The KFC Index [1] [2] [3] is an informal guide to measure purchasing power parity comparing exchange rates in African countries. Inspired by the Big Mac Index, the key difference between the two indices is that the KFC Index focuses solely on Africa; the Big Mac Index coverage is worldwide but not as applicable to Africa since McDonald's has little presence there, whereas KFC chains operate in almost 20 countries across the continent.
The KFC index was created by Sagaci Research (a Pan-African primary market research firm) as an informal way to gauge whether currencies in African countries are “correctly valued”. It is based on the theory of purchasing power parity, which states exchange rates should move towards the rate that would equalize the prices of an identical basket of goods and services between two countries. In this case, the concerned goods are KFC's Original 12/15 piece Bucket and geographically specific to African countries. The KFC Index also covers the United States, France, Spain and the United Kingdom.
For example, the average price of KFC's Original 12 pc. Bucket in United States in January 2016 was $20.50; in Namibia it was only $13.40 at market exchange rates. Therefore, the index suggests that the Namibian dollar was undervalued by 33% at that time.
The index takes its name from the international fast food chain Kentucky Fried Chicken (KFC) and is modeled on The Economist´s “Big Mac Index”, which covers countries with McDonald's presence (about 60 countries). In Africa, the McDonald's chain is only present in Morocco, South Africa, Egypt and Mauritius. KFC, on the other hand, has operations in almost 20 African countries, which is the highest of any international fast food chain and therefore a more applicable benchmark to use. The index was not intended as a precise gauge of currency misalignment but merely a tool to make exchange-rate theory more digestible.
As in the case of the Big Mac Index, the KFC Index was not created to be a highly accurate and precise tool for measuring purchasing power parity and its limitations include factors such as inflation, dietary preferences, socio-economic classifications, levels of competition and local costs (e.g. advertising, production and taxes).
Currency volatility – due to the nature of developing economies (in this case all countries in Africa), there is more likely to be high volatility in currencies, therefore undertaking this analysis over a one to three month basis could produce large changes and different conclusions.
Black market – as there is a thriving market for US Dollars in some countries, it may produce conflicting results compared to the official exchange rate. Angola and Nigeria are examples of these types of markets. The report produced by Sagaci Research takes into account black market exchange rates.
The February 2016 publication states:
Most overvalued currencies
Angola 72%
Morocco 30%
Most undervalued currencies
South Africa -48%
Egypt -34%
Namibia -32%
The June 2016 publication [4] [5] states:
KFC Corporation, doing business as KFC, is an American fast food restaurant chain that specializes in fried chicken. Headquartered in Louisville, Kentucky, it is the world's second-largest restaurant chain after McDonald's, with 22,621 locations globally in 150 countries as of December 2019. The chain is a subsidiary of Yum! Brands, a restaurant company that also owns the Pizza Hut and Taco Bell chains.
Purchasing power parity (PPP) is a measure of the price of specific goods in different countries and is used to compare the absolute purchasing power of the countries' currencies. PPP is effectively the ratio of the price of a market basket at one location divided by the price of the basket of goods at a different location. The PPP inflation and exchange rate may differ from the market exchange rate because of tariffs, and other transaction costs.
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The Big Mac is a hamburger sold by the international fast food restaurant chain McDonald's. It was introduced in the Greater Pittsburgh area in 1967 and across the United States in 1968. It is one of the company's flagship products and signature dishes. The Big Mac contains two beef patties, cheese, shredded lettuce, pickles, minced onions, and a Thousand Island-type dressing advertised as "special sauce", on a three-slice sesame-seed bun.
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The law of one price (LOOP) states that in the absence of trade frictions, and under conditions of free competition and price flexibility, identical goods sold in different locations must sell for the same price when prices are expressed in a common currency. This law is derived from the assumption of the inevitable elimination of all arbitrage.
The Penn effect is the economic finding that commodity prices are higher in countries with higher income.
The Kuwait Food Company, doing business as the Americana Group, is a Kuwaiti food company headquartered in Sharjah City. It operates food products throughout the Middle East and North Africa region, Americana Group is the largest integrated food company in Middle East.
The Pizza Principle, or the Pizza-Subway Connection, in New York City, is a humorous but generally historically accurate "economic law" proposed by native New Yorker Eric M. Bram. He noted, as reported by The New York Times in 1980, that from the early 1960s "the price of a slice of pizza has matched, with uncanny precision, the cost of a New York subway ride."
The international dollar, also known as Geary–Khamis dollar, is a hypothetical unit of currency that has the same purchasing power parity that the U.S. dollar had in the United States at a given point in time. It is mainly used in economics and financial statistics for various purposes, most notably to determine and compare the purchasing power parity and gross domestic product of various countries and markets. The year 1990 or 2000 is often used as a benchmark year for comparisons that run through time. The unit is often abbreviated, e.g. 2000 US dollars or 2000 International$.
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KFC was founded by Colonel Harland Sanders, an entrepreneur who began selling fried chicken from his roadside restaurant in Corbin, Kentucky, during the Great Depression. Sanders identified the potential of restaurant franchising, and the first "Kentucky Fried Chicken" franchise opened in Salt Lake City, Utah, in 1952. KFC popularized chicken in the fast-food industry, diversifying the market by challenging the established dominance of the hamburger. Branding himself "Colonel Sanders", the founder became a prominent figure of American cultural history, and his image remains widely used in KFC advertising. The company's rapid expansion made it too large for Sanders to manage, so in 1964 he sold the company to a group of investors led by John Y. Brown Jr. and Jack C. Massey.
Western-style fast food in mainland China is a fairly recent phenomenon, with Kentucky Fried Chicken (KFC) establishing its first Beijing restaurant in November 1987. This location was met with unprecedented success, and served as a model for many local Chinese restaurants that followed it.
KFC is a subsidiary of Yum! Brands, one of the largest restaurant companies in the world! KFC had sales of $23 billion in 2013. KFC is incorporated under Delaware General Corporation Law, and has its headquarters at 1441 Gardiner Lane, Louisville, Kentucky, in a three-story colonial style building known colloquially as the "White House" due to its resemblance to the US president's home. The headquarters contain executive offices and the company's research and development facilities.