How They Started (39 page)

Some might say that Harland was a late bloomer: it wasn’t until 1940, when he was 50 years old, that he created the recipe for which the business is so famous today.

Not satisfied with perfecting the herbs and spices for fried chicken, Harland decided to experiment with the way it was cooked. He braved the pressure cooker, a new invention at the time, in his quest for the perfect fried chicken. He developed a method of pressure-frying the chicken so that it cooked much faster than when using traditional frying methods in an iron skillet—cutting the cooking time by more than a third. Again, this was in response to his customers’ needs: they weren’t prepared to wait a long time for their food. Testament to his success: in 1939, the motel and restaurant were endorsed by food critic Duncan Hines in
Adventures in Good Eating
, a guide to America’s finest roadside restaurants. The listing sent the restaurant’s popularity soaring.

In the years that followed, though, a series of events that were out of his hands forced Harland to radically alter his original business plan. In 1939, a fire destroyed the original building, but Harland rebuilt and reopened the restaurant. The advent of World War II, however, posed an even bigger challenge: gas rationing forced Harland to close the motel. Undaunted, he reopened after the war, and business boomed for many years, as his restaurant and motel were a popular stop for travelers driving along what was then the major north-south route.

Harland even became an early pioneer of the franchising model. He traveled from town to town cooking batches of his fried chicken for other restaurant owners and employees. Sales were slow, but his dogged perseverance paid off and resulted in his first franchise operation in 1952, when Harland gave Pete Harman of Salt Lake City, Utah, the first KFC franchise. The deal was done the old-fashioned way—a handshake agreement stipulated a payment of 4 cents (about 41 cents today) to Harland for each chicken sold.

Not all progress had a happy ending, however. Transportation development in the late 1950s proved too big a hurdle for even Harland to overcome and hurt his business in more ways than one. The completion of an interstate highway provided travelers with an alternative north-south route, one that completely bypassed the restaurant. The value of Harland’s site plummeted as customer numbers dwindled, and he was forced to sell the business and try his luck elsewhere. The sale—for $75,000 ($581,000 today), half the asking price of the previous year—was completed on the day he officially “retired” and picked up his first social security check for $105.

Harland gave Pete Harman of Salt Lake City, Utah, the first KFC franchise. … A handshake agreement stipulated a payment of 4 cents to Harland for each chicken sold.

After paying off debts, he was virtually penniless, but ever the entrepreneur—even in his 60s—and armed with a strong belief in his fried chicken, Harland adapted his business plan. If customers weren’t able to come to his restaurant and try his recipes, he would have to take the idea to them. It was at this point that the KFC franchise began to gather momentum.

With the first franchise in Salt Lake City going well, Harland went on the road to sell his recipe to restaurants, but he had to go right back to basics. “Lots of nights I would sleep in the back of my car so I would have enough money to buy cookers the next day if someone took a franchise,” he recalled in his autobiography.

It was also a case of all hands on deck: Harland’s wife, as he put it, acted as “my packing girl, my warehouse supervisor, my delivery person—you name it. Our garage was the warehouse. She’d fill the day’s orders in little paper sacks with cellophane linings and package them for shipment. Then she had to put them on a midnight train.”

Harland came up with a package he would sell to restaurants: the recipe (which included the spices), a pressure cooker, take-out cartons and advertising material. He also persuaded existing restaurant owners to add the KFC formula to their menus.

“Lots of nights I would sleep in the back of my car so I would have enough money to buy cookers the next day if someone took a franchise.”

The hard work paid off, and the concept known as KFC took shape, quickly becoming a fast-food sensation. By 1963, the recipe was franchised to more than 600 outlets in America and Canada. Harland visited independent restaurants throughout the US, doing a spot of what he called Coloneling—ensuring that customers were happy. It marked a turning point in the business in more ways than one.

Expansion wasn’t Harland’s sole growth strategy, and he constantly sought to innovate the business. The first food offered “to go” was at a restaurant in Jacksonville, Florida, in 1957, inspired by an idea from Harland’s daughter Margaret. Also in 1957, the chicken was sold in the now-famous buckets for the first time, under the equally well-known slogan “Finger lickin’ good.” In 1960, for the first time, Harland’s vision of bringing the recipe to the people had paid off handsomely. He could now boast 190 franchisees running 600 franchise sites across the US and Canada.

Three years later, in 1963, the business was thriving with 17 employees, but it was getting too big for Harland to handle. In the previous year alone, he had traveled 200,000 miles to drum up new business and cater to existing franchisees, and he was not getting any younger. An attractive offer from an investment group headed by John Brown, Jack Massey and Pete Harman (the first person to buy into the franchise 12 years earlier) proved hard to refuse. Harland agreed to sell for what was then a substantial sum of $2 million ($14 million today) on the condition that he still keep a hand in the business as an ambassador for the company. He was in charge of quality control, and his image was used as the company trademark. Under the terms of the agreement, the investment group bought national and international franchise rights, excluding England, Florida, Utah and Montana. Harland retained ownership of the franchises in Canada.

The new owners pumped investment funds into the business and the company set its sights on expanding more, both within North America and globally.

Soon KFC outlets spanned all 50 states, and the business established a foothold in Puerto Rico, Mexico, Japan, Jamaica and the Bahamas. The first European site opened in Preston, England, in 1964. In the mid-1960s, KFC ranked sixth in volume among food-service companies, with 1,500 take-out stands and restaurants. Franchising remained the core of the business’s expansion plans, and the now well-known red-and-white-striped buildings were developed to attract tourists and residents to the brand.

In 1966, the KFC Advertising Co-op was established, giving franchisees 10 votes and the company three when deciding advertising budgets and campaigns. Franchisees benefited from a share in company equipment and supply sales, and a National Franchisee Advisory Council was also established.

Franchising remained the core of the business’s expansion plans, and the now well-known red-and-white-striped buildings were developed to attract tourists and residents to the brand.

Buoyed by the success of the business’s rapid expansion, the company went public, listing on the New York Stock Exchange in 1969, with Harland buying the first 100 shares.

At this point the new owners were looking at ways to streamline the business. Plans to reduce overhead—in particular labor costs—were put into action, by transforming Harland’s original idea of a sit-down eatery into a fast-food, stand-up concept, with emphasis on fast service. The business grew at a phenomenal rate, and some franchisees had already become millionaires. But KFC found that such growth was to come at a price. With franchisees making money at such a fast rate, there was very little incentive for them to stay with KFC long-term instead of turning to new ventures (at one point the management team had 21 millionaires reporting to it!). This meant that successful franchisees were only prepared to commit to the business for a year or two, resulting in a lack of strongly established, and experienced, franchisees.

At the same time, negative reports about the accounting practices of other franchise operations appeared in the media, and as a result—although the reports were not connected to KFC—the company’s share price took a beating, dropping to $10 per share from a high of $55.50 in 1969. It signaled a worrying time for the business, and several key players, including Jack Massey, resigned following a series of disagreements. A new management team with a background in food and finance was swiftly appointed to revive financial fortunes. It signaled the end of the road for Harland’s involvement with the company, and he resigned from the board of directors. At the grand old age of 80, even he knew his limits.

In an article in the
New York Times
, he said: “[I] 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.”

As part of the plan to revive KFC, the business merged with food and alcoholic beverage business Heublein Inc. in 1971, when sales stood at $700 million, and John Brown left the business following this deal. It seemed a wise move as Heublein’s expertise was in marketing, an area in which the business received a much-needed boost. Introducing new products such as barbecued ribs was also the order of the day, and although the new lines proved popular, they masked the fact that sales of fried chicken were declining. After a while the sales boost waned, and the business once again began to falter.

By the early 1970s, relationships with existing US franchisees were at an all-time low, a problem that had been brewing since Brown and Massey bought the business. Franchisees were now selling more per store than company-owned units and resented paying royalty fees to what they perceived to be an ineffective brand owner.

Franchisees felt Heublein was too corporate for their liking, and a contract battle ensued. The management team was determined to rely on positive relationships built in the past, despite a number of disputes over contracts and a communication breakdown.

Consequently, the brand’s image began to suffer in the public eye, and turnaround plans began in earnest for the physical identity of the business and for its core product, fried chicken. Efforts were made to revert to Harland’s original cooking methods and the menu was scaled down to reduce costs. Sadly, Harland died in 1980 from leukemia and was unable to see the transformation take effect.

Going back to basics helped lift the business’s fortunes and culminated in an advertising campaign—“We do chicken right”—that proved so successful it ran for seven years. In 1982, parent company Heublein was acquired by R.J. Reynolds Industries, which provided a vital cash injection, a platform for further international expansion, and a new vision for the business. That year, sales reached an impressive $2.4 billion, largely credited to the fact that the business refused to imitate competitors and introduce a flurry of new products, concentrating instead on refining its existing proposition.

Going back to basics helped lift the business’s fortunes and culminated in an advertising campaign—“We do chicken right”—that proved so successful it ran for seven years.

It was a turnaround that did not go unnoticed by food and beverage giant PepsiCo, and in 1986, keen to secure a large market for its own drinks, it acquired KFC for $840 million, impressed by the latter’s increase in worldwide revenues. It seemed a natural fit, too, as PepsiCo already owned fellow fast-food chains Taco Bell and Pizza Hut.

The new owners wanted to continue to develop the business and therefore opened the Colonel Sanders Technical Center to foster product development. The business experimented with the concept of oven-roasted chicken and a home delivery model. It also set its sights on further global expansion, culminating with the opening of an outlet in the People’s Republic of China in 1987—the first US fast-food chain to establish a presence in the country.

On the outside the business appeared to have gotten back on track, but relationships with US franchisees were still strained. Although they were impressed with their new owner’s expertise and access to international markets, many American franchisees felt they did not have enough say in the business. Competitors were developing new product lines while KFC struggled to innovate the fried chicken concept, with Hot Wings and sandwich-style chicken its only new offerings.

It was a different story globally, however, as international markets continued to thrive, on both the financial and franchisee–relationship side, with pre-tax profits of $92 million in 1992, as opposed to $86 million in America. Sales in Asia and operations in Australia were particularly strong, and the company seized the opportunity to capitalize on this, with plans to open an outlet outside of the US every day. Innovations introduced in global operations were often used as a model for entering new markets.