KFC Finally Tackles its Big Problem: Too Many Stores

Last Updated Jul 16, 2010 11:00 AM EDT

Now that KFC's bunless food-porn sensation the Double Down has turned out to be "immaterial" to earnings, there's evidence the chain's managers are turning their attention to the company's main challenge: Finding a way to arrest the downward slide in sales. Among parent company Yum! Brands' (YUM) chains -- which include Taco Bell and Pizza Hut -- only KFC is still seeing a substantial sales decline in its established restaurants.

Could that be caused by too many stores too close together causing self-cannibalization of individual store sales? Or maybe too many outdated stores in crummy locations doing low sales volume and dragging the numbers down? Maybe both? In any case, fingers are pointing to the stores as the problem, not the food or marketing. Its quarterly call with investors this week, Yum chairman, CEO and president David Novak strongly hinted the company is ready to consider closing some of its U.S. stores to try to get comparable-store sales back on track.

"We want to have a quality system," Novak told listeners on the call. "I'd rather have 4,500 great-looking KFCs than 5,000 with 500 looking at being drive-by assets.... We need to get the business healthier." Translation: He thinks hundreds of stores are mostly serving as a brand reinforcer, and aren't pulling their weight. Maybe, they should go.

In reality, KFC is already closing stores -- 150 of them worldwide in the first half of this year, the most closures of any Yum brand. After store openings, its U.S. store-count shrunk by 40 stores. But KFC may be ready to increase its closure rate and let the chain get a little smaller to help turn around its unit-sales figures.

That move would be good for the chain's relationships with the surviving franchise owners, who could see their sales and profits grow. Investors may not like it, as gross sales for the chain could decline, and it may or may not turning around the declining unit metrics. And if shrinking sales turn out to be more about the food, closing stores won't help.

But letting underperforming operators limp along under your brand's banner hurts the whole company in the long run. Those stores tend to be less well-run and delivering a lower-grade customer experience. Sometimes brands need to prune the deadwood to stay healthy. For KFC, this move is long overdue.

Photo via Flickr user SqueakyMarmot Related:
  • Carol Tice

    Carol Tice is a longtime business reporter whose work has appeared in Entrepreneur, The Seattle Times, and Nation's Restaurant News, among others. Online sites she's written for include Allbusiness.com and Yahoo!Hotjobs. She blogs about the business of writing at Make a Living Writing.

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