Colonel Punishment - The significance of the KFC Double Down

(Fortune) -- Just two days after its nationwide launch, the KFC Double Down is a media sensation. The sandwich is a visual pun: In lieu of bread, there are two slabs of fried -- or grilled -- chicken encasing a filling of bacon, waxen cheese, and the "Colonel's sauce." The flavor and texture of the chicken is redolent of the meat at Chick-fil-A, with an aftertaste that can only be described as salty. With its craggy exterior and palate of primary colors, the Double Down resembles a castoff from Sesame Street. It looks like it's smiling at you, as though it were in on the joke of its existence.

The sandwich is already the subject of a skit on the Jimmy Kimmel Show and an eating competition amongst Wall Streeters. It has attained Justin Bieber-levels of hype amongst bloggers. Its novelty ("It's about a 12 on the uniqueness scale of 1 through 10," says KFC spokesman Rick Maynard) is heightened by the fact that it is a limited edition, only available until May 23rd.

But while the Double Down may be a passing fad, it has longer-lasting implications for KFC, which has been struggling to grow sales for several years now. In fact, it's a turning point for the fast food industry as a whole -- proof that customers will now flock to product innovation, not just pricing promotions.

"It's one of the things that operators do when they start to see light at the end of the tunnel," says Bonnie Riggs, a restaurant analyst at research firm NPD Group. "It's happened in each of the recessions that I've studied: new products arise to divert customers' attention from discounts."

KFC is owned by Yum! Brands (YUM, Fortune 500), an $11 billion-a-year company that also owns Pizza Hut and Taco Bell. Of those three chains, KFC is the laggard in the United States (in China, it's arguably the most successful fast food chain).

While Yum! reported a positive quarterly-earnings surprise on Thursday, KFC's same-store sales -- revenue at locations that have been open for at least a year -- were down 4%. The fried chicken chain has struggled during the recession, says Morgan Stanley analyst John Glass, in part because of its core demographic. "It's a lower-end brand," he says. "KFC sells chicken on the bone -- they've lost share to players like McDonald's and Wendy's (WEN) that serve chicken sandwiches."

The Double Down isn't KFC's first "handheld" -- industry parlance for a food item that's portable, like an iPod -- but its staging suggests that the chain hopes to gain traction on the sandwich front. Michael Solomon, a professor of marketing at Saint Joseph's University, says the Double Down is an explicit market-share grab. Fast food customers aren't "sticky," he says, which means they're easier to shake loose from their brands, unlike cereal and soda devotees. "To unfreeze loyalty to other brands and categories -- that's the holy grail."

The annals of fast food history are littered with failed novelties: For every Stuffed Crust Pizza, there's an over determined flop like the Arch Deluxe. The difference between a flash in the pan and a sustainable success is that the latter has a higher motive -- an underlying quality aimed at consumers' minds, not just their stomachs.

By that logic, it doesn't even matter if people try the Double Down so long as people start thinking of KFC as a destination for sandwiches. That would create a "halo" effect by changing consumer perception of the brand, says Glass, driving sustainable revenue, not just a pop in traffic. McDonald's (MCD, Fortune 500), he adds, is particularly good at convincing customers to associate its brand with new categories, like coffee and salad.

The publicity generated from a product like the Double Down gets people talking about KFC again -- and, if it drives them into stores, they're more likely to try the company's other, less gimmicky products. When New York Times critic Sam Sifton gave the sandwich a thrashing on his blog, he conceded that the chain's potato wedge fries "weren't bad" -- no small victory for the quick service chain. The added foot traffic gives KFC a chance to introduce new customers to its menu.

"You get people who may intend to buy the new product when they go to the store, then they change their mind when they get there," says Mark Kalinowski, an analyst at Janney Capital Markets. Kalinowski says that often happens when customers go to fast food stores intending to purchase salads; one can easily imagine the scent of fryer oil trumping the sight of wilted iceberg lettuce.

The Double Down isn't just a sideshow distraction, however. In many cases, novelty products can generate meaningful sales boosts. Kalinowski points to the success of the Pizza Hut Big New Yorker, which he says produced double-digit sales growth -- a rarity in the slow-moving fast food market. KFC hasn't achieved that level of expansion in more than a decade, says Kalinowski.

It's too early to gauge the returns of the Double Down, but Kalinowski thinks it could help the chain achieve positive same-store sales growth this year. Novelty, like the bun, isn't permanent -- but the momentum it creates can last for at least a few quarters.