KFC Australia's taste test for bite-size stores

Sue Mitchell
May 27, 2015
The Age
KFC Australia, a pioneer of drive-thru fast-food, is to serve up bite-size stores in metropolitan locations in a bid to protect its 10 per cent share of the $14 billion quick-service restaurant trade as new players enter the market.
The fast-food giant has opened a KFC Urban store in Parramatta in Sydney’s west, and is testing the success of the new casual dining format before deciding whether to roll out it out across Australia.
At 110 square metres and with 30 seats, the KFC Urban store is one-third the size of a traditional KFC outlet. With no carparking or drive-thru, the stores are designed for urban rather than suburban locations, and have a more upmarket look and feel to KFC’s traditional family-friendly red and white decor.
KFC Australia managing director Tony Lowings said the new format reflects changing consumer trends, the arrival of new competitors and the rising cost of building full-service outlets.
“Our business model is built around free-standing drive-thru’s in suburban locations, which are convenient when people drive home,” Mr Lowings told The Australian Financial Review.
“We have seen the advent of new players in the quick service or fast casual space opening in more urban and inner city locations … generally we have been underpenetrated in those areas,” he said.
“We are looking to see if there’s an opportunity to set up a contemporary version of KFC, which might compete more effectively for consumers looking for a more upmarket experience. It’s something we are playing around with but it’s not the key component of our growth agenda,” he said.
Mr Lowings said the new format has nothing to do with Domino’s Pizza Enterprises’ plan to grab a larger share of the fast food market and take sales from burger chains and fried chicken outlets by offering faster and easier ordering.
Consumer congnisance
“One of the things we do well is not get too focused on what the competition is doing – we have to be cognisant of consumer trends but we stick to what we are very good at,” Mr Lowings said.
“We have a very strong position in the market place, people know exactly who we are and what we stand for and that’s put us in good stead,” he said. “We have a broad menu, a broad offer and we give people access to our food through different formats. We don’t feel particularly threatened by how some of the other players may be looking to enter [our market].”
KFC Australia is owned by US-based fast food giant YUM! Brands, which also owns Pizza Hut and Taco Bell. According to IBISWorld, YUM! Restaurants Australia sales have been rising about 3 per cent a year for the last four years to $1.4 billion, beating the 0.7 per cent growth in the broader market.
At KFC Australia, sales fell in 2009 and 2010 but have since rebounded, fuelled by a consumer shift towards chicken – which is perceived to be healthier than beef and pizza – changes to menus, including the introduction of grilled chicken and salads, and the launch of mobile phone ordering apps and social media marketing.
KFC has 620 stores, 155 of which are company-owned and the rest owned by franchisees. The largest, Collins Foods, has achieved same-store sales growth between 3 per cent and 4.3 per cent this year from its 170 KFC outlets in Queensland, Western Australia and the Northern Territory.
“We’re comfortable with where the business is sitting,” Mr Lowings said. ” We are running higher than 3 per cent sales growth for the KFC brands.”
“The whole quick service restaurant industry is becoming a lot more complex, people are looking at food choices in different ways,” he said.
“We’re an indulgent food choice, people eat us for a treat, they don’t eat us every day … but we are seen as real food, unlike a lot of other fast food players. There’s always going to be demand for that.”