Company History

KFC Corporation is the largest fast-food chicken operator, developer, and franchiser in the world. KFC, a wholly owned subsidiary of PepsiCo, Inc. until late 1997, operates over 5,000 units in the United States, approximately 60 percent of which are franchises. Internationally, KFC has more than 3,700 units, of which two-thirds are also franchised. In addition to direct franchising and wholly owned operations, the company participates in joint ventures, and continues investigating alternative venues to gain market share in the increasingly competitive fast-food market. In late 1997 the company expected to become a wholly owned subsidiary of Tricon Global Restaurants, Inc., to be formed from the spin off of PepsiCo's restaurant holdings.

EARLY HISTORY
Born and raised in Henryville, Indiana, Sanders passed through several professions in his lifetime. Sanders first served his fried chicken in 1930 in the midst of the Great Depression at a gas station he owned in North Corbin, Kentucky. The dining area was named Sanders Court & Caf and was so successful that in 1935 Kentucky Governor Ruby Laffoon granted Sanders the title of honorary Kentucky Colonel in recognition of his contribution to the state's cuisine. The following year Sanders expanded his restaurant to 142 seats, and added a motel he bought across the street. When Sanders prepared his chicken in his original restaurant in North Corbin, he prepared the chicken in an iron skillet, which took about 30 minutes to do, too long for a restaurant operation. In 1939, Sanders altered the cooking process for his fried chicken to use a pressure fryer, resulting in a greatly reduced cooking time comparable to that of deep frying. In 1940 Sanders devised what came to be known as his Original Recipe. The Sanders Court & Caf generally served travelers, often those headed to Florida, so when the route planned in the 1950s for what would become Interstate 75 bypassed Corbin, he sold his properties and traveled the U.S. to sell his chicken to restaurant owners. The first to take him up
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on the offer was Pete Harman in South Salt Lake, Utah; together, they opened the first "Kentucky Fried Chicken" outlet in 1952. By the early 1960s, Kentucky Fried Chicken was sold in over 600 franchised outlets in both the United States and Canada. One of the longest-lived franchisees of the older Col. Sanders' chicken concept, as opposed to the KFC chain, was the Kenny Kings chain. The company owned many Northern Ohio diner-style restaurants, the last of which closed in 2004. Sanders sold the entire KFC franchising operation in 1964 for $2 million USD, equal to $14,161,464 today. Since that time, the chain has been sold three more times: to Heublein in 1971, to R.J. Reynolds in 1982 and most recently to PepsiCo in 1986, which made it part of its Tricon Global Restaurants division, which in turn was spun off in 1997, and has now been renamed to Yum! Brands. In 2001, KFC started test in Austin, Texas restaurants of "Wing Works" chicken wing line sold with one of a few flavored sauces. Also, KFC hired a consultant to develop a breakfast menu. Additionally, Colonel Sanders' nephew, Lee Cummings, took his own Kentucky Fried Chicken franchises (and a chicken recipe of his own) and converted them to his own "spin-off" restaurant chain, Lee's Famous Recipe Chicken.

How KFC expanded itself?

Yum! Restaurants International (YRI), based in Dallas, Texas, is a powerful global growth engine for Yum! Brands, with more than 14,330 restaurants outside the U.S. and China Division in over 110 countries (Q1 2011). One of our four key business strategies is to drive profitable international growth. YRI's demonstrated track record of growth and expansion of the KFC and Pizza Hut brands around the world has been a large part of our success. YRI is a diverse, high-return business, with $589 million in operating profits in 2010 and 884 new restaurant openings in over 75 countries. 2010 was YRI's tenth year of opening more than 700 new restaurants outside of the U.S. and China. We have strong local teams around the world, operate in more than 110 countries and territories with established supply chains and have more than 700 international franchisees. Our franchise and jointventure partners are driving growth by opening a vast majority of our new international restaurants. Our international business is one of the key factors that make us truly unique in the restaurant industry. For example, our KFC business
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in France enjoys the highest unit volumes of any KFC business in the world. For a fifth year, Pizza Hut has been ranked as the #1 most trusted food-service brand in India in a consumer survey in The Economic Times. Yum! is also at the beginning of taking Taco Bell global and plans to make a serious investment behind launching Taco Bell internationally.

Strategy to expand
KFC franchise candidates with a future vision to be an operator of at least five to 10 restaurants. KFC is looking for candidates that will commit to building three units over their first three to five years in the system. In the early days of quick service restaurant (QSR) development, franchisees generally opened a single restaurant and operated that restaurant solely until the end of their franchise career. In today's environment, this has changed. Most larger QSR franchisors are seeking franchisees with the aptitude and capability for multi-unit restaurant ownership and development.

Building or buying multiple restaurants enables you to achieve scale in your operations and this could result in a number of advantages. First, you leverage your expertise. Opening the initial restaurant of any concept requires a learning curve, including proper understanding of perfect product production, management processes and system communication procedures. Opening additional restaurants utilizes this same knowledge, which could make future openings less complicated. Many of the steps remain the same and a franchisee's previous opening experience serves as valuable know-how when the process is repeated. Another advantage of multi-unit restaurant ownership could be that it offers growth opportunities for a franchisee's high-potential restaurant operators. In a single unit operation, upwardly mobile restaurant managers have nowhere to go they need to leave the organization if they want to become a restaurant general manager. In a growing multi-unit operation, these team members have the opportunity to move along a career path with increasing levels of responsibility. Many KFC franchisees note that one motivation for them to grow came from a desire to provide personal growth opportunities for their best employees. Building operational scale can also deliver other benefits. Larger operators can qualify for quantity discounts and leverage their size with local service providers. Multi-unit operators have the ability to increase overall organization stability by broadening the base of their operations and by spreading their overhead costs against multiple restaurants. Many speak of developing restaurants in pods of six to seven. Once you have made the investment in an Above Store Leader to manage multiple restaurants, the next few restaurants experience less cost from an
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overhead perspective. When a franchisee has added Above Store Support, it can free up some of their time to focus on some of the other needs of the business. KFC /Yum! Brands is actively seeking franchisee prospects that want to be multi-unit KFC franchise operators. We have helped establish many of the largest multi-unit operators in the U.S. franchise business. KFC currently has more than 350 multi-unit franchisees; more than 150 of these operate more than five restaurants. In Multi-Unit Franchisee Magazine's recent listing of the Top 99 largest multi-unit franchisees, 43 operate at least one of the Yum! portfolio of brands. Benefits of becoming global Though KFC may have had problems competing in the domestic fast-food market, those same problems did not seem to trouble them in their international markets. In 1992 pretax profits were $92 million from international operations, as opposed to $86 million from the U.S. units. Also, in the five-year span from 1988 through 1992, sales and profits for the international business nearly doubled. In addition, franchise relations, always troublesome in the domestic business, ran smoothly in KFC's international markets. To continue capitalizing on their success abroad, KFC undertook an aggressive construction plan that called for an average of one non-U.S. unit to be built per day, with the expectation that by 1995 the number of international units would exceed those in the United States. International sales, particularly in Asia, continued to bolster company profits. In 1993, sales and profits of KFC outlets in Asia were growing at 30 percent a year. Average per store sales in Asia were $1.2 million, significantly higher than in the United States, where per store sales stood at $750,000. In addition, profit margins in Asia were double those in the United States. KFC enjoyed many advantages in Asia: fast food's association with the West made it a status symbol; the restaurants were generally more hygienic than vendor stalls; and chicken was a familiar taste to Asian palates. The company saw great potential in the region and stepped up construction of new outlets there. It planned to open 1,000 restaurants between 1993 and 1998. Non-traditional service, often stemming from successful innovations instituted in the company's international operations, was seen as a way for KFC to enter new markets. Delivery, drive-thru, carry-out, and supermarket kiosks were up and running. Other outlets in testing were mall and office-building snack shops, mobile trailer units, satellite units, and self-contained kiosks designed for universities, stadiums, airports, and amusement parks. To move toward the twentyfirst century, executives believed KFC had to change its image. "We want to be the chicken store," Cranor stressed in a 1991 Nation's Restaurant News. Cranor's goal was total concept transformation, moving KFC to a more contemporary role. New product introductions were part of the company's plan to keep up with competitors. Having allowed Boston Market to grab a significant portion of the chicken market, KFC tried to catch up with the introduction of Rotisserie Gold Chicken. The company's new CEO, David Novak, also decided to test Colonel's Kitchen, a clear imitation of the Boston Market format. To counter McDonald's and Burger King's "value meals," KFC brought out the "Mega-Meal dinner": an
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entire rotisserie chicken, chicken nuggets, mashed potatoes, macaroni, cole slaw, biscuits, and a chocolate chip cake for $14.99. In 1995, KFC expanded the idea to "Mega-Meal-For-One," and decided to test chicken pot pie and chicken salad. These moves gave a small boost to KFC's image, which had grown somewhat out-of-date, and to its bottom line. However, problems with the franchisees continued, and PepsiCo was not seeing the return on its assets that it saw with its beverage and snack food divisions. PepsiCo was having similar problems with its other restaurant subsidiaries, Taco Bell and Pizza Hut, and decided the drain of capital expenditure was not worth it. In 1996 the company prepared to rid itself of its restaurant division by drawing together Pizza Hut, Taco Bell, and KFC. All operations were now overseen by a single senior manager, and most back office operations, including payroll, data processing, and accounts payable, were combined. In January 1997 the company announced plans to spin off this restaurant division, creating an independent publicly traded company called Tricon Global Restaurants, Inc. The formal plan, approved by the PepsiCo board of directors in August 1997, stipulated that each PepsiCo shareholder would receive one share of Tricon stock for every ten shares of PepsiCo stock owned. The plan also required Tricon to pay a one-time distribution of $4.5 billion at the time of the spinoff. If approved by the Securities and Exchange Commission, the spinoff would take place on October 6, 1997. PepsiCo CEO Roger Enrico explained the move: "Our goal in taking these steps is to dramatically sharpen PepsiCo's focus. Our restaurant business has tremendous financial strength and a very bright future. However, given the distinctly different dynamics of restaurants and packaged goods, we believe all our businesses can better flourish with two separate and distinct managements and corporate structures." KFC and its franchisees did settle their contract disputes; according to a press release, "the crux of the agreement revolves around KFC franchisees receiving permanent territorial protection. In turn, KFC Corporation will have more direct influence over certain national advertising and public relations activities." Still KFC faced the need to rennovate its restaurant buildings, and also faced stiff competition from Boston Market, Burger King, and McDonald's, so it remained to be seen if the new parent company would refresh KFC's image and profits.