The New Dieters' Delight: KFC Fried Chicken

Same-store sales at KFC have been down in 14 of the last 16 reporting periods. Even though the chain accounts for only 15% of Yum!'s overall operating profit, it has been a drag on results.

"The big challenge is making fried chicken and fried products more relevant today," said Yum!'s CEO, David Novak, on a post-earnings conference call earlier in October.

Yum! is relying on its new ads to recoup sales. But if the message doesn't translate, the unit's turnaround -- which the company estimates to have made "significant" progress by summer 2004 -- could be in jeopardy. Already, there is some concern that KFC will not be able to meet that deadline.

"Management expects a turnaround at KFC to take about six to nine months. We believe it could take a bit longer, given the challenges in changing consumer perceptions in a brand with low frequency rates," said Larry Miller, an analyst at Prudential, in a research note Wednesday.

KFC is also expected to introduce new low-fat items on its menu, including roasted chicken filet strips and a salad product, as it tries to drum up sales at the chain. But some doubt that KFC's existing clientele will be interested in the lighter fare.

"Loyal KFC customers want what they have been getting for years," said Penney. "What they are trying to do is lure in new customers. That is difficult and very costly."

Meantime, others are getting in on the act. "With beef prices a big concern for the industry, everybody is focusing on chicken right now," said Penney. "There is a lot of competition out there."