News You Can Use- January Part 1

KFC Remodeling Rules Lead to Restaurant Closures

Up to 400 KFC restaurants across the U.S. are expected to close over the next 17 months because they won't comply with a strict remodeling campaign ordered by the chain's parent company, Louisville-based Yum! Brands Inc. Most of KFC's 5,500 domestic stores have been updated under the chain's re-imaging project with changes including new awnings, chairs, bucket-shaped lighting and artwork featuring Kentucky Fried Chicken founder Harland Sanders. Franchisees must make the changes or close their restaurants by June 1, 2008. The deadline, which stems from a 1997 legal settlement, comes at a time when Yum is looking for ways to grow its U.S. fast-food businesses, which also include Taco Bell and Pizza Hut. Sales at KFC stores open at least a year are expected to be up only slightly in 2006, and its U.S. restaurant count has not grown substantially in four years.

Yum expects between 200 and 400 KFC restaurants to close as a result of the remodeling program. Franchisees agreed to the timeline for the upgrades about a decade ago as part of an effort to end a long-running dispute with PespiCo. which owned the chain before Yum. According to a KFC spokeswoman, about 70 percent of the chain's locations will be finished by the end of the year, leaving more than 1,600 to go. It is also possible that some of the closed KFC restaurants will be replaced by multibrand restaurants, which typically generate more revenue because they offer two fast-food concepts - such as KFC and a Taco Bell - in a single building. Yum is currently targeting about 500 small communities across North America for franchised multibrand stores. (The Courier-Journal, 12/11/2006)

Hotel Industry Predictions

Buyers are facing a tough negotiating climate with hoteliers this year but PricewaterhouseCoopers (PwC) last month reaffirmed its forecast that the momentum could soon be swinging back toward buyers. According to PwC, in 2008, supply growth finally should outpace demand growth. While it has hovered below 1 percent since 2004, PwC forecast that supply growth rate would be up to 1.9 percent in 2007 and to 2.4 percent in 2008. Daily room sales, meanwhile, will be down in the 2 percent range.

Hotels also will begin to see a slowing in the rapid growth of revenue per available room. RevPAR growth was at 8.5 percent in 2005 and is forecast at 8 percent in 2006 but it should drop by more than 2 percentage points in 2007 and even further in 2008. Demand growth has not been consistent across tiers either. The luxury, upscale and midprice without food and beverage account for most of the growth, while other tiers have largely remained flat. Additionally, the number of brands continued to grow this year as well, up to 210 in 2006 compared with 201 last year and only 81 in 1980. Eight of the nine new brands introduced this year were in higher-priced tiers. (Business Travel News, 12/14/2006)

Burger King to Expand in Japan

Burger King will open its first store in Tokyo some time during the first half of 2007. The expansion marks Burger King's first unit in Japan in five years. Two Japan-based firms, the Lotte Group and Revamp Corp., will be overseeing the fast-food chain's expansion into the country. Executives at Burger King believe that Japan presents significant opportunities for Burger King and is important to their international development strategy. In a recent presentation to investors, Burger King management highlighted Japan as a market with great growth potential and pointed out that competitor McDonald's has nearly 4,000 units there. Other Asian countries the company has targeted for growth are China, Malaysia and South Korea.

Worldwide, Burger King is planning to open more than 430 new restaurants next year, most of them in Asia and Europe. Management predicts year-over-year same-store sales growth of 1.1% in next year's first quarter in those regions. Overall, Miami-based Burger King operates just over 11,000 restaurants in the US and other countries. (Globest.com, 12/15/2006)

Corner Bakery Plans Growth Through Franchising

The current owners of Corner Bakery are hoping that a new franchise program will put the fast-casual eatery on a whole lot more corners. Since its sale by Dallas-based casual-dining giant Brinker International Inc. more than a year ago, Corner Bakery has launched a franchising program, refined a new prototype and added franchising and marketing muscle. These recent changes have proven successful as reflected in same store sales that are up 7% year-to-date. The company's revenue is expected to top the $200 million mark this year, up from $174 million in revenue in 2005.

The chain is on the verge of signing two multi-unit deals with high-caliber franchisees and hopes to be able to announce the completion of the franchise deals in the first quarter of next year. If that happens, the franchise units could be open by the end of 2007. Under the new ownership, Corner Bakery has introduced a new "point of sale" system, added coffee bars to all restaurants and revamped its ordering system. The chain also has unveiled a new 3,100-square foot to 3,600-square foot prototype that boasts darker woods, location-specific signage and murals that give a nod to local buildings and icons. The changes have boosted the bottom line with an average Corner Bakery generating close to $2.2 million in sales annually. (Dallas Business Journal, 12/25/2006)

Aaron Rents Adds to Franchised Stores

Aaron Rents Inc. has inked a deal with Alliance Rentals Centers LP to convert seven Alliance Rental stores to franchised Aaron Rents stores. The seven stores will join Aaron's franchise system and operate as Aaron's Sales and Lease Ownership stores. Atlanta-based Aaron Rents (NYSE-RNT) in turn will buy two of Alliance's other stores and merge them into existing company-operated Aaron's Sales & Lease Ownership stores. Alliance Rental also signed an area development agreement to open three more franchised Aaron's Sales & Lease Ownership stores in Texas over the next several years. Aaron Rents has more than 1,300 company-operated and franchised stores in 47 states and Canada that rent and sell residential and office furniture, accessories, consumer electronics and household appliances. The company also makes furniture, bedding, and accessories at 12 facilities in five states. (Atlanta Business Chronicle, 12/18/2006)

Shoney's Acquired

An Atlanta-based company that operates Church's Chicken restaurants is acquiring Shoney's Restaurants for an undisclosed amount. Royal Hospitality Corp., an affiliate of Royal Capital Corp., said it will take over all 282 Shoney's restaurants from Shoney's LLC, which is owned by an affiliate of Dallas-based Lone Star Funds. Best known for its breakfast bar, Shoney's has 282 locations in 18 states, 230 of which are owned by franchisees. Royal expects to complete the acquisition of the 52 company-owned Shoney's restaurants by the end of the month. The restaurants will continue to be called Shoney's and the chain's headquarters will remain in Nashville, Tenn. Royal is the largest franchisee of Church's Chicken with 112 restaurants located in Arizona, California and Texas. (Philly.com, 1/2/2007)