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50 years later: The tale of the KFC business deal

By Beverly Fortune Lexington Herald-Leader

In 1964, former Gov. John Y. Brown Jr. and a group of investors paid $2 million to Kentucky Fried Chicken's Col. Harland Sanders for his legendary chicken business and his secret recipe of 11 herbs and spices.

Today, KFC, owned by Louisville-based Yum Brands, serves more than 12 million customers each day in more than 115 countries and territories around the world. KFC operates more than 17,000 restaurants in the United States and internationally.

Recently, Brown and others reminisced about how Brown and the Colonel got to know each other 50 years ago - "The Colonel was the real deal, as authentic as they come," Brown said - and how the fried chicken business grew into a worldwide phenomenon.

 

Gas station chicken

Sanders had a sixth-grade education and was close to retirement age when he put on a white suit, called himself "colonel" and drove around the country in his 10-year-old Cadillac, selling his fried chicken recipe.

He had begun cooking the chicken years earlier at the filling station he owned in Corbin to feed the hungry travelers who stopped for gas. Eventually, more and more people stopped for chicken and not just gasoline, and Sanders moved his fried chicken business across the street. In 1955, he began offering others the opportunity to sell his chicken at their restaurants.

The Colonel was the polite Southern gentleman in public, but in the kitchen, "it was a different story," said Lou Karibo, director of international training, whose job was to go into the kitchen and teach restaurant owners how to fry chicken and make gravy the Colonel's way.

"This early core of restaurants were owned by people who were already restaurateurs. Things weren't really standardized. They might think their gravy was better than the Colonel's," Karibo said. "He would raise hell about them not following his recipes."

The Colonel had one way of doing things and wanted everything done that way, Karibo said.

 

Brown and

the Colonel

Everyone in the franchise family not only loved the Colonel, but feared him, Brown said.

"When he walked into a convention hall, everybody stopped what they were doing. It was like the Second Coming."

Brown became involved with Kentucky Fried Chicken after the Colonel saw Brown on television and asked him to be his lawyer. At the time, Brown was working for gubernatorial hopeful Ned Breathitt.

"I didn't call him back for six months," Brown said.

When Brown, who was 28 at the time, finally contacted Sanders, "The Colonel took me upstairs and showed me the checks - $150, $180, $200, some were $300 - he was getting every month," Brown said.

The Colonel had sold licenses - they weren't called franchises back then - to 600 restaurants to sell his chicken. By the early 1960s, the Colonel was feeling overwhelmed with the work and bored, Brown said. He wanted to sell.

And after the Colonel served Brown some of his chicken, pressured-fried to keep grease out and the juices in, Brown was sold, too.

"I had never seen such a beautiful potential business," Brown said.

The deal was signed in Salt Lake City, because the Colonel wanted the approval of Pete Harman, a restaurant owner who bought the first license from the Colonel in 1952.

"If Pete approved, we had a deal," Brown said.

Brown went back to his hotel room and wrote a contract on a yellow legal pad.

"At 6 a.m., we met downstairs for breakfast. The Colonel signed. I gave him a check for $50,000," Brown said.

Jack Massey, a retired venture capitalist and entrepreneur from Nashville, put up most of the $50,000 and became a silent partner. He and Brown agreed to pay Sanders $2 million over six years.

 

Promoting chicken

The company did not have an advertising budget, so to promote Kentucky Fried Chicken, Brown spent the first year getting Sanders on television. The Colonel appeared on popular shows including "I've Got a Secret" and "What's My Line?" On "The Tonight Show Starring Johnny Carson," Sanders pushed $2 million in cash out on stage in a plastic cage, accompanied by a cadre of security guards.

"Every time we got him on television, franchise sales jumped 10 percent or more," Brown said. "He was a great showman."

Running a company was a new experience for Brown, who had paid his way through the University of Kentucky and later UK law school by selling encyclopedias door to door.

Brown had never read a balance sheet or analyzed a profit-and-loss statement. But looking at sales figures that first year, he saw that some of the 600 restaurants did 30 percent to 40 percent business in chicken sales.

"These were full-service restaurants that had Kentucky Fried Chicken as a featured item on the menu," said Graydon Webb, in Columbus, Ohio, whose father owned four restaurants that sold Kentucky Fried Chicken starting in the early 1950s.

That sparked an idea to have restaurants that only sold Kentucky Fried Chicken and to serve it as carry-out.

"The take-out concept came along in the mid-1960s," Webb said. "But a restaurant that only did carry-out and only sold chicken was a new concept. It was a concept Kentucky Fried Chicken perfected."

Brown wrote a franchise agreement that each of the original 600 restaurants signed, agreeing to convert to selling only Kentucky Fried Chicken as carry-out.

Without having to answer to stockholders, "We were free to try all kinds of different ideas," Brown said. "We put chicken in a bucket and called it 'finger lickin' good.' We probably wouldn't have done that if we'd had professionals doing a marketing strategy."

A franchisee in Memphis, L.S. Hartvog, came up with the idea of the red-and-white color scheme and topping the roof of each restaurant with a cupola. Together with the Colonel's picture prominently displayed, the company had its image.

"Kentucky Fried Chicken created a whole new section of fast food for chicken," Brown said. "It sold chicken dinners to take home and put on the family dinner table. No other restaurant chain was doing that."

The one person Brown said he listened to more than anybody else during this time was the Colonel.

"I had real affection for him, and I admired him," Brown said. "He knew his concept and he didn't want it fooled with. He had a passion for it - you dare not change it."

 

KFC goes public

Late in 1966, Kentucky Fried Chicken went public.

"Early stock offerings that sold for $15 shot up to $300. It was the hottest stock on Wall Street," Brown said.

Taking Kentucky Fried Chicken public made many employees rich. By the early 1970s, Brown had 19 millionaires reporting to him.

"I couldn't get them to do anything - they were concerned with their yachts, their second houses, taking a vacation," he said.

Brown began hiring people with corporate backgrounds.

"Their résumés looked great, but corporate managers are afraid to make mistakes. They had internal politics that we didn't have. I didn't like it," Brown said.

In 1971, Brown sold KFC to Heublein Inc. for $285 million.

Brown went on to own the Boston Celtics, marry former Miss America Phyllis George and run for governor, winning by a landslide. He served from 1979 to 1983.

As for the Colonel, after he sold Kentucky Fried Chicken, he opened The Colonel's Lady restaurant in Shelbyville. When he tried to open a second one, Heublein sued. He countersued. It was about that time that the Colonel was widely quoted as saying Kentucky Fried Chicken gravy tasted like wallpaper paste. Heublein stopped using his picture in commercials.

Brown brokered a peace: Heublein paid the Colonel "a couple hundred thousand dollars a year over the next few years, $2 million in all," Brown said. "They put him back in the ads and life went on."

Sanders died in 1980.

Brown stayed in the restaurant-franchising business, franchising a string of restaurants including Ollie's Trolley, Kenny Rogers Roasters, H. Salt Fish & Chips, and several steakhouses.

"He's an idea man," Karibo said. "I never could get him in the kitchen to fry Kentucky Fried Chicken. He has an aptitude for selling."

In recent years, Brown, who lives in Lexington, has worked for Alltech, an animal nutrition firm based in Nicholasville, traveling internationally to talk to major restaurant chains' CEOs about the public's growing demand for healthier food, in particular meat and chicken grown without hormones and antibiotics.

In 2009, Harvard Business School honored Brown as one of the top American business leaders in the 20th century. He was included with business heavyweights Ray Kroc, who started McDonald's; Sam Walton of Wal-Mart; Walt Disney; and Microsoft's Bill Gates.

On receiving the award, Brown said, "I'm relevant again."

At 80, Brown refuses to talk about age.

"I haven't had a birthday since I was 50," he said, and he's always looking to the future.

"You never quit," he said.

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