Why KFC Franchisees Are Squawking

The bottom line: Some KFC franchisees are at war with the chain, which they believe is unwisely turning its back on its Southern fried heritage.

August 12, 2010

Why KFC Franchisees Are Squawking
They feel Yum! Brands is foolishly downplaying the chain's Southern fried image
Burt Helm

Marilynn Pankratz fondly recalls the time Colonel Sanders donned an apron at her Kentucky Fried Chicken restaurant and taught the staff how to fry chicken according to his Original Recipe. Ask her if KFC's current president, Roger Eaton, would do the same, and she's off: "Roger Eaton and his company don't give a rat's ass," says Pankratz, who has run KFC franchises since 1963 and operates eight in Florida and Louisiana. "They hire marketing guys with blue blazers who tell us what to do with our damn stores. But it's one thing to be behind the big mahogany desk calling the shots and another to be down here in the trenches."

Pankratz is part of a group of franchisees who blame KFC's falling sales on Eaton's decision in early 2009 to emphasize grilled chicken and sandwiches over KFC's bone-in fried fare. Managers at the Yum! Brands (YUM)-owned chain say they're trying to reach health-conscious, on-the-go consumers. Many franchisees say the strategy confuses customers and hurts the brand. Second-quarter revenue at U.S. stores open at least a year fell 7 percent.

In January the KFC National Council & Advertising Cooperative, which represents all U.S. franchisees, sued KFC to gain control of ad strategy. The Association of Kentucky Fried Chicken Franchisees, which speaks for about two-thirds of all U.S. KFC restaurants, has hired Larry Light, once McDonald's (MCD) chief marketing officer, to bolster local marketing independent of headquarters.

KFC, which calls the lawsuit "baseless," didn't make Eaton available because of the litigation. "KFC's strategy is derived from extensive consumer research," spokeswoman Laurie Schalow wrote in an e-mail. "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."

The civil war over what KFC should stand for erupted last year when the company introduced grilled chicken with the slogan "Unthink KFC." Some franchisees saw it as a bald effort to distance the chain from its much-cherished Southern fried legacy. "Kentucky Fried Chicken hit the streets with 11 herbs and spices, pressure-cooked, and by and large the general public doesn't give a damn how many calories are in it," says Wallace Fowler, who runs 60 franchises with his son Chris in Arkansas, Missouri, Illinois, Kentucky, and Tennessee. " 'Unthink' hurt KFC as a brand," adds Chris. "We told our customers not to think of us as a fried chicken chain." KFC management dropped the "Unthink KFC" national campaign in May.

Tempers flared again when KFC launched a grilled chicken giveaway on Oprah in May 2009. Management told franchisees to expect a couple hundred customers to redeem online coupons at each store, says Pat Dempsey, who owns seven franchises with her husband. Thousands showed up. Dempsey says she and other franchisees ran out of food and had to placate angry customers. "The cost to the franchisee was much larger than they said," says Dempsey, who estimates the promotion cost her as much as $15,000. "That started a continued downfall in trust." KFC canceled the promotion, and Eaton apologized to customers in an online video.

Grilled chicken sales have dwindled since, says Larry Starkey, who owns seven franchises in Massachusetts and Rhode Island. Grilled chicken accounts for about 16 percent of all "on the bone" chicken sold, according to Starkey. He says an internal survey of 642 franchisees showed almost 50 percent of stores' grilled chicken is thrown away.

According to the complaint filed by the franchisee association, KFC takes a hard line on advertising. If franchisees don't vote to approve ads, it says, the company pulls all national spots from TV for the month. After the two sides reached an impasse earlier this year, one national KFC advertising campaign went dark in July, says Starkey, who serves on the chain's cooperative ad panel.

Franchisees are working with Light to develop their own marketing. So far the group has created an in-store promotion to celebrate this month's 70th anniversary of Original Recipe, complete with pennants depicting fried chicken buckets and life-size standups of Colonel Sanders. Unlike KFC's corporate advertising, the franchisee group's ads and promotions will emphasize fried chicken.

Not all franchisees agree with suing the parent. Charles Nailen, who owns 28 stores, says the timing is wrong: "We ought to be walking arm in arm to figure out a way out of this sales decline. We ought to be shooting the competition. Instead, we're shooting one another."

The bottom line: Some KFC franchisees are at war with the chain, which they believe is unwisely turning its back on its Southern fried heritage.

With Alex Sherman

Helm is marketing editor for BusinessWeek in New York.


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