The Wall Street Journal-20080206-KFC Tries to Teach an Old Chicken New Tricks

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KFC Tries to Teach an Old Chicken New Tricks

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KFC parent Yum Brands Inc. may be about to find out if people will flock to a chain that serves Kentucky nonfried chicken.

The restaurant giant is looking at significant makeovers of its mature fast-food outlets. One option is restructuring KFC sometime next year, using what Yum calls a "nonfried chicken platform."

The changes -- at KFC, the nation's leading chicken brand, as well as at Yum's Pizza Hut unit -- are an acknowledgment by the company that its major U.S. businesses are in need of rejuvenation to meet changing consumer tastes and to fend off tough competitors.

KFC, formerly Kentucky Fried Chicken, has dabbled with non-fried fare before, with mixed results. Its core business remains fried chicken on the bone. But disappointing U.S. sales last year "underscored the need for dramatic change," Yum Chief Executive David Novak told investors in a conference call yesterday. He said the non- fried chicken platform "will form the centerpiece of our overall brand transformation at KFC."

KFC will get what Mr. Novak called "a more youthful and contemporary image." (There was no word on whether the brand's founding icon, Col. Sanders, would be part of it.) New advertising as part of that campaign will appear later this month; no details were disclosed. Some "signature beverages," as yet unnamed, are in the works, along with an array of grilled and portable foods. Coming soon is a value-priced toasted wrap, to be followed by what was described only as "another grill-pressed portable product" to boost lunchtime traffic.

McDonald's Corp. successfully introduced a chicken wrap about a year ago, and rival Burger King Holdings Inc. is believed to be working on a similar item.

Meanwhile, Pizza Hut is "on the verge of a major reinvention" of the pizza category, Mr. Novak said. Plans call for an aggressive rollout of three major entree categories -- pasta, chicken sold under the Wing Street name and everyday pizza value. A home-delivered pasta venture is part of that strategy.

Last month, the nation's leading pizza chain introduced a three-for- $15 value-oriented pie product called Pizza Mia, which will be heavily promoted. A crunchy cheese crust pizza recently went on the menu.

Change also is on the front burner at Yum's most-profitable U.S. chain, Taco Bell, which foundered last year following widely publicized E. coli food-safety and rodent episodes.

The brand, which has 70% of the Mexican-fast-food market in the U.S., will feature a high-low pricing strategy that has paid off for Burger King and McDonald's, with premium-priced Fiesta platters -- introduced this week -- alongside 99-cent cheesy bean-and-rice burritos. This summer, Taco Bell will dive into the beverage pool with a line of drinks called Fruitista Freeze.

"In all candor, the best thing I can say about our weak U.S. performance in 2007 is that it sets us up for growth in 2008," YUM's CEO said. "Clearly our challenge in 2007 was our U.S. business." The company reported fourth-quarter earnings that beat estimates, partly because of a low tax rate.

Mr. Novak contended that Taco Bell has "turned the corner" after sales setbacks, but said "KFC basically stood still" last year.

Yum's domestic turnaround strategy is fivefold: Provide more balanced menu options, make its restaurants destinations throughout the day, offer multiple meats, beverages and "product layers," push everyday value menus, and improve the look and feel of restaurants and other brand assets.

U.S. targets for 2008 are growth of 2% to 3% in same-store sales and 5% in operating income. In 2007, domestic operating profit fell 3%, to $739 million from $763 million. Same-store sales were flat overall -- down 3% in company-owned restaurants but were up slightly at franchised outlets.