Is KFC Giving Up on America?
KFC is enjoying a surge in popularity worlds away from the restaurant’s Louisville roots, while at home, the once popular chicken chain struggles to remain relevant.
YUM! Brands Inc. (NYSE:YUM) is struggling to reconcile KFC’s growing popularity in emerging markets like China, India, and Ghana with struggling franchises in the U.S., where store owners are feeling the pinch as customers flock to more popular chicken shops like AFC Enterprise’s (NASDAQ:AFCE) Popeye’s and Chick-fil-A.
At the end of 2011, China boasted 3,701 KFC’s compared with only 1,464 McDonald’s (NYSE:MCD) restaurants. The company is planning an impressive African expansion, entering seven new countries, including Uganda and Zimbabwe, in 2012. The company anticipates 1,000 chains and $2 billion in revenue from the African market by 2014.
Meanwhile, in the U.S., which still hosts the largest number of KFC restaurants with 4,780 units, the chain is plagued with restaurant closings and has changed its focus to franchising. Last year, same-store sales dropped 4.3 percent. Company-owned restaurants have dropped to 5 percent from 35 percent ten years ago.
As the focus shifts to rapidly expanding markets, some franchise owners are left feeling neglected and disheartened. But KFC’s strategy of increasing investment abroad while decreasing its domestic focus has proved profitable for the corporation, with earnings per share increasing 13 percent over the last ten years. According to Chief Executive Officer David Novak, while he would like to strengthen the U.S. market, shareholder value comes first.
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