Prior to the pandemic, KFC U.S. was firing on all cylinders–experiencing four-plus years of same-store sales growth and generating industry buzz with products like Beyond Fried Chicken.
The company also planned to achieve net new unit growth for the first time since 2004 but fell just short of those expectations in 2019. Then the pandemic clouded expectations altogether.
Now that we can see a bit more clearly, KFC’s cylinders seem to be in overdrive. Consumers stuck at home have been gravitating toward its family-friendly buckets and heavy drive-thru portfolio, while the brand’s new native digital channels have created a major tailwind. On a two-year basis, versus that “normal” 2019, the chain’s sales increased 11% and 19% in the first and second quarter, respectively.
The system is even stronger now, with stronger unit economics, which is driving franchisee interest to get back to a net growth mindset. Those franchisees now have a more diverse real estate portfolio from which to choose, including a Next Generation prototype introduced in November with more drive-thru lanes, parking for delivery drivers and curbside customers, cubby systems for digital pickup orders and self-service kiosks. There are about 20 of these restaurants now in various stages of development.
The company is also adding new urban inline formats specifically designed for metropolitan markets and also with an on-the-go consumer in mind. The urban inline formats are about half the size of a traditional KFC, and include signage that directs customers and delivery drivers to an in-store mobile pickup area. Six inline restaurants are currently planned through 2022.
Focusing on urban markets for growth may seem a bit counterintuitive right now, given the lagging recovery for many restaurant brands in such locations, but Chief Development Officer Brian Cahoe said the timing is right for KFC to penetrate underserved markets like St. Louis, New York’s Harlem, Queens and Chinatown, and Los Angeles suburb Baldwin Park.
“We’ve got a tremendous white space in the urban core of the U.S. The consumer doesn’t have convenient access to the brand in those areas,” he said. “These aren’t office-centric business districts, where some brands are struggling. We’re talking about neighborhood trade areas where there is a lot of national retail, national restaurant players. We’re positioning ourselves off of a train line, bus stop, mass transit routes. The consumer lives in these areas and there is a lot of density and diversity and our focus is on the vibe and potential of all that.”
After nearly 70 years in existence, KFC U.S. seems to be aging down, meeting the needs of a consumer changed by the pandemic. These new assets should materially ramp up KFC’s digital mix, which is no doubt motivating as digital sales tend to yield bigger transactions.
“Digital, conceptually, is very incremental and typically has a higher check average. Stepping away from that, our brand also travels well. KFC is made for those types of channels where the consumer takes it home or has it delivered,” Cahoe said. “So, we believe we’re going to accelerate growth through those channels.”
KFC currently has about 100 non-drive-thru locations, so it has reliable data points about a heavier takeout/delivery business. That said, its digital presence is more robust now. Prior to the pandemic, the company used a third-party solution for its website, leveraged just one delivery aggregator and had no app. Now it has its own ecommerce platform, its first-ever app and is present on all major third-party delivery platforms.
“Our digital mix has gone from zero to a very healthy mix and, arguably, COVID accelerated that journey by years,” Cahoe said, adding that units without a drive-thru could potentially get up to 50% in digital sales because those digital orders replace the brand’s substantial drive-thru business.
Having its own digital platforms may also present an opportunity for the brand to tinker a little more with a local-store marketing approach, which could work well to fit a diversified asset roster. On-the-go consumers are more likely to gravitate toward portable sandwiches, for example, versus a family seeking a bucket at the drive-thru.
“There is no question as we go forward now that we have our app and dot-com in place that we have an opportunity at individual restaurants to have different local store marketing and promotions based on what insights you’re getting from having that asset class in place,” Cahoe said. “I believe all the work we’ve done in the last five years–driving taste, operational improvements and modernizing the menu–all of that collectively in a new asset is an unbelievable recipe for us.”
It’s worth noting that KFC isn’t abandoning its traditional format and has plans to ramp up development here as well, illustrating the confidence in its development plans overall. During parent company Yum Brands’ earnings call in late July, CEO David Gibbs said, “there’s every reason in the world [KFC U.S.] should be net growers and they’re shifting to that in 2021 and we think that will continue.”
Of course, firing on all cylinders tends to motivate franchisees to want to grow and also attracts potential new franchisees. This is the “extremely satisfying” part of that long-awaited net new unit growth story for Cahoe.
“You don’t get to where we’re at on growth without the franchisees and that level of support and interest,” he said. “The willingness of our franchisees to test these different prototypes shows the system overall is arm and arm.”