KFC - History

History

Born and raised in Henryville, Indiana, Sanders passed through several professions in his lifetime, with mixed success. Sanders first served his fried chicken in 1930 in the midst of the Great Depression at a gas station he owned in North Corbin, a small city on the edge of the Appalachian Mountains in south eastern Kentucky. The dining area was named Sanders Court & Café and was successful enough for Sanders to be given the honorary title of Kentucky Colonel in 1936 by the Kentucky Governor Ruby Laffoon. The following year Sanders expanded his restaurant to 142 seats, and added a motel he purchased across the street. When Sanders prepared his chicken in his original restaurant in North Corbin, he prepared the chicken in an iron frying pan, which took about 30 minutes to do, too long for a restaurant operation. In 1939, Sanders altered the cooking process for his fried chicken to use a pressure fryer, resulting in a greatly reduced cooking time comparable to that of deep frying. Not only did production speeds increase but the method produced flakier, moister chicken. Between 1939 and 1940 Sanders devised what came to be known as his Original Recipe of 11 herbs and spices.

The Sanders Court & Café generally served travelers, often those headed to Florida, so when the route planned in the 1950s for what would become Interstate 75 bypassed Corbin, he sold his properties and traveled the U.S. to sell his chicken to restaurant owners. The first to take him up on the offer was his friend Pete Harman in South Salt Lake, Utah, the operator of one of the city's largest restaurants; together, they opened the first "Kentucky Fried Chicken" outlet in 1952. The restaurant's sales in the first year more than tripled, with 75 per cent of the increase from fried chicken sales. For Harman, the addition of fried chicken was a way of differentiating his restaurant from his competitors; in Utah, a product hailing from Kentucky was unique, which made it seem special. A sign painter hired by Harman coined the name "Kentucky Fried Chicken". Harman produced the company's first training manual and product guide. He also trademarked the phrase that would become the company's slogan, "It's finger lickin' good". It was Harman who in 1957 first bundled 14 pieces of chicken, five rolls and a pint of gravy in a paper bucket to offer families "a complete meal" for $3.50 ($29 in 2012 dollars). He says he took on the project as a favor to Sanders, who had called on behalf of a Denver franchisee who didn't know what to do with the 500 buckets he had bought from a traveling salesman. At the time Harman sold his first bucket meals, the chain was little more than a network of independent restaurants that paid pennies per order for Sanders' "secret blend of herbs and spices" and the right to feature his recipe chicken on their menus and use his name and likeness for promotional purposes. The popularity of the bucket meals ultimately made it feasible to open free-standing KFC restaurants, according to Harman, "by giving you enough volume to justify a manager and pay the overhead". Freestanding stores led to a faster growth rate for the chain because those specialized operations proved easier to sell to would-be franchisees.

An early franchisee from 1962 was Dave Thomas, who created the rotating bucket sign that came to be used at most KFC locations in the US. Thomas encouraged Sanders to appear in the KFC television commercials, helped him to simplify the chain's menu of over 100 items to just fried chicken and salads, and was an early advocate of the take-out concept that Pete Harman had pioneered. Thomas sold his shares in 1968, becoming a millionaire in the process, and went on to found the Wendy's restaurant chain.

By 1964, Kentucky Fried Chicken was sold in over 600 franchised outlets in both the United States and Canada. Sanders sold the entire KFC franchising operation in 1964 for $2 million ($14,987,124 in 2012 dollars), payable over time at a three per cent interest rate, to a group of investors headed by John Y. Brown, Jr. and Jack C. Massey. The sale included a lifetime salary and the agreement that he would be the company’s quality controller and trademark. According to Massey, when the offer was first touted to Sanders it was difficult to know how he felt about the deal - he would dismiss it one day and talk about it as if it were inevitable the next. Massey knew that Sanders believed in astrology and waited until Sanders had a particularly positive and dramatic horoscope before making a definitive offer. Massey went into Sanders’ office and made him a written offer. Sanders looked at the figure, opened up his drawer, read his horoscope, and agreed to sell it. Sanders apparently became disenchanted with the deal, telling the Washington Post, "I don't like some of the things John Y. done to me. Let the record speak for itself. He over-persuaded me to get out." Massey and Brown changed the restaurant's format from the diner-style restaurant envisioned by Sanders to a standalone fast-food take-out model. Giving all their restaurants a distinct red-and-white striped color pattern, the group opened over 1,500 restaurants, including locations in all 50 U.S. states and several international locations. The concept caught on because it was the best chicken most people had ever tasted and took a dish that had been a Sunday dinner treat and made it an everyday staple. Massey and Sanders did not like each other, and the Colonel grew incensed when Massey decreed that company headquarters would be in Nashville, Tennessee, and not in Kentucky. He bellowed, "This ain't no goddam Tennessee Fried Chicken, no matter what some slick, silk-suited sonofabitch says." Brown did not like the idea either, but Massey owned 60 per cent of the company, and Brown 40 per cent, and Massey wanted company headquarters to be near his home. Brown claims that he brought order and efficiency to a chaotic management structure, and treated the increasingly disgruntled Sanders with tact and patience.

Sanders' nephew Lee Cummings left the company after the sale to found the Lee's Famous Recipe Chicken chain. In 1966, at Massey's insistence, the company went public. By this time Sanders regretted selling his company, and exchanged his $1.5 million worth of stock for the exclusive rights to the company's Canadian activities. Later that year Massey resigned from the company and Brown announced that headquarters would be moved to Louisville, Kentucky. According to Sally Denton, Massey left the venture with a "sour taste in his mouth", and refused to discuss the former partnership publicly. By 1967, KFC had become the U.S.'s sixth largest restaurant chain by volume. By 1968, Kentucky Fried Chicken was the largest fast-food business in America and in 1969 it was listed on the New York Stock Exchange. In August 1970 Colonel Sanders and his grandson Harland Adams resigned from the board of directors. In a New York Times article, Sanders stated, " realized that I was someplace I had no place being. ... Everything that a board of a big corporation does is over my head and I'm confused by the talk and high finance discussed at these meetings."

The company, once too large for the Colonel to handle, grew too mammoth for John Y. Brown as well. In July 1971 Kentucky Fried Chicken was taken over by Connecticut-based Heublein, a specialty food and alcoholic beverage corporation, for $285 million ($1,635,529,992 in 2012 dollars). Heublein planned to increase Kentucky Fried Chicken's volume with its marketing know-how. Through the 1970s the company introduced some new products to compete with other fast-food markets. As management concentrated on overall store sales, they failed to notice that the basic chicken business was slacking off. Competitors' sales increased as Kentucky Fried Chicken's dropped. At this time a Texas firm, Church's Chicken, began making inroads into KFC's market share with "Crispy Chicken". In 1972 KFC introduced "Extra Crispy Chicken". In 1974 Sanders complained of the declining food quality:

My God, that gravy is horrible. They get tap water, mix it with flour and starch and end up with pure wallpaper paste. Another thing. That new crispy recipe is nothing in the world but a damn fried doughball stuck on some chicken."

The outburst prompted a KFC franchisee in Bowling Green, Kentucky to unsuccessfully attempt to sue Sanders for libel. In 1973 Heublein attempted to sue Sanders after he opened a restaurant in Shelbyville, Kentucky under the name of "Claudia Sanders, the Colonel's Lady Dinner House". In 1974 Sanders counter-sued Heublein Inc for $122 million ($574,931,174 in 2012 dollars) over the alleged misuse of his image in promoting products he had not helped develop, and for hindering his ability to franchise restaurants. A Heublein spokesman described it as a "nuisance suit". In 1975 Heublein settled out of court with Sanders for $1 million ($4,319,109 in 2012 dollars), continued his salary as goodwill ambassador and allowed his restaurant venture to go forward as "Claudia Sanders Dinner House".

In 1976, Sanders complained that the company "doesn't know what it's doing" and that is was "downright embarrassing" to have his image affiliated with such an inferior product. Michael Miles was promoted by Heublein to run the chain in 1977 and is credited with turning around the ailing company by instituting a back-to-basics formula. One of Miles' most notable strategies was to lure Sanders back onside, and to listen to his recommendations for the business. Miles also embarked on an extensive store refurbishment program, as outlets had become dated and run-down. Sanders passed away in 1980, having continued to travel 200,000-250,000 miles a year, largely by car, promoting his product until shortly before his death.

In 1982, Heublein was purchased by R.J. Reynolds, who had to contend with the introduction of Chicken McNuggets across the McDonald's chain in 1983. Reynolds sold their restaurant division in 1986 to PepsiCo for a book value of $850 million ($1,802,185,792 in 2012 dollars). Reynolds sold the chain to pay off debt related to its recent purchase of Nabisco and in order to concentrate on its tobacco and packaged food business. PepsiCo made the chain a part of its PepsiCo Worldwide Restaurants division alongside Pizza Hut and Taco Bell, and it was anticipated that they would bring their merchandising expertise to the firm. In 1991 the KFC name was officially adopted, although it was already widely known by that initialism. The early 1990s saw a wave of new product launched throughout the chain, such as spicy "Hot Wings" and popcorn chicken, as well as the "Zinger", a spicy chicken fillet sandwich, for international markets. In 1993, non-fried chicken was added to menus in the United States and Australia for the first time. In 1994 Roger Enrico was appointed as the CEO of the ailing PepsiCo Worldwide Restaurants, and David C. Novak was appointed President of KFC and charged with turning around the ailing company. Novak oversaw 10 quarters of consecutive growth at the restaurants after introducing new products such as the chicken pot pie and marinated chicken.

In 1997, PepsiCo spun off its restaurants division as a public company valued at $4.5 billion ($6,514,925,373 in 2012 dollars) in order to pay off short-term debt and because, as one PepsiCo executive admitted, "restaurants weren't our schtick". According to one analyst it was not clear whether the $4.5 billion was a fair return on PepsiCo's investment, given that much of Pepsico's debt had arisen from investment in its capital-intensive restaurants. The company was named Tricon Global Restaurants, and at the time had 30,000 outlets and $10 billion in sales ($14,477,611,940 in 2012 dollars), making it second in the world to only McDonald's. It was renamed Yum! Brands in 2002. The original KFC franchise restaurant in Salt Lake City was rebuilt in 2004 to incorporate a small museum. From 2002 to 2005 KFC experienced three years of weak sales, when underinvestment in product development left the brand looking "tired and poorly positioned", according to Restaurant Research, an independent consultancy. KFC responded by adding a cheap hot chicken burger to the menu, called a “Snacker”, which is easier to eat than chicken on the bone. It also began a makeover of the brand image, bringing back the full “Kentucky Fried Chicken” name at some outlets, giving new prominence to touched-up portraits of Colonel Sanders, and promoting once more the cardboard buckets of chicken it had abandoned briefly in the 1990s.