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.

Yum's second thoughts

What a difference a year makes.

David Novak, the CEO of Yum! Brands, speaking to financial analysts on Feb. 4 about the company’s vision for Long John Silver’s and A&W All-American Food:

Our goal with Long John Silver and A&W is to make those brands stronger and to build them working with our franchisees.

Novak, as quoted in a press release issued today by Yum, the parent of Taco Bell, Pizza Hut and KFC:

We do not believe Long John Silver’s and A&W All–American Food restaurants fit into our long–term growth strategy. Accordingly, we have decided to put these two great brands up for sale.

Some blunt words about Pizza Hut & KFC

It’s not unusual for chain executives to pass long customers’ opinions of their brands. It’s another matter for the officials to relate the slams along with the gushing praise, especially while talking to investors. Yet, in a refreshing burst of candor, that’s exactly what the CEO of Yum! Brands did Thursday during a conference call about the company’s fast-food chains, Taco Bell, KFC and Pizza Hut.

Chief executive David Novak had the harshest words for Pizza Hut’s domestic operations, whose same-store sales fell a head-turning 12% during the last three months of 2009. Oh, sure, the American public loves the chain’s pizza, said Novak, but “the consumer has told us frankly that we are simply too expensive.” He noted that the venerable chain is also focusing on service speed and kitchen operations, so you have to suspect that customers aren’t tossing bouquets in those directions, either.

Novak said the chain is countering its high-price stigma with the “successfully tested” Any Way You Want It promotion, where patrons can get a customized pie for $10.

And how about KFC’s domestic operations? Oy, don’t ask.

“There is no question we have our work cut out for us,” Novak told analysts on the conference call. He ticked off the chain’s three main perception problems in the U.S.: Too much fried food, not enough value, and lousy operations.

The first two objections from customers have been addressed, he said. Indeed, KFC’s new Kentucky Grilled Chicken now accounts for a fourth of all the chicken on the bone sold by the chain.

But operations still have a ways to go, particularly in terms of service speed and not running out of some menu items before the next batch of supplies arrive, Novak acknowledged.

He had nothing but praise for Taco Bell, describing it as one of the company’s sales and profit workhorses, with ample room left to grow in the U.S. market.

The domestic arms of Pizza Hut and KFC, on the other hand, weren’t even addressed when Yum! gathered analysts in New York a few months ago for a close-up look at the company’s inner workings. “we made the conscious decision to not even cover Pizza Hut and KFC U.S. at the December analyst meeting,” he noted.

Then again, those pieces of the business still seem to be held in higher regard than Yum’s two other American fast-food brands, Long John Silver’s and A&W. “[I’m] wondering whether there is a potential to sell those brands or whether we'll see those brands continue to operate here as it relates to generating incremental cash,” Jeffrey Bernstein, the restaurant analyst for Barclays Capital, asked the Yum officials on the call.

“Our goal with Long John Silver and A&W is to make those brands stronger and to build them working with our franchisees,” countered Novak.