And Now From the Chicken Wars…

After last week’s post on the Burger Wars I wasn’t really planning an update on anything else – but then the Internet intervened (as the Internet is wont to do) and I found a similar article about the two leading quick-serve restaurants that focus on chicken. This article is far less specific in terms of cause and effect, and I can’t help wondering if the practical aspects of the case are getting lost in all of the political controversy surrounding at least one of the companies involved…

According to a second article off of the Bloomberg/BusinessWeek site, Chick-fil-A is now outperforming KFC to become the most successful company in their segment of the quick-serve industry. Despite having only about 40% of the stores (1,775 compared to 4,491), Chick-fil-A sales for 2013 exceeded KFC ($5 billion versus $4.22 billion). Given the relative sizes of the chains, that means that the average Chick-fil-A location is making over three times what the average KFC location brings in (about $3.2 million per year versus $938,000 per year). And while I do not have current figures for marketing expenditures, the last set of numbers I saw indicated that KFC was spending considerably more on advertising, both per store and aggregate, than the competition…

Why exactly this should be is not explained in the Bloomberg article, and industry sources are not clear either. Most of the ink about Chick-fil-A in the last few years has been political, not business-related, and has focused on the CEO’s support for right-wing and fundamentalist organizations, notably those opposed to same-sex marriage. I had noted in a previous post that this did not make sense as a business strategy – a given customer’s money has exactly the same value regardless of his or her position on any political issue, and intentionally alienating what appears to be about half of the people in this country seems unwise at best. However, I also speculated about the value of such moves in terms of free advertising, increased support from customers of similar (e.g. highly conservative or reactionary) political leanings and increased brand awareness – all of which seems much less comical given this information…

Now, it is certainly possible that the relative sales data indicates a decline in the fortunes of KFC as much as it does the rise of their competition. Certainly, the public perception of KFC’s product and service quality has dropped in recent years, and at the same time perception of the brand has become less prestigious and more associated with lower-income demographics. There have also been issues with some of the recent product offerings from KFC, including the bowl-based meals (which are considered some of the least healthy options available in the industry), “Value Menu” combinations that do not offer any particular value or utility, and repeated reports of chicken heads, feet and other generally inedible items being served to customers…

Part of the problem would appear to be that while KFC have become more and more committed to a low-cost leadership strategy, Chick-fil-A has been pursuing a differentiation strategy based on the quality of both their food and service and positioning itself as a slightly more prestigious product. Chick-fil-A has also been more successful in introducing an expanded product line, notably including a surprisingly successful breakfast menu. If you consider it from a strategic standpoint, it seems as though Chick-fil-A has intentionally attacked KFC in all of the areas where the competing firm was the weakest – and unless I am badly mistaken, that’s probably what they set out to do…

As noted in last week’s Burger Wars post, none of these effects is anything short of predictable. Once KFC began to favor low cost over product quality or brand development they became vulnerable to an opponent who would be perceived as offering a better product, and their virtual abandonment of the breakfast market effective gave that share away to anyone else in their market who could take it. What I find even more remarkable is that if these statistics are accurate, the comparatively tiny number of Chick-fil-A locations are also outperforming the McDonald’s locations on a revenue-per-store basis. And since Chick-fil-A has little or no presence in almost half of the United States, things will almost certainly get worse as they progress with their current expansion plans…

It's enough to make you wonder how well the company would be doing if it hadn't decided to intentionally alienate half of the country...