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Former owner of closed KFC stores alleges harassment, discrimination

June 8, 2012

The building that housed a Kentucky Fried Chicken (KFC) franchise in Punxsutawney still remains empty since it first closed its doors in March. The loss of this KFC contributed to a loss of 239 jobs total in Pennsylvania and Ohio. (Photo by Natalie Bruzda/The Punxsutawney Spirit)

BROOKVILLE — When the doors to the Kentucky Fried Chicken (KFC) restaurant in Punxsutawney closed in March, it signified only the beginning of numerous closings for a local franchise.

KFC restaurants in Brookville, DuBois and Clarion recently followed suit after several disputes between the stores’ franchisee and KFC Corporate.

Ganesh Rao and his wife, Gita Rao, of Rao’s Hospitality felt forced to close the stores, which number 14, after experiencing what he feels was “harassment and discrimination” from KFC Corporate.

Because of the closings, 239 jobs were lost.

“I received poor treatment from corporate,” Ganesh Rao said. “There is no uniformity.”

Rao and his wife formed the franchise in September 2006 and gained ownership of 14 restaurants in Pennsylvania and Ohio, including locations in Punxsutawney, Brookville, DuBois and Clarion.

Remodeling of some of the locations was set to be complete by June 2008, but due to a severe decline in the economy, KFC Corporate (KFCC) offered extensions for the remodels, Rao said.

Rao’s Hospitality paid several thousand dollars for the Brookville and Clarion locations to receive an extension, but later learned that similar extensions had been granted to other franchisees at no cost.
“This is when they started the discrimination against us,” Rao said. “It is all pick and choose. They are not supposed to charge us $10,000 for an extension.”

According to Rao, in June 2009, KFC Corporate did not approve of his original remodel plans, and the company asked Rao to remodel under the “Vision” model guidelines.

Rao had to spend additional money for another architect.

The new plans were not approved until the end of September 2009, almost a month after the Sept. 1, 2009, due date.

Rao said plans were immediately submitted to the Brookville Borough Planning and Zoning Department.

But Dec. 24, 2009, Rao received a letter that said the Brookville store’s franchise rights were terminated.

Rao said this was a “wrongful termination,” because the new designs were not approved before the deadline, and appealed the actions in January 2010.

“They started a retaliation,” Rao said.

Rao said KFC corporate gave no response to their appeals, and the company continued to send legal notices.

During this time, Rao’s Hospitality Inc. fell behind on advertising fees for three months.

KFCC recognized the economic burden it had placed on its franchisees and initiated a financial aid plan; however, KFCC denied Rao’s initial application, and another default notice was sent.

Rao said his wife timely cured the default, and checks were cashed immediately in order to maintain the franchise.

Despite their actions, KFCC “threatened” to stop sending supplies to the stores, Rao said. Under duress from the situation, and because of escalating legal fees, Gita Rao decided to sell the stores in November 2010.

“The Pennsylvania stores were the top performing stores,” Ganesh Rao said. “There were a couple of restaurants that won best of best awards — outstanding customer service, cleanliness and inspections. These were stores that have been there for many, many years, carrying the legacy of KFC.”

Rao’s Hospitality tried to market the restaurants to three different brokerage companies and brought a couple of buyers to the table. But the sale was not approved by KFCC.

After one year, Rao’s brought in Chapter 11 Bankruptcy protection and decided to close all of its branches, translating to a loss of 239 jobs.
Rao said his ordeal will not prevent him from creating more business opportunities for he and his wife in the future.

“We like Pennsylvania,” Rao said. “Pennsylvania people are very honest. We will be looking forward in the future to get some business in Pennsylvania. The people are great in Pennsylvania, and it’s easy to do business rather than struggling in other states.”

Jefferson County Director of Economic Development Brad Lashinsky said it’s difficult to see the elimination of more than 100 jobs in the area, but said the department is always looking for new businesses.

A Krispy Krunchy Chicken franchise has just moved into the Brookville, DuBois and Clarion locations that housed KFC.

Krispy Krunchy Chicken is a Louisiana-based fast-food chicken restaurant that has more than 600 locations in 25 states.

“It’s always sad when you see a loss of jobs,” Lashinsky said. “But the department’s goal is to increase economic opportunities. Hopefully, we can get new businesses into the area for those who recently lost their employment positions.”

Calls to KFC’s corporate headquarters were not returned.

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