Friday, July 15, 2011

Ruffling feathers about KFC

It’s a canon of the chain-restaurant world that you speak of a concept’s founder with a reverence usually reserved for saints and Mickey Mantle. The only party held in higher esteem might be franchisees, typically lauded as the embodiment of entrepreneurship and operational know-how. They’re best mentioned with a bowed head.

So let us celebrate the honesty that Yum Brands CEO David Novak bravely showed yesterday in uttering what would normally be stigmatized as heresy on the grandest scale. He dared to speak candidly about the DNA of KFC.

That meant—steel yourself—voicing what could be construed as a criticism of Col. Harland Sanders.

Novak had been asked by financial analysts for “more color” (finance-speak for “the full story”) on the glaring discrepancy between KFC’s performances at home and abroad. Why was it such a favored son in China but a problem child here in the States? Couldn’t some of the best practices from overseas be programmed into domestic operations? After all, the questioner noted, that’s what McDonald’s does.

“I think there's just been a lot more innovation and breadth built into the menu in KFC in most countries outside the United States,” responded Novak. “I think Colonel Sanders kind of set the U.S. up with a heritage of small-box [stores serving] chicken on the bone, stay focused on your knitting. And so I do think that it's a little harder for us to transform the brand.”

While analysts were no doubt clutching their chests and donning garlic necklaces to ward off the bad juju, Novak went further: “And frankly, we don't have a franchise system that is as enlightened as our franchisees are outside the United States as well. So that's something that we have to deal with as well.”

Relations between KFC and its franchisees have likely served as inspiration over the years to Hatfield and McCoy kin. So it was doubly bold of Novak to be candid and deliver the transparency that investors deserve.

He’s probably in an office right now, holding his head as he screens calls and e-mails from irate parties. But he did the right thing.

As he noted during yesterday’s conference call, One of the things I take a lot of pride in on our company is we don't really like storytelling.

“Stories equal excuses.”

You can read the account yourself in the transcript posted by SeekingAlpha.com.

4 comments:

Peter Romeo said...

John A. Gordon, a principal of the financial advisory company Pacific Management Consulting Group, had a much different view of David Novak's comments yesterday.

Here is his direct response to my assessment:

Perceived honesty attempt yes, but was it really?

How can any company still be talking abouts its founder that departed active company management role 47 years ago?

Franchisee difficulties: yes, but isn't it YUM's job to fix that?

Very clearly there are "fried chicken stores and markets" and non. Why can't YUM work two prototypes? One of the big problems in chains is that the reality of TV advertising forces dysfunctional conformity.

You can read John's take on Novak's assertions here.

deniseleeyohn said...

you're both right -- novak deserves kudos for giving an honest assessment of the situation and he needs to be held responsible for fixing it. -- denise lee yohn

deniseleeyohn said...

you're both right -- novak deserves kudos for giving an honest assessment of the situation and he needs to be held responsible for fixing it. -- denise lee yohn

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