KFC Bermuda: Declining Sales & Profitability
Kentucky Fried Chicken (Bermuda) Limited has released the Chairman’s Letter to Shareholders, which says their “disappointing trend of declining sales and profitability” saw 2011 operating income decline by 44% from 2010 to the lowest level in many years, and full year net income down by approximately 28% year-over-year.
KFC said they “asked our senior managers to share in the financial pain of deteriorating results as their total compensation has declined,” and that as payroll costs account for approximately 50% of KFC’s total operating expenses, “lower employment costs will be a necessary ingredient in any recipe to stabilize and ultimately improve KFC’s financial performance.”
The full letter follows below:
Fiscal 2011 was a challenging year for Kentucky Fried Chicken (Bermuda) Limited (“KFC”) as the company was not immune to the difficult economic conditions which impacted Bermuda in 2010 and look to worsen in 2011.
In light of the uncertain economic and investment climate and challenges KFC has faced in the past year, together with additional challenges anticipated in the next year, the Board felt it appropriate to communicate preliminary year-end results to our shareholders together with our general outlook for the next year.
Preliminary unaudited results for KFC show a disappointing trend of declining sales and profitability. Fiscal 2011 sales of $5.032 million represent a decline of nearly 5% year over-year to the lowest level in 3 years.
Diligent expense control by our senior management team resulted in a year-over-year total expense reduction of better than 2%, notwithstanding a generally inflationary operating cost environment.
Strong expense control, however, was insufficient to overcome declining sales and as a consequence KFC saw 2011 operating income decline by 44% from 2010 to the lowest level in many years. While careful treasury management has allowed KFC to improve investment returns despite historically low interest rates, improved investment income was insufficient to overcome weak operating results.
Consequently, full year net income is down by approximately 28% year-over-year, representing a less than 6% return on shareholders’ equity.
This translates to anticipated per share income in the range of $0.27-$0.30 for the past year. While we are pleased that KFC has emerged from a difficult fiscal 2011 with some net profit and that we have avoided any forced staff reductions for our loyal team; clearly a trend of declining sales and profitability is neither sustainable nor provides an acceptable return to our shareholders.
During fiscal 2012 KFC faces the challenge of fundamentally restructuring its expense base to better fit new economic realities and stop the decline of operating profits.
To date, we have asked our senior managers to share in the financial pain of deteriorating results as their total compensation has declined in line with the fortunes of the company’s shareholders. We thank them for their enduring commitment to our business under difficult circumstances.
Total payroll related costs (inclusive of wages, taxes, and benefits) increased for the fifth consecutive year to $1.826 million and represented 50% of KFC’s total operating expense. Combined wage and payroll tax expenses increased by approximately $48,000 during the year.
It is clear that with staff employment expenses representing the largest contributor to KFC’s operating expenses, lower employment costs will be a necessary ingredient in any recipe to stabilize and ultimately improve KFC’s financial performance.
In the next year we will be asking all of our team members to work collaboratively with management to find operational efficiencies which allow us to trim further operating expenses while continuing to try to preserve jobs as we deliver the quality of service our customers expect.
The challenges ahead are by no means small, but neither are they insurmountable. We believe that through the determination of our stakeholders KFC can and will meet these challenges and emerge a stronger company that delivers excellent value to its customers, provides secure employment to its staff, and delivers fair returns to its investors.
KFC’s annual audit is due to commence shortly. In due course final audited accounts will be released following their completion.
Donald P. Lines, OBE, FCA, JP
Chairman
NO NOT KFC! I MISS IT SOOO MUCH AND THAT IS ONE OF THE FIRST THINGS I DO WHEN I GET HOME FROM UNI IS EAT THERE! THIS CANNOT HAPPEN TO ME!
I bet it a 21 piece bucket doesn’t cost nearly as much at your UNI KFC as it costs here! When I was at UNI and got my monthly stipend, I cudda hit up alla dem fast food joints on the strip in one night and only spend $20 for me and my gurl. Now days you can barely get a couple of 2 piece dinners for $20.
Well….when all you sell is chicken and you run out of chicken before you close…I wonder why you don’t make money
VERY VERY TRUE…OR WHEN YOU CHARGE 3 PIECE FOR 15 BUCKS..
Good, its pure junk. One of the reasons there are so many fat people here.
Or, and this is just an idea, is it because those fat people are eating too much and not exercising enough?
I, as mentioned, eat at KFC and I’m certainly not fat…
You may not be fat, but if you eat there, you certainly are not HEALTHY.
Really? In moderation, eating at KFC is unhealthy?
I think not. I think you may be speaking from a place of assumptions based on opinion.
Based on what I’ve read, it seems they’ve started using healthier oils, cut down on salt and have generally tried to “Healthy it up”…
But I guess the knee-jerk reaction is the best one, innit?
I agree with uncleelvis, too much of anything and your unhealthy. Do all things in Moderation.
Right on Riddumaker! Pure crap food.
A heart attack in a box waiting to happen.
@Riddumaker – haha too funny…and you think everything else in bermy’s HEALTHY food. get ova yaself bra. wat do we all eat on holidays: fried chicken, macaroni, potato salad, etc. de list goes on bra…
Maybe they should teach their staff to be courteous
I was sure the Colonel left gov’ment to come back with his bag of top secret spices…
While I, like most Bermudians, love the Dirty Bird, and applaud them for moving to creating a healthier product with a change of oils…
If they could create a meal that doesn’t make my stomach feel like someone beat me like I owed them money, I’d probably eat there more often.
lol UE yur jus getting on M8 !
you need a salad bar for lunch…a big one! and do some FISH like your chicken,,, no one sells good fish right in that area
it’s not that people are eating less chicken because they are health-conscious. it’s the fact that the place is always crowded with lines out of the door because the folks at the cashiers are too slow and the attitudes are atrocious. if KFC is serious about turning the company around, here are a few FREE suggestions:
1) establish a McDonald’s style of processing customers in less than 45 seconds
2) redesign the waiting area so that the customers who have paid and are waiting cannot be seen from the door ( just like disneyworld, once you get in the line it’s only then you realize there are a thousand people in front of you.)
3) hire people who already know how to smile, you can always teach them how to use the register, or pull the fries out of the deep-fryer.
4) hire more Senior High School Kids, College students- keep them off the streets, lower your employee costs, recruit them for upward management possibilities, and push and promote them to succeed in their academic studies.
5) following the above will provide a positive contribution for the whole community.
Amazing when a monopoly position with an international franchise isn’t tremendously profitable.
I guess the Oligarchy still don’t also have a monopoly on sound management prowess.
Another local example of not being able to get away from your past.
… or the reason could be as stated above. Operating costs in Bermuda, especially payroll related expenses, are significantly higher than elsewhere and its therefore much harder to make a decent return.
Care to elaborate on those accusations, Feeling High?
Oligarchy? Huh?
How is the downturn of sales of KFC, which could be related to many things, related to the past?
Is there ANYTHING you can elaborate on?
Sales down about 5%. Funny, Bermuda’s population has dipped by about the same in last year. And don’t blame “the recession”. You can thank term limits and Government xenophobia for that.
There are not many businesses I would wish to go under but KFC is one. I actually know of people who eat there because they think it is healthy – cos chicken is white meat.
Compared with other fast food franchises, KFC is about as bad as it gets. Every last thing on the menu containing chicken is more than 50% fat. Then you add fries etc etc.
Perhaps people are finally cluing in to how nutritionally bad the food is for you.
The world famous Big Mac is not nearly as bad for you as KFC. If you don;t believe me – look it up!
In economics, the law of demand tells us that the higher the price of a product, the less of it people would be prepared to purchase. May I suggest that KFC stop trying to make high profits off of a few sales and make profits through many sales by reducing their price. When KFC used the coupon special many sales were made, people want value for money—especially in today’s economic climate.
NB: Locally a case of chicken can cost around $110.00 and you can get about 75 pieces out of the case resulting in a cost of about $1.47 per piece. Also, like other franchises it is assumed that they purchase products from KFC distributors at reduced prices.
So conflicted here
I too like me some “Dirty Bird” from time to time.
-”Dirty Bird” thats so funny-
And at times, it does leave me tummy not feeling so well after eating it
I think the staff members are wonderful
But the service speed and long lines are what very often stop me at the door and send me to Mr Chicken where I can get a few tenders that taste a lot healthier.
The thing that its really bothering here is. I just hate to hear these big companies fuss about the millions they didnt make. Are you serious. Do not write a letter saying that your shareholders are upset because they didnt make as many millions as they did last year. That just seems rude some how.
Out side of all the other issues I have with KFC, I would still support them because there are Bermudians there making an honest living. But with this letter relating to the shareholders. I might just find my way up to Mr. Chicken more often.
Slightly offended.
During economic down times such as these, we shouldn’t be eating out at restaurants anyway. Pack a lunch people – a HEALTHY lunch. Think of the medical dollars we’ll all save if this island were to become less obese…less diabetes, less heart disease, less chronic pain in joints from hauling our huge butts around….
Take the stairs and eat a salad!
KFC should sponsor the miss big and beautiful contest! Boost your revenues right there!! Seriously though, we have a pageant that embraces unhealthy weight, no wonder health premiums go up yearly. We’re a nation of unhealthy eaters.
Cue job layoffs…..obvious way to go with payroll so high.
Surprisingly, during the economic downturn in the USA the fast food restaurants were the only places making a profit as people went for cheaper meals. Unfortunately for KFC in Bermuda, it costs as much to eat there as it does to eat out and a regular restaurant. I only ate at KFC about once a month, the service was slow, the cashiers had bad attitudes, the soda machine was always messy and then there was the grease. Hopefully this statement and the above ones will be read by the stakeholders so they can clean (degrease) house.
De KFC in Bermy is 10x better tasting den de ones in the United States. real talk. Betta not take my Round d’ World away make me vexed!!
Better than the UK as well
Lol…if by better, you mean worse, I wholeheartedly agree. With my experience, the majority I’ve been to in the US actually had people at the point of sale somewhat pleasant. Not to mention they had enough people working and processing orders in a reasonable manner during their busiest hours. Plus, the soda dispensers were clean and the prices were reasonable and provided value for your dollar.
The price alone with KFCs in the states make it better than Bermuda. Paying near $10 for a 2 piece combo is sheer craziness.
They need to change up their chicken nuggets, they taste the same as the ones on special coming from Market Place.
Bermuda’s KFC is crap, period. I went to the Azores last summer and brought a “Big Daddy” meal, it cost me about 8 euros (between BD$11 – 15). This meal had a sandwich (like the regular chicken sandwich you can order) which has a fried chicken breast (cant taste the grease at all), slices of ham, yes I said ham, fresh lettuce and tomato, packet of fries, a piece of chicken (wing, drumstick etc) and a free 10oz drink…now, let me tell you, this was the most healtiest KFC mean I ever had!!!!
The scary part about all this is, that is one of our most popular and crowded restaurants. If they are reporting losses imagine the other restaurants that are not doing so good. That cant be encouraging. Out here people survive on fast food because its cheaper during these times. I really hope we pull ourselves out of this world wide rut
I dont think much of the decline has to do with the economic down turn. It has a lot to do with people eating healthy. People are being smart about the things they eat, due to the amount of risk factors from eating meals from KFC and the like chains. KFC may have a delicious taste, but is it worth the risk to our health? Certainly not! & Although many believe fast foods are cheaper, often times they’re not! A 2 piece meal at KFC (bda) is about $8-9.00 each. For that $8-9.00 one can go to the grocery store and shop wise! I know bread it like $6 but that bread lasts much longer than a piece of chicken!
Eat smart!