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A KFC outlet (BRIAN BOHANNON)
A KFC outlet (BRIAN BOHANNON)

KFC franchisees launch U.S. lawsuit Add to ...

Focus on the fat.

This is the message at the crux of a lawsuit filed by U.S. Kentucky Fried Chicken franchisees against the company's head office. It is aimed at redirecting the company's advertising strategy.

The American store owners are concerned that the brand, which grew into the world's most popular chicken on the back of its namesake fried product, has lost its focus. The distraction? A new grilled-chicken product that is healthier than the old, fried standby and has captivated company president Roger Eaton, who deemed it worthy of a massive and expensive ad campaign.

Franchisees argue that the new grilled chicken is no match for Colonel Harland Sander's original recipe, which accounts for the vast majority of sales and therefore ought not to be sliced out of the company's U.S. advertising strategy.

Unlike many lawsuits, it isn't about money: An organization representing franchisees is asking a Delaware court to determine who has the ultimate say over KFC advertising decisions.

"Eaton appears to believe that the future of KFCC [Kentucky Fried Chicken Corp.]lies with grilled chicken rather than fried Original Recipe or Extra Crispy chicken products," reads a document filed in the Delaware Court of Chancery. It goes on to characterize KFC ads in the U.S. as "lopsided towards grilled chicken."

The chicken tussle has been escalating since 2008, when Mr. Eaton became the head of Louisville, Ky.-based KFCC, which is owned by Yum! Brands Inc. Under his tenure, the lawsuit alleges, company executives grew dismissive of retailers' input on advertising and other business matters.

This includes the emphasis on grilled chicken.

For more than a decade, U.S. franchise owners have helped shape KFC corporate strategy through KFC National Council and Advertising Cooperative Inc., which is the plaintiff in the lawsuit. The council, also based in Louisville, is a separate corporation from KFCC with an advisory mandate; its board includes four employees from head office and 13 franchisee representatives.

Through the council, retailers have tried for months to persuade head office to temper its emphasis on grilled chicken with "a more balanced approach towards advertising of grilled chicken and fried products." The failure of that effort led to the filing of the suit, which outlines the retailers' desire to return to that "balanced approach" in company advertising.

Jonathan Blum, vice-president of communications at Yum! Brands, called the lawsuit "baseless" in an e-mailed statement.

"Yum! Brands fully expects to win the suit and minimize the waste of time and money spent on it so that we can continue to satisfy our customers and grow the business," he wrote.

Mr. Blum said the new product, Kentucky Grilled Chicken, which has between four and nine grams of fat compared with the eight to 24 packed by fried chicken, is critical to the "turnaround" of KFC in the U.S. and is on track to generate nearly $1-billion (U.S.) in sales in its first year.

The company's U.S. sales figures have been lagging steadily over the past two years, in part because of the lack of healthy menu options, some analysts suggest. Still, Yum!, which also owns Pizza Hut, Taco Bell, A&W and Long John Silver's, reported $11.2-billion in 2008 revenue. The company says it has more than 15,000 KFC outlets in 109 countries and territories, and serves 12 million customers per day.

Rollout of the new product in the U.S. generated a stampede last May after Oprah Winfrey offered viewers of her television show a free coupon for a grilled chicken meal. The promotion created lineups at stores across the country and many ran out of the product.

Jim Cocolin, second vice-president of the U.S. Association of Kentucky Fried Chicken Franchisees, said store owners accept the need to offer both grilled and fried chicken. "We need both, but our fried is 80 per cent of our business. That kind of speaks for itself right now," he recently told The Washington Post.

Mr. Cocolin and several other franchisee association executives declined to be interviewed because the case is before the court, though no dates have been set. Lawyers for both parties are conducting a scheduling conference today.fri

John Bitove, chairman of Priszm Income Fund, Canada's largest fast-food operator with more than 400 KFC restaurants across the country, said Canadian franchisees are not part of the lawsuit and do not have any grilled chicken offerings - yet.

"We are aggressively pursuing and testing grilled products in Canada to maintain KFC's chicken leadership position," Mr. Bitove said in an e-mail. "We are excited to pursue it and it may be different from the U.S.A. products or tactics to go to market."

Follow on Twitter: @jessleeder

 
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