Nation's Restaurant News, No. 33, Vol. 39, Page 69, August 15, 2005

Copyright 2005 Gale Group, Inc.

Nation's Restaurant News

August 15, 2005

SECTION: No. 33, Vol. 39; Pg. 69; ISSN: 0028-0518


HEADLINE: KFC: back to the future by getting 'old-school cool': chain beats slump with variety bucket, 'Snacker' as full name makes comeback.

BYLINE: Garber, Amy

BODY:
When Gregg Dedrick was named to the top post at KFC two years ago, the industry's largest chicken chain was in a slump. New products and its once-popular commercials with pitchman Jason Alexander of "Seinfeld" fame had stopped moving the sales needle, and a brief attempt at positioning fried chicken as a diet option had failed.
To make matters worse, KFC faced unprecedented competition from burger and pizza chains that had begun promoting more chicken on their menus.
"There were a lot of challenges," recalls Dedrick, who 10 years ago had worked at KFC as its chief people officer. "Our relationship with franchisees was going through a real difficult time. Whenever sales are down for that long it puts a big strain on the relationship with franchisees and it creates a crisis of confidence."
While such an intimidating task would unsettle many, Dedrick was eager for the job as KFC's president. He says he is drawn to "big challenges," especially those at Yum! Brands Inc.'s chains, including Pizza Hut, Taco Bell, A&W and Long John Silver's. In the mid-1990s Dedrick worked closely with David Novak, now Yum's chief executive, to lead Pizza Hut and KFC out of tough times.
Over the last 24 months, Dedrick has put the focus back on fried chicken at the chain's 5,415 U.S. units, reinvigorating KFC's product pipeline with items like the 99-cent Snacker sandwich and the $ 9.99 variety bucket. He has improved unit-level operations and retooled marketing to focus on lunch and dinner simultaneously.
At the same time, KFC, which generated $ 5 billion in U.S. systemwide sales in 2004, is exploring a new prototype that could revive its "Kentucky Fried Chicken" name while modernizing a brand that is more than 50 years old. The image KFC is going for is "old-school cool," Dedrick says.
The efforts seem to be paying off. Same-store sales at Yum-owned units--after being down since late 2002--have been positive for eight straight months, including an increase of 5 percent for the first quarter and an 8-percent jump for the second quarter. Yum owns 1,213 of KFC's domestic outlets.
"People have rediscovered Kentucky Fried Chicken," says franchisee John R. Neal, vice chairman of the chain's marketing committee, called the National Council and Advertising Cooperative. "There are a lot of great things going on at KFC. Sales are up and things are looking really good."
Yum officials, who last December ordered a halt to corporate system co-branding by KFC until the chain fixed its lagging sales, have since indicated that the action was only temporary. With sales having rebounded, KFC appears ready to resume the brand-bundling strategy that over the years has created 1,348 outlets offering the menus of KFC and another of Yum's brands.
Dedrick says many of the changes he has made at KFC were precipitated by customer feedback showing that the chain needed to offer more value and some nonfried products. Customers also wanted items like popcorn chicken, which previously were limited-time offerings, available on a consistent basis.
"Gregg has brought to our KFC system a more positive mind-set," says Raleigh, N.C.-based franchisee Al Luihn, who operates 76 units that comprise various Yum brands, including 33 standalone KFC outlets. "[Dedrick] is more focused on positioning the brand in a way that bodes relevance for today's consumer, yet he seems to recognize the historic values of our KFC system."
After struggling for years to balance promotions of its higher-priced dinner business with its lower-end lunch items, KFC was able to "crack the code on how to do both at the same time," Dedrick says. "We tried in the past to focus on lunch and dinner, but we almost had a schizophrenic view of those two occasions."
Ads these days for bone-in chicken often carry a "Don't forget the Snacker" tag at the end, and Snacker ads pitch chicken items. Point-of-purchase materials and a new menu board also are used to propel sales of certain products, and all those efforts are tied together by KFC's "Chicken Capital U.S.A" ad campaign.
"Chicken is obviously a very popular protein, and there shouldn't be any reason why you are going anywhere else but KFC for chicken," Dedrick says.
KFC has expanded its core chicken-on-the-bone dinner business by targeting mothers in its advertising. Dedrick resurrected the bucket--the chain's packaging icon that debuted in 1957--after discovering two years ago that it existed in less than one-third of KFC's U.S. markets.
"It was inconceivable that we didn't have a bucket," he says. "It's our core equity."
The new variety bucket is divided into three sections featuring popcorn chicken, chicken strips and either Original Recipe or Extra Crispy chicken. The three-way bucket has been so popular that KFC is testing different combinations, Dedrick says.
The chain also re-energized its snack business with products like boneless wings and the hot-selling Snacker sandwich. While previous attempts at higher-priced sandwiches failed, KFC has credited the 99-cent Snacker--a crispy chicken strip on a sesame-seed bun with pepper mayo sauce and lettuce--with boosting the chain's recent financial results.
Neal, who is KFC's third-largest operator and has 157 units, says the Snacker initially was controversial because it carried a food cost of 50 percent.
"There was a lot of hand wringing amongst operators," he explains. "But the sandwich has driven tremendous transaction and sales growth and huge profit gains since February [when it debuted]. Most of all, franchisees and the company are happy with it."
One hurdle that remains for KFC is developing a successful nonfried chicken product. The chain revamped a line of Oven Roasted Strips after a disappointing rollout in May 2004, and while company stores have it on their menus, franchisees like Neal and Luihn say they are not selling the line, citing "flavor" issues. Even Dedrick concedes that the roasted product is "not going to be something that drives huge sales."
Beyond menu and marketing initiatives, Dedrick borrowed strategies from sister chain Taco Bell, such as more integration between company and franchise operations to improve consistency across the system. KFC adopted dedicated programs for improving drive-thru times and restaurant cleanliness. The chain also recently switched from a mystery-shopper feedback program to one that is customer-based while testing in a Las Vegas restaurant a reconfigured kitchen line aimed at improving the efficiency of packaging procedures.
Meanwhile, the "Kentucky Fried Chicken" name, removed from all signage in 1991, now is a prominent part of a test prototype outlet near KFC's headquarters in Louisville, Ky. The restaurant--which opened earlier this spring and is referred to by Yum as a "concept store" or one-of-a-kind laboratory--features an upscale building design and Southern-inspired menu items like collard greens, sweet potato pie and buttermilk popcorn shrimp. The building also boasts a bright-red color scheme and an updated logo with a more youthful image of KFC's late founder, Col. Harland Sanders, who developed the closely guarded chicken recipe 65 years ago. Interior design elements include a picnic table, lowered ottoman-style seating, a digital jukebox, bucket-shaped lights and a glass wall painted red.
"They have done some research that indicated that red and white stripes were losing relevance," says Luihn, adding that solid red helps make the restaurant more contemporary.
The concept store was built after KFC remodeled a unit in Washington, D.C., last summer. Plans call for the new look to be used to convert at least 20 more existing restaurants in four to five markets later this year. KFC also plans to develop this year a concept store featuring its buffet format, which currently exists in about 1,000 restaurants nationwide.
Neal, who is based in Columbia, Tenn., has about 25 KFCs with buffets, and some of those stores are generating sales of $ 2 million a year, which he says is "pretty good" compared with the chain's average of $ 880,000 annually.
Expressing optimism toward the future, Neal points out that KFC has had five presidents since 1997. "There have been an awful lot of people with a vision, but Dedrick we like to think is president for life," he says. "Franchisees want him to succeed, and we want to see Gregg stick around. Also, David [Novak] is a great inspirational guy. You need people like that."
Profile
Gregg Dedrick
Title: president and chief concept officer, KFC U.S.A
Reports to: David Novak, Yum! Brands chairman, chief executive, president
Prior positions: strategic advisor to Yum while serving as chief administrative officer of Southeast Christian Church, Louisville, Ky., 2001-2003; executive vice president, people and share services, Tricon Global Restaurants, 1997-2001; chief people officer, KFC, 1995-1997
Education: degrees in industrial labor relations, human resource management and business administration, Cornell University
Career turning point: fostering KFC turnaround 10 years ago as the chain's chief people officer by putting into "practice a lot of things that Yum was founded on"
Hometown: Binghamton, N.Y.
Current residence: Louisville, Ky.
Personal facts: married, three daughters
Favorite foods: KFC Original Recipe chicken, the thigh; bone-in and boneless wings with sauces
Hobbies: church activities, jet skiing, water skiing
Gregg Dedrick is no stranger to overcoming dark days at KFC. He helped the chain reverse a slump 10 years ago while serving as its chief people officer. Now as president Dedrick is so focused on the product lineup at KFC that he keeps the chain's menu board hanging on a wall of his office. Under his watch, KFC has launched the successful Snacker sandwich and reemphasized the bucket with a variety offering that includes three different kinds of chicken. Dedrick is modernizing the 50-year-old brand, but he insists that he is doing it in a way that "rings true" with KFC's heritage and authenticity.
How important is bone-in chicken to KFC?
Bone-in chicken is over half of our business. It's our core equity or mother lode. We have embraced it. Beyond chicken on the bone, we want to own dinner. The more we understand dinner and the more we understand mom, who buys most of the dinner, the better our products will be.
How has your human resources background helped you lead KFC?
Our business, no matter what position you are in, is a people business ... driven by creative ideas that are well executed. People capability comes first, and then satisfied customers will follow. You really have to have people who are capable of what they are supposed to do and then at the end of the day inspiring them is a secret weapon. Human resources helps me understand the notion of people capability first and getting people inspired to go above the call of duty.
What is your philosophy on menu variation?
There are certain elements of the brand where we encourage regional variation. For example, in the South we have the highest percentage of buffets, and some sides you might only see in an inner-city restaurant. But we also want consistency that you can count on, such as with the Snacker. What we are driving towards now is a healthy mix of a solid national presence of products ... with innovation around the edges.
KFC has an extensive overseas business. Do you ever get ideas from abroad?
We have learned great things from international. There was a product that was the precursor to the Snacker in the U.K. We basically stole that product from international. At Yum there is a lot of stealing back and forth.
--Amy Garber