KFC About to Be Plucked by New Yum! Brands Restaurant

Source: Super Chix.

Yum! Brands (NYSE: YUM  ) may say it's considering international consumers as it tests out a new concept in Texas called Super Chix, but after losing the crown of top chicken joint to privately held Chick-fil-A, it may be its own KFC customers who ultimately fly the coop.

The restaurant chain has been under assault globally, but nowhere more so than in China, where KFC was plagued with health and safety issues in late 2012 along with an outbreak of avian flu. KFC's China sales tumbled 15% in 2013 and were down 4% in the fourth quarter, though by the end of the year new promotions aimed at restoring consumer trust in the restaurant saw some success. A half-priced bucket of chicken, for example, drove comps 16% higher for the first 10 days of November, even if they fell again when the sale ended.

Yum! was winged at home as well, as sales at KFC fell 2% in the U.S. last year and Chick-fil-A surpassed KFC in sales even though the latter is more than twice as large as its rival. According to the market researchers at Technomic, while chicken chain sales rose 5.1% last year, Chick-fil-A sales surged over 9% year over year to more than $5 billion.

This makes the decline at KFC all the more notable and worrisome for the restaurant operator, and indicates there may be more behind the new Super Chix restaurant than Yum! is letting on.

The new restaurant opened Wednesday in Arlington, Texas, and was touted as offering "The Last True Chicken Sandwich," a marinated, hand-breaded piece of chicken fried in refined peanut oil and served on a bun. 

The rest of the menu is pretty stripped-down as well, offering chicken tenders, hand-cut fries, and custard for dessert. There's also a nod to the hot fast-casual dining concept with the inclusion of an assortment of fresh toppings including lettuce, tomatoes, pickles, jalapeno peppers, and onions. But it's also a nod to Yum!'s own "KFC Eleven" concept it tested last year that offered healthier fare such as rice bowls, salads, and grilled chicken instead of fried chicken in a bucket. 

Yum! needs something to pull customers back. Sales at company-owned stores are down by a 27% compounded rate over the last five years and have remained relatively flat at franchised KFC stores. In contrast, they've been steadily rising at Chick-fil-A. While KFC registered $4.2 billion in sales at over 4,400 stores in 2013, its rival saw $5.05 billion at just under 1,800 restaurants.

By rolling out a new chicken concept in hopes of stealing sales from other restaurants, Yum! might also cannibalize sales at KFC -- it has about a dozen stores in the Arlington area. Any further test expansion of the Super Chix restaurant, either here at home or abroad -- there's no reason an international consumer would be more interested in the concept than a U.S. customer would -- the toll will fall heaviest on the KFC chains.

Yum! Brands' stock is up 16% over the past year, and considering the struggles its chicken chain has had (not to mention Pizza Hut, even if Taco Bell remains a bright spot), the fact that it trades at 23 times trailing earnings and 18 times estimates suggests the chickens are about to come home to roost for investors.

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Read/Post Comments (3) | Recommend This Article (3)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On April 12, 2014, at 10:11 AM, Bway wrote:

    KFC needs better sides

  • Report this Comment On April 12, 2014, at 10:28 AM, WallaceNDavis wrote:

    Your opening sentence is utterly nonsensical. Consumers may leave KFC for Chick-fil-A in the U.S. because Yum! Brands may open Super Chix overseas? Where does Motley Fool find people willing to write such twaddle? And why does it run it?

  • Report this Comment On April 13, 2014, at 4:21 AM, JackRabete1563cc wrote:

    Agreed, Wallace, agreed. (my brothers name is Wally). But my input here pertains to Yum's business practices. Not just at KFC, but also their Taco Bell and Pizza Hut brands all use Palm Oil to fry their foods. Palm Oil is ubiquitous in almost ALL of todays' food, soap, teethpaste, candies, candles, all sorts of Businesses currently in business. The oil, which is dirt cheap - is the main reason manufacturers use it. They cut down trees nonstop in Kalimantan and other parts of the Sumatran islands. This leads to orangutans' loss of their treetop habitat which in turn leads to mothers carrying her babies astraddle her back to alien locations to forage for food to eat for themselves and her infants. The tree cutters then, knowing that the grass/bamboo hut human dwellers love fresh jungle meats to eat, so the saw men shoot the orang mothers to sell in the markets, another source of blood money profits. Orang orphans are left to learn forest life on their own and most of them die soon, which is quick extinction of their species by the minute. Not to mention big losses in the jungle forests tree top canopies that had benefited the planet's health and also the human need for oxygen. Of course, sleazy 1%-ers from Hong Kong and probably a myriad of other blood money immoral profit driven drag businesses preying on human society and Nature get into the action by buying up all the land where the saw men work and the orphans used to live. Many of the dispossessed from the local villages are then sold into slavery This all happens with the blessings of local farmers, the government's weak laws and slack regulations, and the saw men's greed. There are international boycotts of the palm oil non fair trade (aka slave factories), including a very high amount of slaves dwelling in rich American 1%-er homes too, today, places like NYC, Hamptons, and Beverly Hills. Clearly Wallace, you must join the Yum boycott. I need to do much more myself. Until Yum stops using palm oil altogether and buys fair trade instead these problems will yet run amuck, killing the trees, the orangs, and the villagers. Yum can do without our $10 purchase but don't like boycott driven declining profit so the onus on their corporations' declining profits may one day soon make them trade on less disastrous cooking oil. Cheers Wallace and if you have it in you, please quit eating Yum foods. I did and I'm not any the worse for doing so.

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Rich Duprey

Rich has been a Fool since 1998 and writing for the site since 2004. After 20 years of patrolling the mean streets of suburbia, he hung up his badge and gun to take up a pen full time.

Having made the streets safe for Truth, Justice and Krispy Kreme donuts, he now patrols the markets looking for companies he can lock up as long-term holdings in a portfolio. So follow me on Facebook and Twitter for the most important industry news in retail and consumer products and other great stories.


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