Note: Just to make things clear, I support Apple's decision here.
You're ignoring the fact that according to your analogy, our hypothetical KFC is already allowing people to make and sell different sorts of food with KFC branding from within their store (as long as you give them some of the proceeds and pay an annual fee, which was the case). In fact, a lot of people come to KFC precisely because they have an unmatched breadth of delicious and affordable dishes, and many people want to sell their wares at KFC because of their large clientele - KFC has successfully transformed into a food-court.
The hero of your post devised a delicious dish that would lose its flavor without the KFC secret sauce, but unfortunately for him, KFC only allows condiment manufacturers to use their secret sauce, and then only after a certification process to make sure they get the unique taste just right. Of course, they could, say, taste the delicious dish, realize that it's providing them with direct revenue, as well as satisfying consumers and increasing the odds they'll return to the food-court and spend more money.
Analogies aside, I understand why Apple does these sorts of things - first of all, they want consistency in UX since there really was no certification process. Also, keeping the ecosystem tightly under their control is much easier when you're very consistent about being draconian from the moment the platform was created (you go to the app-store, you play by their rules).
As a side-note, I'm surprised that there's so much support for Apple with these sorts of things when 15-20 years ago the same crowd would have been up in arms if Microsoft were to, say, send cease & desists to Samba or Wine (and still is criticizing Microsoft for disallowing other OSes in WinRT ARM devices).