Franchisees Wrest Marketing Power From KFC

(CN) - Kentucky Fried Chicken franchise owners have more rights than the parent company over the chain's national advertising strategy, the Delaware Chancery Court ruled.

The KFC National Council and Advertising Cooperative (NCAC) is the franchisee-controlled advertising arm of the company, which is as famous for founder Colonel Sanders as it is for its "finger lickin' good" recipe.

A dispute over ad strategy began after Roger Eaton took over as president of KFC Corp. in 2008. He led an effort to streamline the NCAC's subcommittees, and he also led the introduction of Kentucky Grilled Chicken as a healthier option to complement the company's traditional fried chicken.

Grilled chicken was successful at first, but franchisees later worried that too much buzz would hurt consumer demand for fried chicken.

The parties could not work things out, and NCAC filed the lawsuit.

After considering the evidence and the certificate that established the NCAC, Vice Chancellor Leo Strine Jr. ruled on Jan. 31 that authority over ad strategy lies with the NCAC.

Franchisees also far outnumber corporate representatives on the NCAC's 17-member board of directors, since only four are appointed by KFCC.

"Here, both the language of the certificate and the parol evidence incline in the franchisees' favor, and KFCC seeks an interpretation that would deny the NCAC the typical authority belonging to a corporate board," Strine wrote. "As a result, I will enter a declaratory judgment in favor of the NCAC as the franchsees seek."

KFCC may still turn down ads that are not consistent with the company's brand image, the chancellor added.

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