Case Study: Kentucky Fried Chicken and the Global FastFood Industry

Oleh : Elfira Ahsanti Mahda Johanes Boro P Ilda Suryati

2008610677 2009610736 2009610739

Relevant Case Facts - History

Sanders First Franchise in 1952 New Management/culture for Kentucky Fried Chicken after KFC sale for $2M Acquisition of KFC by Pepsico/Tricon Global Heublein Makes Changes in 1970 1980s Profit and Expansion

From $105 to 7.2 Billion in 50 years

1952, Col. Sanders started franchising his recipe door to door financed by his $105.00 SS Check 1964, Col Sanders had more than 600 franchised outlets in the US and Canada. 1964, Sold his interest in his company for $2 million to a group of investors. 1966, KFC went public 1969, Listed on the NYSE 1971, KFC was acquired by Heublein Inc . for $285 million

Cont.
1982, Heublein & KFC Inc . was acquired by RJ Reynolds 1986, RJ Reynolds & KFC , was acquired by PepsiCo, Inc . $840 million . 1997, PepsiCo, Inc . spined-off of its qsrs into independent Tricon Global Restaurants . 2002, Tricon changed it's corporation name to Yum! Brands, Inc

Cont.
NOW: Yum Brands, Inc . is the world's largest restaurant company in terms of system units with nearly 32,500 in more than 100 countries and territories. Yum! Brands, Inc ., is a Fortune 300 company Yum! Brands, Inc. global system sales totaled more than $22 billion in the year 2001. Current Market Cap value on the NYSE is 7.2 Billion

Problem/Issue
How would KFC maintain a market leadership in the global fast-food industry Issue: A competitive marketing strategy in the international market focused on the Latin American countries

SWOT ANALYSIS
Strengths
  

The Management style of Col. Sanders was to rely on the basic goodness of the people around him and trust the franchisees to play fair. KFC is a Market leader : Worlds largest chicken restaurant chain and third largest fast-food chain in 2000 Key Success Factor (KFC):  Location  Effective store management/cleanliness  Key to continued growth was to find, motivate, and retain hardworking and entrepreneurial managers and franchisees around the globe In addition to short term profits, store managers were also responsible for building local public relations, maintaining employee morale, developing customer good-will, keeping tab on the competing chains and creating a legacy of special chicken cooking recipe. Overall market image also became increasingly clear

Strength Cont
 

KFC had a refocused international strategies to grow its company and franchise restaurant base all over the world. Competitive marketing strategy: Developed three types of chicken: Original recipe (pressure cooked) Extra crispy (fried) Tender roast (roasted) Distribution strategy :
 

First, focused on building smaller restaurants in non-traditional outlets like airports, shopping malls, universities, and hospitals Second, KFC continued to experiment with home delivery, which was already firmly established in Louisville, Las Vegas and LA markets Third, KFC established 2 in 1 units that sold both KFC and Taco Bell or KFC and Pizza Hut

KFC continued to dominate the chicken segment ($4.4B) past its nearest competitor Popeyes at a distant second ($1.0B)

SWOT ANALYSIS: Weaknesses

   

 

Sweeping changes into the culture was initiated by the new management- this brings about demoralization to old KFC employees and even franchisees. Franchisees that the company did not know Management Shift- KFC was acquired by Pepsico from RJR Industries Several restructurings led to layoffs throughout KFC, replacement of KFC managers with PepsiCo managers Conflicts between KFC and PepsiCo cultures- this is manifested with PepsiCos stronger emphasis on performance rather than loyalty expressed by Col. Sanders to KFC employees over the years. Market Segment (1990s) KFCs leadership in the US market was so extensive that it had fewer opportunities to expand its US restaurant base, which was growing at about 1% per year. KFC chicken segment sales fell from 71% in 1989 to less than 56% in 1999.  KFC finds difficulty in entering the German market (culture incompatibility)  KFC sales stagnated. There was widespread discontent among the franchisees, some of whom felt the new owners did not understand the chicken business and were not providing leadership expected from a franchisor. Company stores floundered and become underperforming the franchised operations, further convincing its own business. (KFC HQ acquired them to company-owned)

SWOT ANALYSIS: Opportunities



 

  

Overseas expansion with the rapid economic growth and trend toward two-income families that had fuelled the growth of fast-food industry in the 1950s and 1960s were appearing in the late 1960s in the other country. US market maturity- many restaurants expand to international markets as strategy for growing sales. KFC is an American company and 35 largest restaurant chains in the world (2000) were American firms Expansion program for the Mexican market/Latin American markets NAFTA advantage Demographic trends (demand for food eaten outside of the home)

SWOT ANALYSIS: Threats

 

Consumer health food trend Saturated fast food industry in the U.S. market

Strategic Management
 

   

Market Development KFC will introduce their present and new products and services into new geographic/demographic areas. Product Development Bring back rotisserie chicken Concentric Diversification Add more to KFC product & service variety to the public consumers

Implementations


Market Research


Determine areas demand to determine boundaries Healthier choices Determine effects on budget

Expand menu


Meals will be sold at cost



Company Strategy


Primary objective is to take advantage of the potential growth in other countries, to establish a strong position and to develop their image. Key Success Factors are ever continuing cost savings through R&D, innovations and use of new technology to work efficiently. These success techniques will lower costs and increase profits in the industry. KFC uses an integrated low cost/differentiation leadership, since it can count on its brand name and original taste and recipes to be unique while at the same time compete on price using the benefits of cost savings from economies of scale.

Recommendations
Short-term:


Based on the analysis, we can conclude that they should start by solving their internal issues such as management and restaurant menu before thinking about expanding. They should work on the management issues to create a good atmosphere where employees are happy to work in. I certainly do not believe that by treating employees poorly, a company can be successful. They also need to make sure that their restaurants offer a diversified menu, provide their customers with quality food, excellent service and restaurant cleanliness. KFC should always listen to their customers and try to follow the new trends on the market in order to fully satisfy their customers. Otherwise, competitors will satisfy them and will eventually outperform you as Boston did with its grilled chicken

Cont


Even though, KFC seems to have an emotional attachment to their original recipe that made their success, they definitely need to move on and develop new products that customers want in order to increase their financial performance and value. We have seen that Boston and Popeyes are stealing customers away from KFC because they understood what customers wanted and started offering healthier items. KFC should certainly do the same and enhance their menu. Concerning their expansion strategy, KFC should start by closing a few non-profitable stores in the US that are currently drowning money from KFC. This will allow KFC to get the cash necessary to invest in new markets, which offer more growth potential. We have seen that the US market is not as attractive as it used to be , it has become saturated and certainly does not appear to have a bright future ahead. There is also the competition in the US that makes it really hard to compete in, whereas in other foreign markets that are quasi untouched as I will discuss more in detail later. KFC has to select countries based on their attractiveness and make sure that they can provide above-average returns, which will be discussed more in detail in the intermediate term.

Cont.


But first, they need to have a clear vision, solve the internal issues and get some cash in order to make sure that they are strong as a company and ready to compete internationally before going ahead with their expansion project. Create a great working atmosphere Develop a healthier menu Get some cash from selling unprofitable restaurants Evaluate countries based on attractiveness

International Investments


Concerning investing internationally, extremely attractive countries that can provide aboveaverage returns are regions that have chicken as traditional dish such as Asia and Latin America. Those regions should certainly be prioritized while developing an international expansion. While they start attacking those new markets, they should keep in mind to focus locally even though they go international in order to overcome certain barriers such as language, law and a good understanding of needs. Targeting new countries usually work better if you adapt to the local market.

Long Term


They need to stay close to their mission (provide customers with quality food, excellent service and restaurant cleanliness) and make sure to know how to achieve their long-term objectives. They also have to keep innovating and coming up with new items regularly. Remember that even though, they come up with similar products, customers are most likely going to try them. They also have to follow the trend and go hand in hand with customers to satisfy their changing needs, as we have previously discussed with the current healthier food trend. They also want to keep an excellent image by treating employees fairly and keeping a good control over franchises to make sure they follow the companys procedures. Concerning the American market, they should always keep an eye at competitors and see if possible mergers or acquisitions could be made. McDonalds has been faster than KFC when they acquired Boston, which could have really helped KFC regain its loss market share and reduce competition. They also have to keep working on their low-cost/differentiation strategy by better taking advantage of their competitive forces such as economies of scales, bargaining power, image/brand worldwide recognition.

Cont


They also need to keep an eye and be aware of new technology in order to improve their productivity and be able to compete more efficiently because even though they may have a competitive advantage now, they can be sure that they will eventually be challenged. Stick to their mission ; quality foodexcellent service- restaurant cleanliness Keep control over franchises Come up with new items regularly Keep an eye on possible mergers & acquisitions Be aware of new technology to stay efficient and competitive

Thank You..