KFC Isn’t Just Losing Ground to Chick-fil-A

Yum! Brands (YUM -0.54%) has suffered its share of PR nightmares, domestically and internationally. However, PR nightmares don't pose the biggest threat to the company at the moment.

While Yum! Brands still offers significant growth potential abroad, its KFC brand isn't doing very well at fighting off domestic competition.That being the case, you might want to invest in one of the companies that are on the rise in the domestic quick-service-restaurant chicken category.

Comparing same-store sales
In the United States, KFC must now fight off the rising threats of Chick-fil-A, Popeye's Lousiana Kitchen (PLKI), and Wendy's (WEN 0.10%). Wendy's appearance on that list might surprise you, but Wendy's has more chicken items than it does beef items on its menu.

First consider domestic same-store sales (comps) for fiscal-year 2013 for each of the aforementioned companies. Prior to looking at these numbers, keep in mind that same-store sales exclude new store openings, which leads to a more accurate reading for demand and customer loyalty. This number arguably has the most importance for quick-service restaurants. 

Source: Corporate filings

If you're considering an investment in Yum! Brands, then don't let this number dissuade you too much. Yum! Brands has the two leading quick-service restaurants in Mainland China: KFC and Pizza Hut. With China seeing a rise in middle-income consumers and a population of 1.4 billion people, its potential is evident. Yum! Brands also plans on adding home delivery for Pizza Hut. Furthermore, it's testing the recently acquired East Dawning in China (Chinese food). 

Chick-fil-A is clearly seeing high demand, and it plans on opening 100 new locations this year. Unfortunately for investors, Chick-fil-A is a private company. Therefore, let's move on to the next potential option: Popeye's Louisiana Kitchen.

As you can see in the chart above, Popeye's Louisiana Kitchen is seeing demand like that of Chick-fil-A. It just hasn't hit the news as much ... yet. Fortunately for investors, this is a public company.

Popeye's Louisiana Kitchen plans on opening 180-200 new restaurants this year. It also expects to deliver global comps growth of 2%-3%. Over a five-year timespan, it expects to deliver comps growth of 1%-3% on an average annualized basis. Looking good. Now let's move on to Wendy's. 

When Wendy's launched its Pretzel Pub Chicken Sandwich, it expected the sandwich to drive comps growth of 3%-5% in its third quarter. That number came in at 3.2%. While this hit the low end of the range, Wendy's will probably launch many more chicken-related products that will have the potential to drive foot traffic and sales.

For instance, in the company's fourth-quarter press release Chief Financial Officer Todd Penegor said, "We are confident our strong balance sheet, financial flexibility and excellent cash flow will enable us to comfortably fund our organic growth initiatives while returning capital to shareholders." Let's take a look at another important number for each of the aforementioned companies.

Average sales per store
Average sales per store provides another good indicator of a restaurant chain's future growth potential. Simply, if that number is high in comparison with those of peers and the chain plans on opening more locations, then that company likely has higher growth potential than its peers. With that in mind, consider the following numbers for 2013. All numbers are for domestic locations only.

Chick-fil-A stands out in a very good way. It's also planning on expanding to the Northeast, Midwest, and West. Keep an eye out to see if the company goes public. If it does, it might present a quality investment opportunity.

In the meantime, while Yum! Brands reduces its number of domestic KFC locations, Popeye's Louisiana Kitchen continues to expand. Also, Wendy's continues to remodel its restaurants (from 300 to 700 this year). Therefore, while Yum! Brands is a strong international brand with staying power, if you're looking for more growth potential then you might want to consider Popeye's Louisiana Kitchen or Wendy's.

The Foolish bottom line
KFC is simply losing the chicken wars to other quick-service restaurants domestically. Since you can't invest in Chick-fil-A, you might want to consider Popeye's Louisiana Kitchen or Wendy's. Fortunately, this decision can be made easier.

Although it has lower average sales per store, Popeye's Louisiana Kitchen is delivering stronger comps growth than Wendy's and the stock is trading at 29 times earnings. This makes Popeye's Louisiana Kitchen more appealing from a valuation standpoint than Wendy's, which is currently trading at 84 times earnings. Please do your own research prior to making any investment decisions. And if you're looking for an investment to own for the rest of your life, then there are three top-tier available options.