KFC is one of the fastest growing restaurant brands in the world, unless you’re talking about the U.S.
The Louisville, Ky.-based chain has been steadily shrinking for almost two decades. Over that period, it has seen its perch as the largest U.S. chicken concept be taken by fast-growing Chick-fil-A.
As the chain’s sales have improved, it has been hoping to reverse that trend. This year it just might do it.
Kevin Hochman, president and chief concept officer for KFC U.S., told investors on Tuesday that the company has “the largest pipeline of new-build sites in over a decade” and “more franchisees than ever entering into development agreements.”
“In fact, with the pipeline we have in place for the balance of the year, our projection is to be net new unit positive for the first full year in the U.S. since 2004,” he said.
KFC U.S. has been overshadowed both in the U.S. by rivals Chick-fil-A and, more recently, Popeyes. In its own brand it has been overshadowed by the chain’s performance outside the U.S.
In 2005, KFC operated more than 5,400 locations and generated $5.2 billion in system sales. At the time, it was by far the largest chicken concept in the U.S. And it was increasingly growing around the world—it operated more than 8,000 non-U.S. locations in 2005, according to data from Restaurant Business sister company Technomic.
The brand has been on fire internationally in the years since. Outside the U.S., KFC’s restaurant count has grown by an average of 6.4% and the chain now has 21,000 international locations. Only McDonald’s, with 25,000, has more.
It’s been a completely different story domestically. Over the past 15 years, KFC has closed an average of 2% of its U.S. restaurants per year. It currently operates fewer than 4,000 U.S. units and last year generated $4.7 billion in system sales.
Meanwhile, Chick-fil-A is now the third largest restaurant chain in the U.S. More direct bone-in chicken rival Popeyes Louisiana Kitchen, meanwhile, has surged over that time—it is now only slightly smaller than KFC. Fifteen years ago it was less than half of the larger chain’s size.
Much of that recent surge came thanks to Popeyes’ chicken sandwich, which it introduced to great fanfare in 2019 and which helped the chain generate an additional $1.3 billion in system sales over the past two years.
But KFC had a good pandemic, too. System sales rose 4.3% last year as consumers feasted on buckets of chicken that they picked up in the drive-thru. And this year the company introduced a chicken sandwich of its own—sending same-store sales up in the double digits on a two-year basis.
Hochman, who was speaking at a KFC Investor Day event, said that the chain’s chicken sandwich is now 10% of the chain’s sales. He also said that a big percentage is coming from younger consumers who previously didn’t dine at the chain because they prefer boneless chicken.
“We’re confident we now have a beachhead in sandwiches, the biggest chicken segment, and it now has enough scale to continue to support with national media, which will allow us to continue to grow this sales layer over time,” Hochman said.
Still, unit growth would be the big target. And the chain has said it planned to increase unit count before, only to see further declines. The company appeared poised a year ago to add locations but the pandemic interrupted those plans and KFC’s restaurant count declined by 3%.
KFC does have new drive-thru and takeout-focused prototypes designed to support demand for today’s market. And the company’s same-store sales have risen for seven straight years, which typically gives operators reason to build. The chicken sandwich, which is opening up the lunch business for the chain and giving it access to those younger consumers, will only help.
“Our development pipeline largely paused in the first half of the year as we supported our franchisees to focus on operations and their business performance,” Hochman said. But, “continued strength in the overall business model allowed us to ramp up the pipeline in the back half to get us back on track and working toward growth in 21 and beyond.”