News

KFC terminates franchise rights for noncompliance

March 17, 2011

KFC Corp. has pulled the franchise rights for Cleveland-based Morgan’s Foods Inc. The move affects 10 units in Ohio and western Pennsylvania.

Morgan’s owns 89 Yum! Brands restaurants in six states, including 69 KFCs, five Taco Bell units, 10 KFC/Taco Bell co-branded locations, three Taco Bell/Pizza Hut co-branded locations, one KFC/Pizza Hut co-branded location and one KFC/A&W co-branded restaurant.

According to CityBiz Real Estate the restaurants affected by the termination are located in Warren, Ashtabula and Youngstown, Ohio, and New Kensington, Rochester, Natrona Heights, Aliquippa, Waynesburg, Conneaut Lake and New Stanton, Pa.

The deal’s end stems from Morgan’s failure to comply with KFC’s image enhancement obligations.

Operations at the 10 affected locations are expected to cease this weekend. This includes a discontinuation of KFC trademarks and the elimination of any KFC branding from the stores’ interior and exterior, as well as the return of confidential material and operating manuals.

The two entities have been in negotiations since Nov. 10. Morgan’s sought financing to comply and submitted a proposal to KFC Corp. in January outlining its plans, which included image enhancements.

Morgan’s has since notified lenders of KFC’s termination and is working on refinancing efforts.

20 N.Y. KFC units up for auction

In the New York City market, about 20 KFC units are up for auction after their franchisee filed for Chapter 11 bankruptcy protection.

The restaurants are located in Queens, Brooklyn, Manhattan and Nassau County.

According to Crain’s New York, the auction winners will be announced in June. The units are expected to go quickly, as they’re still operating and have an average of 15 years on their leases.

The restaurants average 2,000 square feet.

Plainview, N.Y.-based David R. Maltz & Co. is selling the units, targeting both existing KFC operators and newcomers.

Former owners, Paul and Joseph Panzarella, filed for Chapter 11 protection last year after getting involved in a trademark dispute with KFC’s parent company. The litigation stemmed from their failure to pay the fees associated with their franchise agreement, which the Panzarellas attributed to the economy.