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Analyst: Long-dominant KFC may be surpassed by Chick-fil-A

Analyst: Long-dominant KFC may be surpassed by Chick-fil-A

ATLANTA Chick-fil-A, the regional quick-service chain with deep Southern roots, may one day surpass KFC as the largest chicken brand in the United States, said longtime restaurant analyst Mark Kalinowski —

KFC, the Yum! Brands Inc. chain that has dominated the chicken segment for decades, will lose the top slot to privately-held Chick-fil-A in the next 10 or more years, Kalinowski said. While the shift may be years away, Kalinowski, who is now an analyst at Janney Capital Markets, pointed to many factors that would help Chick-fil-A eat away at KFC’s market share, including the Atlanta-based company’s positive sales traction, unique and effective marketing efforts, high level of customer service, and room for unit growth. —

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“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 appear 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, with same-store sales falling 2 percent in the latest September-ended quarter. To reverse course, the Louisville, Ky.-based chain has introduced new menu items, such as grilled chicken, and new advertising. Popeyes, the third-largest chicken chain, also has reported slowed same-store sales growth, with the latest dip of 0.3 percent following a year-earlier decline of 2.8 percent. —

By comparison, Chick-fil-A reportedly will record a 4-percent same-store sales gain in 2009, following a 4.6-percent gain in 2008. According to the Atlanta Journal Constitution, its 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 76 more restaurants in 2009. The chain currently operates more than 1,500 locations to KFC’s 5,200 locations. As 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, noted 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, referring to his theory that Chick-fil-A will be the dominate player in the future. “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…Nevertheless, [nothing] suggests that KFC’s domestic business will have an easy go of it over the next five years.” —

Louisville-based Yum said it would continue to focus on its grilled-chicken offerings, which have helped to somewhat stem the sliding sales trends, and continue to push its “UNTHINK KFC” marketing campaign.— [email protected]

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