ATLANTA Chick-fil-A, a chicken chain that many still think of as a Southern regional player, may one day surpass KFC as the largest chicken brand in the United States, according to longtime restaurant analyst Mark Kalinowski.
KFC, which has been the segment leader for decades, will eventually lose the top slot to privately held Chick-fil-A during the next 10 years or more, said Kalinowski, an analyst at Janney Capital Markets. While that shift may be years away, he pointed to numerous positive trends for Atlanta-based Chick-fil-A that will help it eat away at KFC’s dominance, including positive sales traction, unique and lasting marketing efforts, strong customer service, and room for unit growth.
“Chick-fil-A appears poised to continue to capitalize on several factors in its favor for years, and at KFC’s expense,” Kalinowski said in a Nov. 24 report. “Importantly, some — many? — of these trends appears difficult for KFC to dislodge in upcoming years, bringing us to our conclusion that it is only a matter of time before Chick-fil-A ascends to the top slot.”
For the past two years, KFC has posted negative sales trends — same-store sales fell 2 percent in the latest September-ended quarter — and has used new menu items like grilled chicken and new advertising to try to reverse course. Popeyes, the third-largest chicken chain, also has posted reduced same-store sales growth, with the latest dip of 0.3 percent following a year-ago decline of 2.8 percent.
In comparison, Chick-fil-A will reportedly post a 4-percent same-store sales gain in 2009, following a 4.6-percent gain in 2008. According to The Atlanta Journal-Constitution, the company's total system sales are expected to cross the $3 billion mark this year. In 2008, sales reached $2.96 billion. While KFC boasts system sales of more than $5 billion, its trends have remained flat or down.
Chick-fil-A opened 83 new restaurants in 2008 and plans to open another 76 more units in 2009. The chain currently operates more than 1,500 locations to KFC’s 5,200 locations. Like in sales trends, however, Chick-fil-A is growing, while KFC has posted net unit declines in recent years, according to Kalinowski’s research.
“Most strikingly to us is that Chick-fil-A has barely penetrated multiple highly-populated states, suggesting that in future years the concept does not lack for fertile ground as regards new store openings,” Kalinowski said. “Importantly, these states all seem to be home to many KFCs already, suggesting that KFC does not have the room for sheer unit growth in them, even if it manages to open some stores.”
The largest areas for growth include New York, Michigan, Massachusetts and Illinois, where Chick-fil-A will open its first unit in Chicago in 2010.
Kalinowski also highlighted Chick-fil-A operations, which focus on speed and service, not to mention the customer-friendly nature of the brand. Its marketing campaign, “Eat Mor Chikin,” also has held long-term traction, according to Kalinowski, who said the campaign is as successful and well known as Wendy’s Dave Thomas ads and McDonald’s “I’m Lovin' It” jingle.
“Of course, reality can play out differently than any ‘what if?’ scenario,” Kalinowski noted. “If KFC finds itself with improving operations, a long-term successful marketing campaign, and/or hit products on its hands, it could very well expand its domestic sales É Nevertheless, [nothing] suggests that KFC’s domestic business will have an easy go of it over the next five years.”
KFC's parent company, Louisville, Ky.-based Yum! Brands Inc., has said it would continue to focus on its grilled chicken, which has helped stemmed sliding sales trends, and to push its “Unthink KFC” marketing campaign.
Contact Sarah E. Lockyer at [email protected].