Costa Mesa-based El Pollo Loco Inc. is in a turf war with KFC Corp.
KFC is going after diners with a new spice-rubbed grilled chicken as the down economy and an increasing focus on healthy eating have leached away market share for the chain best known for fried chicken.
That doesn’t sit well with El Pollo Loco, which has been a leader in fast-food grilled chicken for years.
“Just the notion of KFC getting any more of a foothold in the market is something that El Pollo isn’t going stand for and (will) try everything to thwart it,” said Mike Weisman, president of Santa Ana-based DGWB Advertising & Communications, which handles KFC’s South-ern California advertising.
Both chains staged marketing stunts last week, plying any customer who walked through their doors with free food.
KFC, part of Louisville, Ky.-based Yum Brands Inc.,also the parent company of Irvine-based Taco Bell Corp.,drew attention to its grilled chicken with its “Un-Fry” Day, part of its latest marketing campaign.
“KFC has had this grilled thing planned for quite a long time,” Weisman said.
The company began testing the grilled chicken in San Diego and five other markets last year.
As part of the promotion, the industry’s largest chicken restaurant chain gave away one piece of its grilled-style chicken (the chicken is actually cooked in a special oven) at its more than 5,300 U.S. restaurants. The company estimates it gave away nearly 4.5 million pieces of chicken.
The next day, El Pollo Loco, which also cooks its chicken in an oven but then finishes it over an open flame, fired back with its own national campaign. It gave away two pieces of chicken, tortillas and salsa at its 400-plus restaurants for 1.1 million pieces total.
“We are just out there protecting our turf,” said Mark Hardison, vice president of marketing at El Pollo Loco.
El Pollo has restaurants primarily in California,there are nearly 50 here,with others in Arizona, Colorado, Connecticut, Georgia, Illinois, Massachusetts, Nevada, New Jersey, Oregon, Texas, Utah, Virginia and Washington.
Both companies ran new television commercials with their respective chiefs touting their respective grilled chicken.
It’s become a “CEO to CEO” challenge, Hardison said.
“We’ve been very proactive in communicating this campaign as a competitive threat to our markets and market share,” he said. “The CEO of KFC on camera showed you how much weight has been put behind this grilled chicken introduction.”
In reality, the battle for both companies is about keeping customers as the chicken business has been strained by consumers cutting back on eating out during the recession.
“We started the year off a bit more challenged than we expected with the economy really affecting the number of consumers visiting us,” Hardison said.
El Pollo Loco reported revenue of $299 million last year, up 7% from a year earlier. Excluding one-time charges, the chain made $1.3 million, compared to a loss of nearly $1 million a year earlier.
Still, same-store sales for the chain were flat and are beginning to reflect the difficult economic environment and intense competition.
El Pollo Loco hasn’t reported first-quarter earnings yet. The company is privately owned
by New York-based Trimaran Capital Partners but reports results for the benefit of debt holders.
Yum Brands, KFC’s parent company, report-ed revenue growth of 7% last year as it opened KFC and Pizza Hut restaurants inter-nationally.
But first-quarter profit fell 14% as sales declined at its U.S. Pizza Hut and KFC restaurants.
First-quarter revenue fell 8% to $2.2 billion from $2.4 billion from a year earlier as U.S. same-store sales fell 2%.
“They do fried chicken very well, but it’s a shrinking market, especially in Califor-nia,” Hardison said.
KFC is deeply investing in the new oven designed to cook its grilled-style chicken. The oven is expected to cost each restaurant about $20,000.
“This is not a limited time offer,” Weisman said. “They are investing in ovens and the infrastructure, so KFC is serious about it staying.”
There have been rumors about an official taste test between the two companies, but nothing has been set yet.
“This chicken war is interesting because it shows you how competitive the marketplace is, especially now, and how difficult this business is,” Weisman said.