KFC Nassau Problem Detection Study Highlights Report August 2011

1. KFC Nassau Problem Detection StudyHighlights ReportAugust 2011

2. KFC Nassau wants to investigate the root of brand and business problems contributing to sustained declines in sales and transactions as well as declines in Brand Image Tracker key measures. • A Problem Detection Study was conducted among current and lapsed KFC customers in order to determine the key factors driving these declines BIT Key Opportunities: Awareness ,Product, Price Background

3. Key research objectives include: • Identify a hierarchy of problems for KFC in the areas of service, menu, product , asset, value, etc. among Current and Lapsed customers. • Determine opportunities for improvement in the absolute and versus competition. • Understand changing perceptions of the problems. • - Have the problems gotten worse recently? • Understand whether these problems are specific to KFC or are more general QSR/QSCR problems. • Profile lapsed/less frequent KFC customers on key issues vs. those who have at least maintained their KFC usage: • - Hierarchy of problems • - Demographics • - Psychographics • - Restaurant Behavior OBJECTIVES

4. Quantitative Problem Detection Study • WHO: 400 past 6 month KFC customers who eat fast food at least 4+ times/month. • 200 Current KFC customers: Visiting KFC at least as often as usual in past 3 months • 200 Lapsed KFC customers: Going less often/stopped going in past 3 months or planning to visit less often in next month. • WHAT: A 2-cell Problem Detection Study conducted via 28-min telephone interviews. A total of 42 potential problems were tested on rate of occurrence and degree of annoyance, as well as if the problem was getting better or worse at KFC as compared to other fast food locations. • WHEN: June 15, 2011 with The Research Group Limited, Nassau, Bahamas Methodology

5. Problem Scores were developed along 2 dimensions: • Incidence - % experiencing “occasionally,” “often,” or “always”* • Salience - % bothered “very much” or “extremely”* • Problem Score Indices were calculated to create a hierarchy per each target segment: • Lapsed Customers & Maintained Customers Example: Analytic overview *Among total respondents

6. The following analyses were conducted: • A Problem Score Index was created among Maintained KFC customers and Lapsed KFC customers to identify top problems for each. • Top Problems also had to occur among a high percentage of customers, in addition to having a high problem index. • 2. Problems were then prioritized as follows: • Top problems among both current and lapsed customers -- issues for total KFC customer base (“Top Priority” issues) • Top problems among lapsed KFC customers only -- additional key issues to address to reverse decline in visitation (Secondary issues) • Top problems among maintained customers only -- additional key issues to address to increase/maintain frequency of visitation (Tertiary issues) Analytic overview

7. KEY FINDINGS Top problem for KFC is price. • Overall prices are perceived to be too high, whether buying for yourself or buying for your family, and 40% say the problem is getting worse at KFC, 20% say price is worse at KFC than other QSRs. • There appears to be an unbalance in what consumers get vs. what they pay for, citing issues with portion sizes too small and problems with consistent product taste & quality. Health falls right behind price. • Health is another primary concern for KFC customers. They want healthier options available on the menu, also citing the food is too fattening and too greasy. Lapsed Users… • In addition to these problems, lapsed users add long line wait times, not enough side items, and no visible manager on duty to address issues as key problems associated with KFC. Maintained Users… • In addition to these problems, maintained users add that they find it very bothersome to often have mistakes made to their orders, getting the wrong order upon receipt.

8. KEY FINDINGS (cont’d) To Regain Lapsed Users... • Lapsed users say lower prices and healthier options could draw them back to KFC. • KFC may benefit by focusing targeted efforts to younger adults and Moms, key traits of Lapsed users. Visiting Less at KFC... • Among customers who are visiting KFC less often, most are substituting eating at home or visiting a different fast food location instead. • Wendy’s is the most commonly visited fast food alternative to KFC, attracted primarily because of lower prices and healthier choices. Problems with KFC Products… • Consumers site problems with KFC products tasting inconsistent from visit to visit – most commonly Original Recipe and Hot & Spicy chicken. • Over half of customers say that OR has not tasted good (too salty and too greasy), dry and 20% believe it has been undercooked. • 48% of customers say KFC does not offer the beverages they are looking for, and they want more beverage variety beyond sodas, primarily fruit juices, lemonade and iced tea. • In addition to these problems, maintained users add that they find it very bothersome to often have mistakes made to their orders, getting the wrong order upon receipt.

9. Priority of Problems

10. TOP PROBLEMS: PRIORITY PROBLEMS: Among Total Customers SECONDARY PROBLEMS: Among Lapsed Customers TERTIARY PROBLEMS: Among Maint’dCustomers • Food too expensive to buy for myself • Prices too high • Food to expensive to buy for group or family • Portion sizes too small. • Don’t have enough healthy selections available. • Chicken too greasy. • Mistakes made with order/delivery of order. • Taste or quality not consistent. • Food too fattening. • Lines too long to wait on. • Food too expensive to buy for myself. • Taste or quality not consistent. • Food too fattening. • Portion sized too small. • Food too expensive for group or family. • Prices too high. • Chicken too greasy. • Don’t offer special deals /discounts often. • Don’t have enough healthy selections. • No manager present or visible on site. • Lines too long to wait on. • Don’t have beverage variety I want. • Not enough side items/dishes. Prices too high. Food to expensive for me to buy for myself. Mistakes are made with order/delivery of order. Portion size is too small. Don’t have enough healthy selections. Food is fattening. Don’t have beverage variety I want. Food too expensive for group or family. Chicken too greasy. Don’t offer specials /discounts very often. Unique as top problem for that segment

11. PROBLEM SCORES:AMONG TOTAL LAPSED & MAINTAINED

12. PROBLEM SCORES:AMONG TOTAL LAPSED & MAINTAINED (CONT’D)

13. PROBLEM SCORES:UNIQUE TO LAPSED USERS

14. PROBLEM SCORES:UNIQUE TO LAPSED USERS (Cont’d)

15. PROBLEM SCORES:UNIQUE TO MAINTAINED USERS

16. PROBLEM SCORES:UNIQUE TO MAINTAINED USERS (Cont’d)

17. Top Problems Reported as Worse at KFC vs. other QSRs SUMMARY: DEGREE OF TOP PROBLEMS Top Problems Reported as Getting WORSE: TOTAL Food is too expensive when buying for a group /family(-0.40) Prices too high ((-0.37) Prices too high when buying for self (-0.32) LAPSED Food too expensive when buying for a group/family (-0.48) Food too expensive when buying for self (-0.40) Prices too high (-0.35) MAINTAINED Prices too high (-0.36) Food too expensive when buying for a group/family (-0.31) TOTAL Food is too expensive when buying for self (-0.15) Food is too expensive when buying for a group/family (-0.14) Prices are too high (-0.12) LAPSED Food is too expensive when buying for self (-0.26) Prices are too high (-0.21) Food is too expensive when buying for a group/family (-0.21) MAINTAINED Menu board is too confusing (-0.20) Food is not served hot (-0.13) Food to expensive when buying for a group/family (-0.06)

18. DEGREE OF PROBLEMS

19. DEGREE OF PROBLEMS (CONT’D)

20. DEGREE OF PROBLEMS (CONT’D)

21. CUSTOMER DEMOGRAPHICPROFILES • Lapsed Customers Most Likely To Be: • Younger(35% are 16-24) • Female • 3-person HH with kids • College Educated • Working • Low to Mid-Income • Maintained Customers Most Likely To Be: • Middle-aged • Slightly more male • 3-person HH with kids • College Educated • Working • Low & Higher Income

22. Supplemental: Product and Visits

23. MOTIVATION FOR REVISIT INTENT Healthier Choices & Lower Prices are mentioned most often as reasons to revisit KFC. Lapsed users say a Variety of Food and Less Greasy Food will help to bring them back. You mentioned earlier that you've eaten food from KFC before, but not as much in the recent past, or you expect to eat there less often in the near future. What could KFC do that would make you want to go there more often?

24. KFC REPLACEMENT DESTINATIONS Most customers mention trading out KFC visits to eat at home or from other fast food restaurants instead. You said you have been, or expect you will soon be eating less often at KFC. Where have you been eating more often instead, or where do you expect you will be eating more often?

25. FAST FOOD REPLACEMENTS Among Lapsed Users leaving KFC for another fast food location, Wendy’s is the primary destination, followed by Burger King. Which fast food restaurants or local street stands or food kiosks do you expect to be eating more from instead of KFC?

26. REASONS FOR REPLACEMENT CHOICE …And the reasons for choosing another place instead of KFC are most commonly because of Price and Healthier Choices.

27. PRODUCT INCONSISTENCIES Across both segments, the most inconsistent products were Original Recipe Chicken & Hot & Spicy Chicken. Lapsed Users found EC Chicken & Biscuits to be more inconsistent than Maintained Users. You mentioned earlier that the food at KFC sometimes is not consistent visit-to-visit or store-to-store. Which items, if any, have you found to be inconsistent recently?

28. TASTE INCONSITENCIES Half of all customers said Original Recipe Chicken has not tasted good recently at KFC. Lapsed Users more likely to include BBQ Wings as not tasting good. You mentioned that the chicken at KFC doesn’t taste good sometimes at KFC, if any, have you had recently at KFC that you felt didn’t taste good?

29. CAUSES OF POOR TASTING PRODUCTS Original Recipe One in four customers say that Original Recipe Chicken was too salty and too greasy. Maintained customers complain that it was too dry. Also concerning is that almost 20% believe the chicken is undercooked. What was the problem with the Original Recipe Chicken you have had AT KFC recently, why didn't it taste good?

30. CAUSES OF POOR TASTING PRODUCTS Biscuits Half of Lapsed users say Biscuits were hard and dry. What was the problem with the Biscuits you have had there recently, why didn't they taste good?

31. CAUSES OF POOR TASTING PRODUCTS Cole Slaw All users report problems with the Cole Slaw tasting old, followed by a strange or unfamiliar taste. . What was the problem with the Cole Slaw you have had there recently, why didn't it taste good?

32. CAUSES OF POOR TASTING PRODUCTS Fries With fries, the primary problem was cold fries. Lapsed users were more likely to cite too greasy as another problem with fries. What was the problem with the Fries you have had there recently, why didn't they taste good?

33. BEVERAGE VARIETY 48% of customers said KFC does not have the beverage variety they are looking for. Among those, they most want to have fruit juices, lemonade, and iced tea. You mentioned you are not pleased with the variety of beverages offered at KFC. What types of beverages would you like to have offered at KFC?