Is Super Chix The Answer for Yum! Brands?

Yum! Brands hopes that its new Super Chix concept will become a hit with "the last true chicken sandwich."

Apr 15, 2014 at 11:15AM

The news last month that KFC is no longer the top chicken chain in the U.S. must have Colonel Sanders rolling over in his grave. Chick-fil-A was the top-selling chicken chain in the U.S. last year with $5 billion in sales to KFC's $4.22 billion. The news is certainly a disappointment for Yum! Brands (NYSE:YUM). Besides Chick-fil-A, KFC also has to deal with Popeyes Louisiana Kitchen (NASDAQ:PLKI) looking to grow its share of the U.S. chicken market.

Popeyes and Chick-fil-A are outperforming KFC
KFC ended 2013 with about 4,500 restaurants in the U.S. Chick-fil-A had 1,775 restaurants located primarily in the southern part of the U.S. Popeyes had 2,225 restaurants in the U.S. and internationally.

Chick-fil-A excels in per-store sales. The average Chick-fil-A location generated about $3.2 million in sales, versus only $938,000 generated by the average KFC location. Where it gets even more embarrassing for KFC is that Chick-fil-A restaurants are only open six days a week--they're closed on Sundays.

In terms of same-store sales last year, Popeyes and Chick-fil-A both saw their same-store sales rise 3.6% last year in the U.S. KFC, on the other hand, saw its same-store sales drop 2% for the year.

Here comes Super Chix!
Yum! Brands looks to refresh its chicken image with a new concept called Super Chix. Super Chix calls itself the purveyor of "the last true chicken sandwich." The menu lists a chicken sandwich as well as chicken tenders, fries, frozen custard, salads, cole slaw, hand-squeezed lemonade, and fresh-brewed iced tea. The menu looks similar to that of Chick-fil-A, but it is more limited.

Yum! Brands has opened its first Super Chix location just outside Dallas. Yum! Brands chose Dallas because that is where the company's new concept team works out of the Plano, Texas headquarters of Pizza Hut. The company has kept quiet on its long-term plans for the concept, although it has said that it is considering Super Chix as a growth concept.

One key difference is breakfast
One area where Chick-fil-A excels is in breakfast. KFC does not serve breakfast and Super Chix has no breakfast menu items. That's no big deal for Yum! Brands right now as it's focused on rolling out its Taco Bell breakfast menu. The new breakfast menu from Taco Bell is part of Yum! Brands' efforts to challenge McDonald's, Burger King and Chick-fil-A in the breakfast category, Taco Bell has launched an aggressive marketing campaign to raise awareness, and so far the response for its A.M. Crunchwrap, Waffle Taco and other items has been positive according to the company.

What about KFC?
Over the last few years, the primary focus for KFC has been on its China business. While KFC has reduced its store count in the U.S. from 5,500 locations in 2004 to about 4,500 today, the chain has grown to become one of the largest fast-food chain in China. KFC China just launched 15 new menu items which include two chicken sandwiches, three rice dishes, four snacks, and six drinks or desserts. Its menu now has a total of 66 items.

In the U.S., KFC has launched a new concept called KFC Eleven that it opened near its headquarters in Louisville, Kentucky. Customers walk down a line and see employees make their food in front of them, similar to the service at Chipotle Mexican Grill. The menu contains chicken sandwiches, rice bowls, and flatbreads. KFC plans to open a second location in Louisville this year and it opened a similar concept called KFC Select in Canada last December.

How do shares compare?
Since Chick-fil-A is privately owned, we can only compare Yum! Brands with Popeyes Louisiana Kitchen.


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Source: Yahoo! Finance

Foolish assessment
While I think Super Chix has potential, it's not big enough to move the needle for Yum! Brands. I do like the menu and think that if the menu items resonate with Super Chix customers, then Yum! Brands could put those items on its KFC menus. I think some new menu items would go a long way toward boosting same-store sales at KFC in the U.S.

Overall, I like Yum! Brands and the initiatives the company is taking with Super Chix, its new menu items at KFC China, and its new breakfast menu at Taco Bell. The company's balance sheet is in great shape and its shares are trading at less than 18 times next year's earnings. For long-term investors, the future for Yum! Brands looks bright.

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