Why KFC lost its position as a leader in the US

Adam Jones - Author
By

Nov. 20 2020, Updated 11:10 a.m. ET

Overview

Kentucky Fried Chicken (or KFC) was opened in 1952 by Colonel Harland Sanders. He’s the face of the brand. About one-third of Yum! Brands’ total restaurant units are in the KFC division. About 4,500 KFC restaurants are in the U.S. and ~9,400 restaurants are located internationally. In India and China, KFC accounts for 47% of Yum! Brands’ (YUM) business.

In the above chart, we see how the emerging markets in this division will gain weight going forward. They will increase in the number of units in three to five years—starting in 2013.

KFC’s menu

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As the name suggests, KFC offers a variety of chicken items on its menu. KFC is a fast food restaurant concept. It serves items including fried chicken, crispy chicken, grilled chicken, and chicken wings. It also serves chicken sandwiches. KFC’s side orders include mashed potatoes, macaroni and cheese, corn on the cob, and biscuits. It also serves a bowl that includes a mix of mashed potatoes, chicken, and gravy. KFC has a variety of beverages.

KFC needs a turnaround in the U.S.

We learned in our Yum! Brands’ 2Q14 series that KFC’s U.S. same-store sales have flatlined. KFC is facing tough competition from big restaurant chains like McDonald’s (MCD) and local restaurant players. According to Janney Capital Markets, in 2013, Popeyes (PLKI) market share grew to 11%—from 10% in 2003. Chick-fil-A’s market share grew from 12% to 26% over the same period. KFC’s market share shrunk from 38% to 22% over the same period.

Also, the restaurant industry trends are changing. There are new concepts like fast-casual restaurants. An example of a fast-casual restaurant is Chipotle Mexican Grill (CMG). It’s part of the Consumer Discretionary Select Sector SPDR (XLY). Chipotle is experiencing double digit growth in the U.S.

CMG sells what it calls “food with integrity.” It claims that it doesn’t use meat from animals that were conventionally raised with antibiotics or added hormones. This is a good fit for the millennials. The millennials prefer natural and organic food. They also like to customize their own food.

Yum! Brands is also testing two new concepts—the KFC Eleven and Super Chix. Will these concepts help KFC improve? We’ll discuss this in the next part of the series.

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