What’s the secret recipe for Kentucky Fried Chicken’s success? According to Steve Early, vice president of franchise administration for KFC, it’s more than just a recognizable brand name or a finger-lickin’ good product.

“You’ve gotta have a gimmick – something that’s different from everyone else’s,” Early told an audience of Wharton students during a speech last month. “Otherwise, you will invite the competition and get into a price war.”

For KFC, the unique concept starts with its red and white striped restaurants and continues with the face of its legendary founder Colonel Sanders – the nation’s eighth most-used trademark – that’s plastered on everything from eight-foot billboards to eight-piece buckets.

But, Early explains, the fast-food chain’s recipe featuring “eleven herbs and spices” is “the mainstay of the KFC system.” In fact, it’s such an important trade secret that the company keeps it under lock-and-key in a safe – able to be accessed by just two corporate executives (who both must sign strict confidentiality agreements) – just to ensure it doesn’t get out. “We have a lot of folks who love this stuff, and we love them to eat it,” he says. “We cook birds and make $225 million per year” in revenues.

After earning both advanced business and law degrees, Early practiced as an attorney in Texas for five years before leaving his firm for a corporate job at KFC. Since then, he has climbed the corporate ranks, spending seven years as the fried-chicken franchise’s lead general counsel before eventually landing his current post as head of KFC national franchising operations.

KFC is America’s largest chicken chain and a subsidiary of the Tricon Global Restaurants, a Louisville, KY-based, fast-food holding company. Tricon Global also owns Pizza Hut and Taco Bell and recently acquired the Long John Silvers and A&W All-American Food Restaurant. It innovated the concept of co-branding, and now frequently combines several of the franchises in a single store in order to offer consumers more dining options. Indeed, the co-branding strategy has helped bolster the company’s bottom line even as competition intensifies and sales growth slows across the entire fast-food industry. On April 8, Tricon reported that it expects sales in its U.S. restaurants open at least a year to rise a minimum of 2% this year. In addition, the company announced plans to open 1,400 new restaurants, which will make it the world’s largest retail restaurant operator with more than 32,000 outlets worldwide, according to news reports. 

Despite the nationwide trend toward healthier foods and low calorie alternatives, Early contends that Americans still crave their fried chicken. In the early 1990s, the company officially changed its name from Kentucky Fried Chicken to KFC in an attempt to “disguise” the word “fried” – which Early jokingly contends is considered a four-letter word by many consumers.

And while the company rolled out new and more health-conscious products – such as the Colonel’s Rotisserie Gold chicken – to complement the chain’s  new name, most KFC customers still wanted the Colonel’s deep-fried original. “American’s talk the talk, but don’t walk the walk when it comes to health foods,” Early says. “We talk about fat grams, and then we go out and order the hot fudge sundae because it tastes good. For some, fried chicken is the hot fudge sundae.”

With more than 10,800 KFC outlets worldwide – and nearly half of them located in the United States – the company gives Americans plenty of opportunities to buy that six-piece bucket of extra crispy. Or better yet, buy the entire store – literally – by becoming the owner of a KFC franchise.

Although the company previously owned and operated roughly 40% of all KFC franchises, Early says that KFC tried to streamline its operations about 10 years ago, and began selling off some of its lower performing stores to private operators. Today, KFC owns just 20% of its U.S. outlets. The remaining 80%, or about 4,200 stores, are independently operated franchises.

With typical KFC stores providing investment returns of 15-18%, Early believes operating a franchise can be an excellent way for entrepreneurs to get their feet wet in the fast-food industry. The contractual relationship, he explains, is typically long-lasting (sometimes 20 years or more) and is “mutually beneficial” to both the franchisor and franchisee.

For the franchisor, it allows an enterprising restaurateur to grow his business quickly without putting up a great deal of his own capital. Instead, the franchisor charges a licensing fee to a local entrepreneur and typically receives royalties for the sale of the trademarked product. Col. Sanders, for example, rapidly built his fast-food empire by charging franchisees a nominal fee for the franchise rights as well as collecting royalties of about a nickel for each chicken sold.

Though the concept is the same, today those KFC franchising licenses cost roughly $25,000 in addition to a roughly $1 million investment in the actual business. And that’s doesn’t include the 9-12% royalties the national chain collects on all franchise sales. “You have to sell a lot of a lot dead birds to make up that money,” Early quips.

The benefits for successful franchise owners can be substantial, Early claims. Besides the promise of high economic returns, by signing the franchising agreement, independent KFC owners obtain the rights to sell a name-brand product that consumers already desire. Moreover, franchisees can tap into the market research, new product and business development expertise of the parent company, and more importantly, KFC’s hefty national advertising budgets.

Although on the small side by fast-food industry advertising standards, Early estimates that KFC spends roughly $70-$80 million each year on ad campaigns, a figure that doesn’t include the amount spent by KFC regional advertising alliances and independent outlets.

However, there are some tradeoffs. By definition, franchise operators lose some independence and flexibility when they take on the corporate name. For example, all KFC franchise owners must adhere to strict corporate standards – outlined in a franchising agreement some 25 pages thick – to ensure that KFC’s restaurants are consistently clean, open, and offer a high-quality product. Moreover, managing the relationship with the bosses at corporate headquarters – frequently located hundreds of miles away – can be taxing and sometimes even litigious. Legal tussles between franchise operators and the national chain over a lack of advertising spending and other types of support have been widely reported. But Early contends that lawsuits are not the norm, and that the pros of franchise ownership greatly outweigh the cons.

Still, there is at least one “Colonel of truth” that cannot be disputed. Old man Sanders would surely agree that managing a fast-food franchise is hard work, plain and simple.