Poultry perseverance: the old-fashioned brand hatched on a small scale by a Kentucky Colonel has endured and flourished on the strengths of his finger-lickin' formula

Nation's Restaurant News,  Jan 28, 2008  by Steve Coomes

• E-mail
• Print
• Link

A white-bearded man sporting a snow-white suit and a black string tie sells pressure cookers and a secret spice blend from the trunk of his car. He calls himself "the Colonel," says he's from Corbin, Ky., and tells restaurateurs he can teach them to make mouthwatering Southern-fried chicken. A stove-top demo proves the corn pone character's creation meets its billing, and on handshake deals the restaurateurs pay him a nickel for every chicken made with his spice blend.

[ILLUSTRATION OMITTED]

When outsiders learn of the Colonel's "Kentucky Fried Chicken" they smell a business opportunity. They buy his company and turn it into one of the world's largest chains. Fifty years after the Colonel started peddling poultry, his bespectacled mug is one of the world's best-recognized visages.

Harland Sanders' story is a "Horatio Alger story if there ever was one," says John Y. Brown Jr., one member of an investment group that bought Sanders' company in 1964. "You couldn't make up something like the Colonel."

Sanders' personality was equal parts Southern charm and raging bull, and both were required to sell his dream. He smooth-talked restaurant owners into believing they needed his product, but chided them unmercifully if they changed it an iota.

"He'd throw a tantrum if the gravy wasn't right," says Harold Dunford, a former franchisee who co-owned 18 stores in and around Las Vegas in the early 1960s. "He would not compromise on product quality."

Sanders' one-man road show began in 1952, the year Salt Lake City restaurant operator Pete Harman became a franchisee. An innovative marketer, Harman created the chain's iconic bucket and sold the Colonel's chicken by the truckload.

By 1960, Sanders' efforts had yielded 190 franchisees and 400 franchise units in the United States and Canada. A year later he met Brown, a 28-year-old lawyer hungry for more money. The Colonel wanted him as his attorney, but Brown was interested in Sanders' business.

Jack Massey, Brown's well-heeled golfing buddy, got curious when Sanders showed them the royalty checks streaming into his office, and in 1964 they offered to buy his company.

"The Colonel stroked his chin and said, 'No two city slickers are going to buy my company from me," recalls Brown, who became KFC's president.

But Brown, a natural charmer who was elected governor of Kentucky in 1980, changed Sanders' mind, "and don't you know," he says, "after we closed the deal, he told his Rotary Club how he took two city slickers for $2 million."

KFC's initial public offering in 1966 netted the buyout group $280 million and set off a building boom. In 1968 alone 864 KFCs opened, and by 1971, when Heublein Inc., a packaged-food and spirits company, bought KFC, there were 3,500 stores.

"We had been buying franchisees' stores back for five times earnings, but at one point, the stock was trading at 70 times earnings," Brown says, recalling how dozens of ordinary folks became millionaires off KFC early on. "But the problem was we really didn't have experience in running that size of a company."

That product quality wasn't an issue was KFC's saving grace, but Heublein's mismanagement of general operations was another matter, Brown says. One of its greatest mistakes, Brown adds, was when it relieved the Colonel of his front-man duties.

"When people saw him on a TV show like Lawrence Welk, sales jumped 10 percent around the country," Brown says.

Heublein eventually brought the Colonel back and with a good salary. "He was proud the company he created had grown so large," Brown says, "but he really hated when others changed it."

Which Heublein did a lot, says Don Doyle, a KFC financial analyst in 1973 who became president of U.S. operations from 1985 to 1989.

"These were packaged-goods guys ... who I don't think realized they were buying an operations company," says Doyle, now a multiunit Qdoba Mexican Grill franchisee.

Dunford, who sold his stores to the company and became a corporate vice president, called Heublein's "industrial engineering" and streamlining practices "traumatic for KFC" because they added paperwork and slashed necessary store labor while making questionable menu additions, such as barbecued ribs.

Despite those miscues, KFC continued growing, and by 1979 it had 6,000 stores with annual sales exceeding $2 billion.

In 1982, R.J. Reynolds acquired Heublein. Doyle says that removed Heublein's mismanagement, but "I don't think [Reynolds] quite knew what to do with us. We became a very small division of a massive tobacco company."

Dunford and Doyle said KFC faced its greatest challenge when PepsiCo bought it for $850 million in 1986. Nearly 75 percent of KFC's stores were franchised, just the opposite of the corporate-franchise store mix at the PepsiCo brands Taco Bell and Pizza Hut. PepsiCo wanted greater control of KFC's franchise corps, which greatly ruffled operators' feathers.