Yum! Brands Inc. Franchises Big Multibrand Move Targets Small Communities

BROWNSTOWN, INDIANA (Monday, January 08, 2007) - If you're looking for fast food in this Jackson County town, most of your options are visible from the front steps of the courthouse on Main Street.

There's a McDonald's a few blocks to the north, a Dairy Queen to the south, and a couple of pizza places and a Subway in between.

Louisville-based Yum! Brands Inc. wants to change that by building a combination KFC-Taco Bell restaurant here -- and in nearly 500 small communities across the nation. Along with Brownstown, there are 30 other places in Indiana and Kentucky on the list, as well as out-of-the-way locations from North Pole, Alaska, to Keystone, Fla.

Creating more multibrand stores -- two restaurants under one roof -- is one of Yum's core strategies for boosting its U.S. business.

And although the company faces criticism over nutrition and animal-rights issues, many folks in the Brownstown area, about 40 miles northwest of Louisville, seem to want it to march into rural America.

"A Taco Bell up here would make a killing," said Andrew Ault, a recent graduate of nearby Medora High School. "McDonald's gets old after awhile."

Angie Lawburgh, head of the Brownstown Chamber of Commerce, said many residents drive 10 miles to Seymour for movies, shopping or dining out.

If a franchisee is able to build a multibrand restaurant, Lawburgh, a mother of four, said it might give young people another option for part-time jobs and encourage residents to spend more of their money in Brownstown.

Andy Ball, Louisville-area operations manager for McDonald's, said the Yum campaign in rural areas might give people more choices and acknowledged that KFC and Taco Bell will be encroaching on McDonald's turf.

"Every competitor is fighting for market share," he said.

A good strategy
Yum has more than 3,000 multibrand restaurants globally, and it requires new franchisees to have a net worth of at least $1 million, with $360,000 in liquid assets.

In a video on the company's Web site, Scott Haner, vice president of franchise development, tells potential investors that more than 300 of Yum's KFC-Taco Bell multibrand stores are in markets with fewer than 15,000 residents.

Wayne P. Jones, a University of Louisville professor who teaches classes in franchising, called Yum's campaign "a great strategy theoretically."

Real estate, labor and advertising costs in rural areas are generally cheaper than in urban settings, he said, and since the new locations would be franchisee-owned, the investors assume much of the financial risk.

Jones, a former KFC executive, said Yum's new multibrand stores have a better chance of competing against established chains such as McDonald's because they offer more than one style of food.

Terry Rogers, a longtime franchisee based in Bowling Green, Ky., said those extra menu choices were one of the main reasons he recently decided to convert a KFC into a multibrand restaurant in Cadiz. Rogers already owns multibrand restaurants in Waverly, Tenn., and at Fort Campbell.

Cadiz is in Trigg County, near the Tennessee border in Western Kentucky. Census figures show the city had a population of 2,550 last year -- 500 fewer than Brownstown.

Although a multibrand store costs more to build than a restaurant with a single menu, Rogers said the investment in Cadiz makes sense because it is such a small market.

The KFC will appeal to families looking for take-home chicken dinners, he said, and Taco Bell will tap a separate group of young adults and customers on a budget.

The restaurant, scheduled to open by the end of the year, is creating a buzz.

"We get people coming in every day wanting to know when it's going to be there," Rogers said earlier this month. "In a small town where you have to travel a fair distance, it's a pretty big event."

Some opposition
In Brownstown, not everyone is thrilled by the idea of a new fast-food brand.

Bessie Stokes, who owns Bessie's Home Cooking across from the courthouse, said her small diner competes with McDonald's and other existing restaurants.

"I don't think we need it," Stokes said of the possible Yum Brands franchise. "Every time you turn around and put in another fast-food place, it just hurts the small businesses."

On a recent afternoon, Stokes scurried about the diner's cramped kitchen filling lunch orders. The smell of smoked sausage -- the day's special -- wafted into the dining room, where customers, most of them older women, chatted quietly over the soft clink of silverware.

Jaline Spurgeon, a loyal fan of Bessie's Home Cooking, said the town's restaurant options have expanded since she moved back to Brownstown four years ago. But after spending three decades as a teacher in Fort Myers, Fla., Spurgeon said she misses the variety available in larger cities.

A friend, Eleanor Morgan, said it would be nice if her teenage granddaughter didn't have to go all the way to Seymour for a part-time job. As she sipped a cup of coffee in the diner, Morgan, a retired nurse, said she would continue to eat at Bessie's regardless of how many new restaurants arrive.

Having a KFC and Taco Bell would simply lead to better variety, Morgan said, because the options now are slim: "It's pizza, pizza, Subway and McDonald's."

*This article was written by Alex Davis of the The Courier-Journal. It appeared in the December 27, 2006 online edition of the IFA SmarBrief.

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