Fast Food Wars: The Unseen Battle In Franchise Businesses
When you pay for a meal at a fast food chain, such as McDonald's or KFC, most of the time your money is divided between two different businesses. There's corporate headquarters, and the individual restaurant owner, known as a franchise. The Planet Money team takes a look at the unseen battle between those two groups.
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When you pay for a meal at a fast food chain like McDonald's or Burger King, your money is usually split between two different businesses. There's corporate headquarters and there's the individual restaurant owner known as the franchisee. As Alexandra Starr of NPR's Planet Money team reports, there's a battle going on between the two groups.
ALEXANDRA STARR, BYLINE: Here's an example of that battle. A few years back, Kentucky Fried Chicken, or KFC, set out to remake its image and get customers to try its healthier grilled chicken. Corporate headquarters enlisted the best salesperson of our time, Oprah Winfrey.
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OPRAH WINFREY: KFC is offering two pieces of grilled chicken complete with two sides and a biscuit.
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WINFREY: Don't forget the biscuit - for you and your family for free.
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WINFREY: Will not cost you a dime.
STARR: The lure of free chicken drew thousands of customers to KFCs. Local television stations covered the aftermath. Here's WBAL anchor Stan Stovall.
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STAN STOVALL: Getting that free chicken may not be as easy as you'd think. (Unintelligible) reporter Melissa Carlson joins us live from Northeast Baltimore tonight with more on the story.
MELISSA CARLSON: This location here on Greenmont, they've run out of the grilled chicken, but they were taking those coupons. Other locations weren't doing it.
STARR: KFCs across the country ran out of chicken. Ric Rozier owns five KFCs in Connecticut and New York. He didn't run out of chicken, but he says it was a nightmare.
RIC ROZIER: A lot of people came in thinking that, well, Oprah's buying this for us, isn't she? I said, no, we're paying for this.
STARR: When he says we, he means the individual store owners, the franchisees, not the KFC corporation. Almost every KFC is owned by a person, someone like Ric Rozier who pays the rent, buys the food, hires the staff. And giving the product away cuts into his profits. That's not the case for corporate headquarters because Rozier pays them a portion of his sales. So if he sells more drinks as he gives away free food, headquarters will still make money. Rozier says he will never again do an Oprah-style promotion.
ROZIER: That's not an option. I'd just leave it at that. It's not an option (laughter).
STARR: After the Oprah incident, Rozier and the other KFC owners sued headquarters, and a judge reaffirmed they had a right to veto add campaigns. Tension between corporate headquarters and franchisees is not unique to KFC. There have been battles at Burger King, Domino's, Cold Stone Creamery, Quiznos. David Palmer is a restaurant analyst with the Royal Bank of Canada.
DAVID PALMER: Frictions can arise when brands open stores nearby each other.
STARR: Corporate headquarters often likes having two stores across the street. It means more sales overall. Storeowners, though, do not like having to compete with an identical store. But Palmer says even with those battles, joining up with a franchise can be safer than striking out on your own.
PALMER: These chains offer tremendous advantages
STARR: It's easier to start a restaurant when it has a pretested, built-in marketing icon, like the man who founded KFC, Colonel Harland Sanders.
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HARLAND SANDERS: Howdy, folks, it's me, Colonel Sanders. I've been going for a while and boy, howdy, have things changed.
STARR: Owner Ric Rozier summarizes the new ad campaign in one word.
ROZIER: Re-Colonelization (ph) - bring the Colonel back. Bring back his values. Whenever the business has done well, it's been when the Colonel has been very involved.
STARR: In the Colonel, owners and corporate headquarters found something they could agree on. For NPR News, I'm Alexandra Starr.
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