Is KFC in some kind of trouble that we do not know about? While the Yum! Brands (NYSE:YUM) chain has slipped to the No. 2 spot behind Chick-fil-A as the top chicken restaurant in the U.S., business has seemingly been robust with first quarter same-store sales the best they have been in a decade.
But following a commitment to invest $185 million in its franchisees over the next few years, $100 million of which will be spent this year alone, KFC is resurrecting its iconic founder Colonel Sanders for a series of commercials.
While ailing McDonald's (NYSE:MCD)has similarly brought back the Hamburglar in a desperate attempt at turning around falling sales, should investors be worried there is also something amiss at KFC?
No one is flying the coop
Not really. Yum! Brands reported first quarter system sales at KFC rose 8% on a 5% increase in comps, with operating profit rising 11% from last year. Here in the U.S., business was even better with comparable sales -- or those that strip out the effects of store expansion and discontinued operations -- jumping 7% year-over-year.
And though the chain is opening new restaurants mostly in emerging markets such as Russia, where sales surged 50% higher absent currency exchange fluctuations, CEO Greg Creed assured investors there is still "tremendous growth ahead."
Yum! Brands says it is bringing back the Colonel to celebrate the chain's 75th anniversary, but like McDonald's somewhat creepy new Hamburglar reimagining, there is something a bit off about the revived founder.
Ruffling some feathers
Not that Saturday Night Live alum Darrell Hammond does not have the look of the Colonel -- from the white hair and goatee to the white suit and cane, he is pretty much spot on -- but he was an actual person, not some made-up cartoon, even if KFC all but relegated his image just to the bucket of chicken in recent years. It would be like Perdue Farms hiring an actor to play founder Frank Perdue and using the memorable tag line, "it takes a tough man to make a tender chicken" intoned behind him.
But for anyone old enough to remember the commercials featuring the real Colonel, the new character is a bit too jokey and a little too forced on the southern charm to completely pull it off.
Which, of course, may be the point. Appealing to younger consumers unfamiliar with the real person behind the image (the Colonel died over 30 years ago) allows Yum! Brands to be unburdened from the comparison, even if they do provide a full history at an updated ColonelSanders.com website.
The face of the company
Restaurant mascots come and go. Burger King retired its really creepy King mascot; Wendy's updated its pig-tailed girl logo (which was based on founder Dave Thomas' then eight year old daughter); and even McDonald's has mostly put Ronald McDonald on the bench in its advertising, along with Grimace and the Hamburglar, at least until the latter made his reappearance.
Part of it has to do with changing consumer views, such as marketing relatively unhealthy food to kids by using cartoonish characters. Cigarette maker Reynolds-American came under a lot of criticism for allegedly trying to entice kids to smoke by using a camel caricature.
But Yum! Brands understands the highly competitive nature of the restaurant business. Some 15 years ago, according to analysts at Janney Capital Markets, KFC was the leading chicken restaurant with a near 40% share of the market, but today, it has fallen behind rival Chick-fil-A, the privately held chain that commands a 26% share compared to KFC's 22%.
That could be part of the reason behind Yum! Brands new yet still tiny franchise, Super Chix, a fast-casual take on Chick-fil-A chicken sandwiches. It opened its second restaurant just last month.
Bringing back Colonel Sanders could be just another way to help KFC stand out from the rest of the pack, particularly as problems hit the industry. A virulent form of the avian flu virus is spreading across U.S. chicken flocks, wiping out millions of birds and threatening to raise prices, and KFC is still coming to grips with its second tainted food scandal in China in as many years. The business is improving, but with China being Yum! Brands' largest market and the lion's share of revenues and profits, the scandal is dragging on performance.
Combining the resurrection of the Colonel with its three-year, $185 million modernization program to update and upgrade its KFC restaurants, Yum! Brands is serious about its chicken and having a face to lead the charge puts its U.S. business on more equal footing with its Chinese operations.
There is no reason for investors to worry that KFC is doing anything more than angling for a bit of nostalgia during a unique point in its history.