Steve Lillywhite knows a thing or two about making music that sells. That six-time Grammy winning producer has worked on multiplatinum recordings with artists including U2, the Killers and the Rolling Stones.

Now Mr. Lillywhite is proving he knows how to sell music, too, although in a very unexpected way. He is the chief executive of Jagonya Music & Sport Indonesia, a company in Jakarta, Indonesia, that bundles recorded CDs with fast food at Kentucky Fried Chicken restaurants throughout that country.

At a time when the United States music industry has seen physical CD sales in free-fall — according to the latest report from the Recording Industry Association of America, 99.4 million full-length discs were sold in the United States in 2016, the fewest since 1986 — Mr. Lillywhite’s company, a subsidiary of KFC in Indonesia, sells 500,000 CDs a month alongside menu items like the Chick ’N Fillet sandwich and the Colonel Yakiniku Rice box.

“My job is basically like running a record label, except this record label also happens to sell chicken,” said Mr. Lillywhite, 62, who acts as a curator, choosing the music that goes into the Indonesian KFCs. (At the moment, the songs come exclusively from Indonesian artists, though he hopes to expand.) “Record companies pitch artists to me and I’ll say either ‘yes’ or ‘no.’ Or I’ll approach an unsigned artist and say, ‘I will guarantee you a slot in KFC if you sign directly with us,’” he said in an interview at Electric Lady Studios in Manhattan, while listening to a new U2 song he’s producing. The company orders CDs from a distributor and pays a percentage of the sales to KFC, as well as royalties to the artists.