FDD Talk 2021: KFC Franchise Review (Financial Performance Analysis, Costs, Fees, and More)

In this FDD Talk post, you’ll learn the following:

  • Section I – Background information on the KFC franchise opportunity, including relevant news updates
  • Section II – Estimated initial investment for a KFC franchise, based on Item 7 of the company’s 2021 FDD
  • Section III – Initial franchise fee, royalty fee, marketing fee, and other fees for a KFC franchise, based on Items 5 and 6 of the company’s 2021 FDD
  • Section IV – Number of franchised and company-owned KFC outlets at the start of the year and the end of the year for 2018, 2019, and 2020, based on Item 20 of the company’s 2021 FDD
  • Section V – Presentation and analysis of KFC’s financial performance representations, based on Item 19 of the company’s 2021 FDD, including information on the:
  • 2020 average (and median) net sales, cost of product, and labor cost for the 28 single-brand company-owned KFC outlets open for at least one year as of KFCLLC’s fiscal year ended December 28, 2020
  • 2020 average and median net sales for the 2,964 single-brand franchised KFC outlets open for at least one year as of KFCLLC’s fiscal year ended December 28, 2020
  • 2020 average and median net sales for the 2,992 single-brand KFC outlets (company-owned and franchised) open for at least one year as of KFCLLC’s fiscal year ended December 28, 2020
  • average, median, high, and low weekly net sales for the 85 “American Showman Outlets,” KFC’s new image for outlets rolled out in late 2015, which have been open for periods ranging from 13 to 104 weeks as of fiscal year ended December 28, 2020

Section I – Background Information

22 Things You Need to Know About the KFC Franchise

Welcomes New Director of Equity and Inclusion

1.  At the end of August 2020, KFC announced the apppointment of John Mays as director of equity and inclusion for KFC U.S. In this newly formed role, Mays will lead the development and implementation of KFC’s equity and inclusion vision and strategy to help position the brand as an industry leader across the United States. As director of equity and inclusion, Mays will lead organizational changes, raise awareness of equity and diversity issues, and develop policies to address equity from the restaurant level to franchisees and the brand headquarters.

2.  John Kurnick, chief people officer of KFC U.S., said, “At KFC, we have a passion for food and serving it with pride; we are also a people-first culture, and John embodies this culture day in and day out, making him the perfect person for this new role. His drive and ability to build upon our culture of inclusion will enhance our existing foundational efforts as a brand – from employee resource groups to KFC’s inclusive hiring initiative. I am confident that John will challenge our thinking and bring provocative thought leadership to this role. John’s early thinking on our strategy in this new role will continue to prioritize diversity of thought and action, making a significant and lasting impact within KFC, and throughout the quick-service restaurant industry and the communities we serve.”

3.  Mays has played an instrumental role in guiding and educating the brand on systemic racism, including helping to develop the brand’s external response to the deaths of Breonna Taylor, David McAtee, Ahmaud Arbery, George Floyd, and others, that have resulted in the continued demonstrations for social justice. He will take the lead on the development of steps and actions that ensure the brand’s equity and inclusion vision is embedded into the organization’s structure, processes, and decision-making – benefiting not just KFC employees, franchisees, and restaurant-level team members, but KFC customers as well.

4.  Mays said, “My driving passion is making sure everyone feels empowered to bring the best authentic version of themselves to the workplace and no one is left behind. And while equity and inclusion may look different for everyone, if we can spark change by capturing on the momentum of this moment to become a sustainable movement for our brand, then I believe KFC will have done something extraordinary. The entire KFC organization has rallied around and recognized that equity and inclusion is, and must continue to be, a priority. I’m ready to take on this challenge, shake things up, and help make KFC – a place that has made me feel like family for almost five years – a catalyst for positive change in the industry.”

5.  Since joining the KFC operations team as a manager of restaurant strategies in 2015, Mays has garnered the trust and respect of franchisees, team members, and leaders across KFC. In his most recent role as franchise business coach, John and his team of operations consultants supported and advised more than 1,000 franchise restaurants across 20 states, developing relationships and building programs.

6.  He is active in the Louisville community, serving as an adjunct professor to educate the next generation of business leaders. Mays is heavily involved in the local Louisville non-profit world, specifically within the Black community, serving as vice president of Master Builders Academy, an organization that helps people build their dreams into businesses, through education in the areas of financial solvency, personal development, and more.

Launches New Signature Sauce

7.  In early October 2020, KFC launched a new signature dipping sauce, the KFC Sauce, which is tangy and sweet with a bit of smokiness, specifically designed to pair with KFC’s Extra Crispy Tenders. The new KFC Sauce debuted along with a newly revamped core sauce lineup of Classic Ranch, Honey BBQ, and Honey Mustard.

8.  Andrea Zahumensky, chief marketing officer of KFC U.S, said, “When we set out to create a new signature dipping sauce, we went right to the experts – our customers – to find out what made a sauce best-in-class for dipping. We went through 50 iterations, and their response to this recipe was overwhelming!”

9.  To celebrate its new signature KFC Sauce, KFC’s Head Chef Christ Scott created three “KFCharcuterie” board recipes for everyone to try at home. “Charcuterie doesn’t have to be all cold cuts, cheeses and crackers. It can also be delicious comfort foods like Extra Crispy Tenders, Secret Recipe Fries and indulgent sauces,” said Zahumensky. “They are both fun to create and to eat, and I know around my house we are definitely in need of some creative ways to break up the monotony of meals at home.”

10.  KFC’s charcuterie board recipes, using KFC products and other ingredients, will make at-home meals more fun for everyone, especially during a time when at-home dining can feel like a chore. Zahumensky’s suggestions included:

  • KFC Little Dipper: A snackable combination of KFC Extra Crispy Tenders and Secret Recipe Fries, paired with your favorite dipping sauces – KFC Sauce, Classic Ranch, Honey BBQ, and Honey Mustard.
  • Kentucky Game Night Trio: Kentucky Fried Buffalo Wings, KFC Extra Crispy Tenders, and Secret Recipe Fries, complemented by KFC Sauce and grocery items like blue cheese, fresh celery, and more.
  • Ultimate Family Fill Up: Featuring KFC’s Extra Crispy Tenders Family Fill Up with Secret Recipe Fries, warm, flaky KFC biscuits, coleslaw, mashed potatoes and gravy, topped off with KFC’s new dipping sauces and your favorite garnishes.

Announces Plans to Hire 20,000 Employees as Demand Grows

11.  In early May 2021, KFC announced strong Q1 earnings results, as customers increasingly chose the comfort and convenience of drive-thru, carry-out, and delivery of classics like KFC’s Family Fill-Up and new offerings like the Kentucky Fried Chicken Sandwich. Now, as demand continues to grow, the fried chicken chain hopes to hire 20,000 permanent full-time and part-time company and franchisee restaurant positions across the nation.

12.  KFC’s strong earnings announcement highlighted 14 percent growth in Q1 and same-store sales growth of 11 percent on a two-year basis, highlighting the need to fill 20,000 permanent positions nationwide. The open positions will vary by restaurant but will include positions at all levels including hourly team members (cooks, prep, and customer service), shift leaders, assistant managers, and restaurant general managers. Those interested in launching their career with the fried chicken experts can visit KFC’s newly re-launched careers site, jobs.kfc.com.

13.  According to John Kurnick, chief people officer of KFC U.S., “KFC has seen tremendous growth and sustained demand in the U.S. over the last year. Our franchisees have a real need to fill a variety of positions on their teams. Many of our franchise owners and brand leaders started their careers working in our restaurants, and restaurant jobs have always presented unique opportunities for those looking to learn new skills, whether in management, in the kitchen, through customer service or beyond.”

14.  KFC is a global leader in the restaurant industry and KFC franchisees offer a variety of employee benefits. As team members build their restaurant skills and achieve training milestones, they are able to grow in their restaurant careers. More than 75 percent of KFC restaurant general managers started as team members or shift leaders.

15.  Employees at participating KFC restaurants can benefit from The KFC Foundation, an independent non-profit organization that provides charitable support to KFC U.S. restaurant employees through education, hardship assistance, and personal finance programs. Through the KFC Foundation’s REACH Grants, employees of any age, any position, pursuing any degree can receive tuition assistance to attend the accredited four-year or two-year college of their choice. The money can also be used at trade/vocational schools and for graduate study. In 2020, the Foundation awarded more than $1.5 million of REACH Grants. The KFC Foundation also offers free GED assistance through a partnership with GEDWorks.

Company History

16.  KFC (a.k.a. Kentucky Fried Chicken) traces its history to 1930 when Harland Sanders took over a Shell gas station just outside of North Corbin, Kentucky and began selling food to hungry travelers. Initially, Sanders sold steaks and country ham and he enrolled in an eight-week restaurant-management course at the Cornell University School of Hotel Administration to improve his skills. In 1934, Sanders moved into a different gas station because it had more visibility and he began selling fried chicken. He named his new operation The Sanders Court & Café.

17.  Dissatisfied with the long cooking time of his fried chicken, Sanders began looking for much faster processes that would retain the juiciness of the chicken. Around 1939, when the first pressure cookers were released to the market, Sanders purchased one and began experimenting. Sanders turned the pressure cooker into a pressure fryer and was highly satisfied with the results. The following year, Sanders finalized what came to be known as his Original Recipe of 11 herbs and spices. Also around this time, Sanders was dubbed a “Kentucky colonel” by Governor Lawrence Wetherby and Sanders adopted the colonel moniker.

18.  In 1955, Sanders sold his properties because the new Interstate 75 planned to bypass North Corbin. He began traveling around the United States to sell his fried chicken concept to restaurants. A few years earlier, in 1952, Sanders had franchised his fried chicken recipe to Pete Harman of South Salt Lake, Utah, the operator of one of the city’s largest restaurants. Harman is considered the “virtual co-founder” of KFC as many of his early ideas were adopted by the company.

19.  Don Anderson, a sign painter hired by Harman, is responsible for coming up with “Kentucky Fried Chicken.” Additionally, Harman was the first to bundle the fried chicken in a cardboard bucket with a pint of gravy and rolls and serve it as a complete family meal. Harman also trademarked the phrase “It’s finger lickin’ good,” which was eventually adopted as a slogan across the entire chain.

20.  Over the next few decades, KFC grew rapidly around the United States. In 1963, Sanders sold KFC to a group of investors because he couldn’t find an heir to the business among his family. Despite stepping down from the day-to-day operations of the company, Sanders maintained significant influence in KFC’s operations and the company’s image. Under the new leadership, KFC’s practices were standardized and the company continued to grow domestically and internationally.

21.  In 1986, KFC was acquired by PepsiCo for $850 million and became a part of PepsiCo’s restaurant division along with Pizza Hut and Taco Bell. The new parent company was named Tricon Global Restaurants, which eventually became Yum! Brands in 2002. KFC is still a subsidiary of Yum! Brands and often appears in co-branded locations with Pizza Hut and/or Taco Bell. Today, KFC is one of the world’s largest restaurant chains in terms of sales, and there are locations across more than 150 countries.

Entrepreneur’s Franchise 500

22.  KFC ranked No. 25 on Entrepreneur’s 2021 Franchise 500 list.

Section II – Estimated Costs

  • Please click here for detailed estimates of KFC franchise costs, based on Item 7 of the company’s 2021 FDD.

Section III – Initial Franchise Fee, Royalty Fee, Marketing Fee, and Other Fees

  • Please click here for detailed information on KFC’s initial franchise fee, royalty fee, marketing fee, and other fees, based on Items 5 and 6 of the company’s 2021 FDD.

Section IV – Number of Franchised and Company-Owned Outlets

Franchised

2018

  • Outlets at the Start of the Year:  4,011
  • Outlets at the End of the Year:  3,980
  • Net Change:  -31

2019

  • Outlets at the Start of the Year:  3,980
  • Outlets at the End of the Year:  3,969
  • Net Change:  -11

2020

  • Outlets at the Start of the Year:  3,969
  • Outlets at the End of the Year:  3,860
  • Net Change:  -109

Company-Owned

2018

  • Outlets at the Start of the Year:  54
  • Outlets at the End of the Year:  55
  • Net Change:  +1

2019

  • Outlets at the Start of the Year:  55
  • Outlets at the End of the Year:  56
  • Net Change:  +1

2020

  • Outlets at the Start of the Year:  56
  • Outlets at the End of the Year:  47
  • Net Change:  -9

Section V – Financial Performance Representations (Item 19, 2021 FDD) and Analysis

  • Of the 2,992 domestic, single-brand Outlets open for the entirety of KFCLLC’s fiscal year ended December 28, 2020 (“FYE 2020”), 28 were owned and operated by KFCC and 2,964 were owned or operated by KFCLLC franchisees.
  • Although the Outlets were considered open for the entirety of FYE 2020, some of these Outlets experienced temporary closures as a result of the COVID-19 pandemic.
  • This financial performance representation reflects the averages for a sub-set of all single-brand Outlets in the United States as of FYE 2020. The sub-set consists of Company-Owned Outlets and all single-brand Outlets which were owned or operated by KFCLLC’s franchisees.
  • The financial performance representation does not include Non-Traditional, multi-brand, seasonal, or any type of KFC location other than single-brand KFC locations.
  • All KFC Outlets included had been open a minimum of 1 year as of FYE 2020.
  • Characteristics of the included locations may differ materially from the characteristics of the Outlet(s) that you may develop or acquire depending on your experience; competition in your trade area; the physical condition of the included locations as compared to the Outlet(s); employment and labor conditions in your trade area; and the length of time that the included locations have operated as compared to the Outlet(s).
  • “Average Net Sales” is the mathematical average of the total annual cash or other payments received after discounts and promotions for the sale or use of any products, goods, or services that were sold from the Outlets included within the group.
  • “Average Cost of Product” is the mathematical average of the total annual delivered cost of food, beverages, paper, and promotional items to the Outlets included within the group (“Cost of Product”), expressed as a percentage of Average Net Sales. This does not include any financial results from Outlets that were owned and operated by franchisees of KFCLLC.
  • The median Cost of Product during FYE 2020 was $384,973.
  • Of the 28 Company-Owned Outlets included in this Item 19 for FYE 2020, 12 or 42.9% attained a Cost of Product lower than the stated average result.
  • “Average Cost of Labor” is the mathematical average of the total annual hourly labor costs; the salaries and related costs of management; payroll taxes; health insurance; vacation; sick pay; bonuses; and workers’ compensation insurance for all employees at the Company-Owned Outlets included within the group (“Cost of Labor”), expressed as a percentage of Average Net Sales. This does not include any financial results from Outlets that were owned and operated by franchisees of KFCLLC.
  • The median Cost of Labor during FYE 2020 was $413,293.
  • Of the 28 Company-Owned Outlets included in this Item 19 for FYE 2020, 15 or 53.6% attained a Cost of Labor lower than the stated average result.
  • The operations of Company-Owned Outlets are similar to those of the franchised Outlets offered by the Disclosure Document, except that Company-Owned Outlets do not have certain expenses that franchised Outlets have, such as payment of royalties. Company-Owned Outlets also benefit from economies of scale that are not available to outlets that are owned singly or in small groups by a franchisee.

2020 Average Performance of Single-Brand KFC Locations Open During FYE 2020

Company-Owned KFC Outlets



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