KFC internationally has been one of the world’s strongest performing restaurant chains, with aggressive store growth and a business that has withstood a constant stream of challenges in its top market, China.
It is a far different story in the U.S. The brand domestically is losing ground to competitors and closing restaurants.
Same-store sales domestically declined 7% in the first quarter, parent company Yum Brands said on Wednesday.
Executives blamed the quarter on two issues: Weather and competitors. Bad weather hurt sales and traffic in the period, as it has for many brands. But CEO David Gibbs also said that “chicken value promotions from competitors” also played a role.
Later in the call, however, Gibbs acknowledged the reality. “The KFC brand in the U.S. has been struggling,” he said.
He added that there is an effort “behind the scenes” to “boldly reset the brand in the U.S.”
There’s little sugarcoating the challenge the venerable chicken chain is facing in its home market.
Last year, KFC fell behind its longtime rival—and historically much smaller chain—Popeyes Louisiana Kitchen.
KFC is underperforming Popeyes on every metric right now. Popeyes system sales are up 71% over the past five years, compared with 17% for KFC. Popeyes added more than 100 locations last year, while KFC shuttered more than 100 locations. Popeyes has much higher average unit volumes ($1.8 million versus $1.35 million).
And the first quarter only widened that gap further. Popeyes dealt with the same weather issues KFC did. Its same-store sales rose 5.7%. That is a 13.7 percentage point, first quarter gap for those of you scoring at home.
Popeyes successfully debuted the chicken sandwich in 2019, which helped the chain generate new customers and new occasions, beating KFC to a product that it had wanted for years.
KFC was able to put out its own successful chicken sandwich in 2021. Indeed, that year it appeared the brand was finally on a legitimate growth path domestically. It generated eight years of same-store sales growth and added net new restaurants for the first time in 17 years.
But it has stumbled since then, while Popeyes has aggressively added units and expanded its chicken options with the introduction of wings that helped fuel sales growth earlier this year.
Popeyes has effectively navigated the difficult road from selling largely bone-in chicken for dinner and into a multi-daypart brand that sells boneless options and wings, which is how more customers prefer their chicken these days. KFC has struggled with that shift.
Once Yum’s flagship, KFC domestically has fallen behind numerous fast-food chains, even as it has flourished internationally while sister chain Taco Bell has continued to perform strongly.
Indeed, Yum may have a U.S. problem on its hands outside of Taco Bell. Pizza Hut, where U.S. president David Graves recently stepped down, reported a 6% decline in U.S. same-store sales.
Habit Burger, Yum’s 2020 acquisition, reported an 8% decline in same-store sales and a 2% decline in system sales in the first quarter.
Yum’s international businesses largely struggled last quarter, too, which is likely a function of the economy, combined with the impacts of the conflict in the Middle East.
Still, Yum is now largely dependent upon two business segments for its profits: Taco Bell and KFC International. But KFC at home has had issues. It hopes to draw upon its experience in those international markets to fix that domestic business. “We have a great playbook for KFC, which is our global business,” Gibbs said.
“We know how to bring that brand to life to connect with consumers around the world, and we have to do a better job of that in the U.S.,” he added.
And then he said this: “It’s a small part of our operating profit. Obviously, it doesn’t really move the needle in the Yum growth equation, but it is something that’s a high priority for us as we move forward.”
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