled chicken that appeals to more health-conscious consumers.

Eubanks, a former chief operating officer at KFC, said he loves the grilled chicken and was excited about the national launch. But now he says marketing in 2009 and early 2010 was too focused on grilled at the expense of fried.

“It’s still Kentucky Fried Chicken,” he said. “Our DNA is fried chicken. That’s what we’re known for. And after the launch, there could have been a little bit better balance between grilled and fried. We were just all one-sided.”

Eubanks said the grilled introduction was a big hit at first, bringing in flocks of new customers.

But all the buzz wasn’t sustained, and many of those customers failed to keep coming back, he said.

Grilled sales range from 10 percent to 25 to 30 percent of overall sales at his restaurants, he said.

Companywide, grilled chicken represents about 20 percent of KFC’s chicken-on-the-bone sales in the U.S., Maynard said.

“It successfully generated nearly $1 billion in sales in its first year, which is a testament to its popularity,” he said in a statement.

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