Q&A … With Michael Kulp

Q: You all soared past $1 billion in revenues last year; was that ever really one of your leadership goals? 
A: It really hasn’t been, and it’s funny you ask because we talk a lot internally about that, primarily because we’re an acquisition-based business. We set organizational goals and do try to beat prior year revenue with organic growth, but it’s primarily through acquisitions that we grow, which is why we don’t like to focus on a revenue number as a goal. Setting any number, whether it’s a billion or $2 billion, or even when we were smaller, $500 million, was a bit dangerous for us because it could have pushed us to acquire businesses or grow for the sake of trying to accomplish a number, instead of keeping our focus on strategic growth and growing the right way. We’ve been really disciplined about doing that right over the years.

Q: What does that discipline look like?
A: One challenge many companies face as they grow is going through with an acquisition that doesn’t go well. Our view is that this often occurs because it was not the right acquisition for them. That could mean it was the wrong geography, or geography without the density you need to provide the right leadership and oversight. The fixed costs may be too great to overcome, or there are things that are too great to control when you’ve acquired. It can be as simple as not having done your diligence on existing earnings or the macro environment of the acquisition. For us, there’s a very clear lens we look through with key criteria that has to be met for us to move forward on it. That often means saying no to 10-12 deals before we say yes to one. 

Q: From the looks of your growth arc, you’re making the right acquisition calls.
A: We’ve been extremely fortunate. We’ve done north of 80 acquisitions, and I can count on less than one hand how many haven’t gone pretty much as planned, and none has been a complete disaster. The primary reason is, we try to stay very thoughtful about our investment in talent and infrastructure. We look at the leader-to-restaurant ratio, and we’re wildly below the industry standard, which is why we are able to scale at the pace we did and why we are able to sustain that pace. We haven’t stretched those infrastructure investments post-acquisition to get more efficient. We have really great talent, and we’ve done things with less span of control than we see in our industry. 

Q: Let’s look at some of the challenges in scaling to your level, starting with company culture.
A: We’re north of 20,000 employees now  and running a large organization. This is an area that I focus on the most, personally. We have worked very hard to create a unique culture inside our business and industry. I firmly believe that all the key leaders are here in large part because of that culture, and they have helped us to evolve substantially over the years. 

Q: How so?
A: One of the things we’ve recently done, in what could become a melting pot otherwise, is trying to amplify our culture, core values, our purpose in the business, and why we exist. We communicate those broadly, so we don’t need leaders who have to be around for a decade to understand and magnify that message. That’s a starting point. Second, culturally, we expect a lot of our people, but on the flip side, we work hard to give a lot back. The way we celebrate, the way we incentivize and pay, we know that’s critical, and want them to be unique. I firmly believe in putting our money where our mouth is, while representing the values we have in our organization, and moving people’s lives forward. Has that evolved over the course of our growth? Yes. Has it meant smarter use of technology? Yes. But we work hard not to have too much evolution culturally.

Q: How has scaling altered operating processes?
A: Our structure has allowed us to execute against our purpose and values. One thing we’re very careful of is not pulling levers from the corporate location. It’s much easier to run a restaurant company than to run a restaurant. So making sure decisions to run the restaurant are coming from those who run those restaurants is critical. We feel like we’ve built a good mousetrap with those who work inside restaurants, but flip side, we have evolved a lot in terms of how we make decisions, how we elevate the voice inside each location, because it becomes a lot more difficult with 1,000 locations than it was with 150.

Q: On the talent and retention challenge, especially in this sector?
A: The biggest differentiation factor we’ve always talked about in terms of non-cultural attributes is our growth. We talk all the time about the opportunities at KBP for people to grow personally, professionally, or financially come faster with our organization than with others. Every time we grow, we need more talent, and that growth creates opportunities and upward mobility. Focusing on the development of those high potentials, we have a system to build opportunities for them to grow quickly, showing that we’re committed to moving people forward. That speaks volumes to potential talent who may be looking externally; they’ve watched the upward trajectory and the pace of growth and see that upward trajectory.

Q: How does your growth alter the map for expansion? Are there still opportunities for acquisition?
A: There are plenty. We’re in 31 states today; we have three brands today (KFC, Taco Bell, and Arby’s). To the extent we find ourselves in a situation where we aren’t seeing great opportunities for growth in those brands, we might consider pulling back, but I don’t see that as a near-term issue. Constant succession scenarios lead to constant M&A opportunities in quick service and in each of the brands. We see plenty of deal flow; 2022 was probably the slowest year in deal activity in the last decade. It was also a year in which we saw the most difficult operating environment in our history. Inflation is absolutely rampant; in our business, it is at three times higher than we have ever seen. This has caused a slowdown in acquiring and selling because earnings are in a tough spot across the industry.

Q: How has scaling altered your capital-formation strategies?
A: We’ve been really blessed on that front. We’ve had a fantastic partnership with a series of banks for a good long period, and they are great partners. We have a fantastic partnership with a family in Chicago, and we have about 45 shareholders inside our organization with the management team with ownership stakes. That strong, long-term capital structure not only helped us get where we are today but will continue to help us grow the business.

Q: Will there be a point where expansion into additional brands is part of the growth plan?
A: Possibly, but we have a lot of runway in particular with Taco Bell and Arby’s brands. We see a lot of potential scaling in the coming years. Not that the same isn’t true with KFC, but we’re already scaled there, and once we return to normal macroeconomics, I think in the near term the growth will be in the other two businesses. 

Q: Why have so few companies seized on growth opportunities in this space the way KBP has?
A: The key in our mind is to stay focused on good brands, keeping the underlying business financially healthy, and retaining our great people, not just today, but with the capability to grow. The thing I consistently see in this industry is that people are ready for the now but not for tomorrow—they are not in brands strategically chosen to scale. I’ve always said, in this industry, if you’re not growing, you’re dying. In order to attract people to the business, you have to provide upward mobility in their careers. We’ve built a business foundation with all this growth, and that’s what it takes to keep people excited about coming to work.

Q: New concepts seem to be emerging all the time; what’s the key to retaining market share in a hyper-competitive environment?
A: This year is odd because it’s the first year more dollars are being spent in restaurants than grocery stores. This has been a market-share game changer out there. It’s not everyday that you see startup concepts scale because it’s very difficult to do. The economics of getting into real estate like the legacy brands did 40, 50, or 60 years ago, today is much more complicated economically. Chick-fil-A and Whataburger have been pretty successful, however there aren’t a ton. It’s just very, very difficult to scale when you’re building one store from the ground up every time. For businesses like ours to stay successful, they must evolve, stay relevant, and remain distinctive in a crowded marketplace. 

Q: Do newer entrants to the work force no longer see the same value proposition in quick-service jobs?
A: There’s no question the value proposition for employees has changed, but for context, so has ours. We have had to evolve substantially in the past three years. It started at the beginning of COVID when we had to find ways to keep people excited about working in a consumer-facing business. Then with all the stimulus dollars, we had to keep employees excited about coming to work every day.

Q. How did you manage that in the current labor environment?
A: For us, it was a combination of simple stuff like evolved benefits, the way we thought about ancillary benefits to how we were paying individuals. We talk about career growth and not thinking about those jobs as entry-level, but about what’s needed in their career and how they can find it here. Last year was our biggest growth year ever in absolute dollars as an organization, and being able to show an upward trajectory and opportunities from it is an advantage over other businesses like ours. There’s been no more complicated time in the 22 years I’ve been in this business than the last year.