Kentucky Judge orders compromise in KFC franchisee dispute At issue is control of advertising strategy

By Bruce Schreiner

Associated Press

LOUISVILLE, Ky. (AP) -- KFC and its franchisees have been told to cooperate on advertising strategies by a judge's ruling Monday that delves into the fried-versus-grilled dispute at the world's most popular chicken-restaurant chain.

The franchisees argued in the non-jury trial in Delaware Chancery Court that their KFC National Council and Advertising Cooperative had authority to develop advertising plans as well as to modify those offered by KFC.

KFC countered that it had sole control over advertising strategy.

Judge Leo E. Strine Jr., in his 65-page ruling, ruled that both parties could provide give-and-take to the process.

The judge said KFC could nix an ad campaign it believes would hurt the brand, citing the fictitious example of "All Fat, All Fried, All The Time."

The legal dispute was the result of disagreements over whether advertising should stress KFC's traditional fried chicken or a grilled alternative that debuted in the spring of 2009.

KFC is a unit of Yum Brands Inc., based in Louisville.

The legal fight dealt exclusively with KFC's marketing strategy in the U.S., where the chain has about 5,000 restaurants that generated about $5 billion in revenues last year.

KFC President Roger Eaton, who found himself in the middle of the dispute with some KFC restaurant owners, said the ruling retained the Louisville-based chain's authority over advertising.

"This lawsuit was always about retaining rights, not gaining rights, and we are pleased the court has affirmed that the franchisees do not have authority to run ads which KFC Corp. deems to be inconsistent with its brand image," Eaton said in a statement.

Attorneys for the franchisees did not immediately return phone calls or e-mails late Monday seeking comment.

KFC, best known for its secret mix of herbs and spices coating its Original Recipe fried chicken, has struggled in the U.S., posting an 8 percent third-quarter sales drop at U.S. restaurants open at least a year. Two other Yum units -- Pizza Hut and Taco Bell -- had solid U.S. sales growth in the same three-month period.

KFC has prospered overseas, especially in China, where the chain has become a dominant fast-food brand.

The legal case stemmed from a dispute between the company and franchisees over whether national advertising strategy should focus on KFC's traditional fried chicken or shift to the grilled product.

While KFC executives wanted to promote a more healthful alternative, many franchisees "believed that, for better or worse, many of KFC's customers were mainly hungry to purchase good old-fashioned Kentucky Fried Chicken, with any deviations from the traditional being more in the direction of Extra Crispy than Extra Healthy," the judge said in his ruling.

Strine wrote that "the honeymoon period for Kentucky Grilled Chicken was short-lived." By the summer of 2009, sales had started to decline, he said. Franchisees became restless over what they saw as KFC's preoccupation with grilled chicken at the exclusion of its core fried chicken -- a mindset he said franchisees referred to as "grill, baby, grill."

He said KFC and its franchisees rely on each other, and each side would be foolish to ignore the other's proposals.

"The franchisees have a strong incentive to be good shepherds of the KFC brand," the judge said. "If the KFC brand is impaired, KFC franchiees stand to suffer as much as" the company.


Associated Press Writer Janet Cappiello Blake contributed to this report from Louisville.

Published: Wed, Feb 2, 2011


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