2.4 Technology
Touch screens ordering systems
The touch screens ordering system are now available in most of the fast food outlets in western countries, A touch screen ordering system includes a number of transaction language selection keys; a payment type selection key for allowing payment to be made via cash, charge, debit, check, and so on.; a touch screen menu item display as well as offered menu item options display; an enter menu item selection; an enter additional menu item key; a running display showing total payment due as well as total items ordered; a submit order for preparation; an approximate order preparation time; and a total fee for meal. That went much faster than the conversations with the cashier, especially when the restaurant is crowded and loud. This will be a great opportunity for those who running or wants to run the business, because the fast food is now faster!
2.5 Environment
Bird Flu
One of the major threats faced by the fast food industry is the Bird Flu crisis which has brought a great impact especially Kentucky Fried Chicken. The poultry industry not handling well to the birds and caused the birds infected to the bacteria and viruses. The parent company Yum Brand told the trade publication it's bracing for a 20 percent drop in sales if infected birds. While Bird Flu crisis, people are get away from chicken, since their signature products are chicken, so Bird Flu will pluck their sales.
2.6 Legal
Nutrition labeling
The requirement of nutrition labeling on fast foods had been officially announced by Ministry of Health. The requirement has made it mandatory to provide nutrition information on the wrapper, brochure, pamphlet or posters of fast foods. The nutrition information required are:
1. The amount of energy (calories), carbohydrate, fat and protein in these foods, and
2. Percentage of these nutrients compared to the Recommended Nutrient Intake (RNI)
For example, for beverages, the amount of sugar in each serving must be provided. For foods such as fried chicken, burger and French fries, the amount of salt in the food must also be labelled. This will be a threat for fast food restaurants because now the consumer will be better informed of the content of the foods
Halal products
The purchasing power and population of Muslims within the nation is now having a direct contribution to the market in Malaysia. In order to capture their market, restaurants must fulfill the legal requirement and standard to become a Halal product set by The Department of Islamic Development Malaysia or JAKIM (Jabatan Kemajuan Islam Malaysia).
Ban of advertisement
Also, there will be a proposal to ban fast foods advertisement according to the stars. According to Malaysian Health Ministry, he said that banning such advertisements is a way of reminding the fast food companies of their obligation to the health of Malaysians, and is a cost effective way of combating the health risks it poses. If such proposal is really run in program, the entire industry definitely facing a threat. This is because parents will take consideration whether it is worth to have their meal in KFC and they will loose confidence towards fast food industry by having an implied perception that fast food means “unhealthy” food.
3.0 Michael Porter’s Five Forces
Porter’s five forces analysis assumes that there are five important forces that would impact in fast food industry.
3.1 Threat of new entrants
The new entrants are the firms that desire to get a bite of the profitable fast food industry. The threat of new entrants depends on whether there are any barriers to entry.
Large economies of scale are the important thing to look on by the new entrants in order to compete with the existing fast food restaurants. Those existing strong and large fast food restaurants are achieving low production cost by purchasing and producing in bulk. The new entrants better not enter to fast food industry if not in the minimum size requirements for profitable operation.
Huge requirement of financial resources to get a strategic location, decoration, purchase kitchen facilities, hire the experts or professional manpower to build up strong management team, advertising and so on. It is extremely hard for new entrants compete with the existing fast food restaurants that have extensive capital in hand.
High product differentiation in this industry, all the existing fast food restaurants have high reputation, high recognize by customers and strong brand name which hard to obtain by new entrants. Besides that, large customer preference on global brands will create a barrier to new entrants.
Convenience and good location is the key of success for Quick Service Restaurants (QSR) where customers can get to it easily. Those “branded” QSR are widespread at all strategic location in Malaysia, so it is extremely high barrier to the new entrants to gain market share.
In conclusion, the barriers to entry is high, therefore the threats of new entrants is low.
3.2 Bargaining power of customers
Customers of fast food restaurants are those who ordering meal by standing at the line in the local QSR, over telephone and internets in the normal ordering sizes mean customer does not have much bargaining power over the fast food industry.
However, the customers’ powers will presence when they are choosing a restaurant to buy the fast food and the switching cost is extremely low. Besides that, the entire QSR attempt to sell the successful products from each other, so customers may obtain the quite similar products, in result empowers the customers.
Furthermore, once the restaurant can’t satisfy the demand and expectation of the customers or not innovative base on the new trend, there will have bad word of mouth from the customers and convince others stay away from the restaurants and switch to the competitors as well.
3.3 Bargaining power of suppliers
Different suppliers may have different bargaining power over the fast food company. The major or vital suppliers are Soft Drink Companies and poultry farms or pasturages. Coca-cola and Pepsi are dominating the soft-drink market and high-preference soft drink of customers. Besides that, only these companies have the capacity and able to meet the needs of the global fast food chains. Poultry farms or pasturages are supplying the major ingredient to QSR to produce their products, mean they have high bargaining power over the fast food restaurants.
The small suppliers such as vegetables have no real bargaining power over the fast food industry because they are easily replaceable.
3.4 Threat of substitute
Substitute products are the products that can satisfy the same basic needs. One of the main reasons to taking fast food as a meal is convenience. Peoples nowadays become more lazy and seek for convenience, others foods can fulfill this preference are frozen foods and instant noodle.
Besides that, peoples taking fast food as a basic need which is settle their meal, so peoples may move to others food that may fulfill their stomach which maybe the price is lower or easy to get to the location.
People become more health conscious, so they may avoid taking fast food and switch to other more healthy food. It is because they think that high-fat, high calorie fast food is major contributor to obesity, diabetes and others diseases.
- Intensity of rivalry
There is rivalry in fast food industry where the existing fast food restaurants are fighting to get new customers and steal customers as well.
Firstly, price competition between fast food restaurants, price dumping is a successful way to attract new customers and steal the customers from competing restaurants. Customers tend to switch to the value meal, so every fast food restaurants need to adapt this strategy. However, this will cause their profit margin goes down.
Besides that, there are trend of quality meals force QSR to build up R&D in order to gain market share by developing new products. They have to come out new idea faster then their competitors and try to diversify themselves from the crowd to raise profit.
Lastly, they also compete intensely on the promotion and advertising to stronger their brand and attract more customers. The more advertising and promotion activities they take, more cost will incur, this will lower their profits.
It is extremely high intensity of rivalry in fast food industry.
- Conclusion
In conclusion, the fast food industry is unattractive, but KFC still can survive and profitable. It is because there are unique resources in KFC.
First of all, the strong brand name is the unique resource for KFC, high recognized by customers even a small kid. KFC dominates the chicken fast food industry and hard to replace by competitors and substitutes. No matter how, KFC will be the first choice once they demand for chicken fast food.
Secondly, KFC has extensive capital in hand; they may buy over their suppliers to reduce the bargaining power. In Malaysia, KFC Holdings (Malaysia) Bhd (KFCH) integrates with the Ayamas poultry production, sauce manufacturing and vegetable commissary to ensure to quality of the product and better cost control. Besides that, KFC which own by Yum! Brands, Inc. entered the strategic alliances with soft drink companies, Pepsi to make the independence mutual.
Lastly, KFC extremely good in marketing, and they have a lot of money to advertise strongly to compete with their competitors and set a threat to the new entrants.
4.0 Competitors Analysis
There are some direct competitors in the fast food industry, such as McDonalds, Burger King, Domino’s Pizza and so on.
- McDonalds
McDonalds is KFC’s number one competitor. Their business began in 1940. McDonalds Corporation is the world largest chain of hamburger fast food restaurants.
McDonald sells hamburgers, chicken products, French fries, chicken porridge, soft drinks, and desserts. To attract more customers they promoting breakfast items, McValue Lunch (cost from RM5.95), and happy meals with toys. There are providing a joyful and comfortable environment.
McDonalds have strong and loyalty suppliers. Some of McDonald’s classic food items like Fillet-O-Fish, French Fries, Chicken Nuggets etc. are results of supplier innovation.
Nowadays people are more demanding for convenient services so drive-thru service will be correspond for them but KFC has lesser drive-thru service outlets(22) if compare with McDonalds(57). McDonalds restaurant have delivery and online booking service which KFC does not have.
On the other hand, McDonalds also have some weaknesses like people will feel very heavy when take their meal if compare with KFC, they offered mash potato and also salad which are healthier than French Fries.
- Domino’s Pizza
Domino’s Pizza, Inc. is also a strong competitor for KFC. It is an international fast food pizza delivery corporation. In 1999, Domino's Malaysia's commissary was recognized as the Best Commissary in Asia Pacific and it holds the fastest pizza maker.
By reviewing Domino’s menu, they have less product line than KFC, so, this might be an opportunities for KFC in gaining more customers.
There are product satisfaction guarantee by Domino's which ensures that great-tasting and quality pizzas If a customer is dissatisfied with their dining experience, they will remake the product or provide a refund.
They also provide delivery service and online order that KFC does not have. They will provide a Free Regular Pizza voucher, if any delay in home deliveries. Their delivery is totally free. Besides that, RM10 voucher will be given if customer’s take-out order is not ready within 15mins.
Domino’s Pizza outlets are less than KFC had, so it might be their weakness. Fewer outlets caused the customers uneasy access to their restaurants.
- Burger King
Burger King is the second largest chain of hamburger fast food restaurants in the world. Burger King have strong company’s history background, the first interior concept was the 1960s with featured artists such as Marilyn Monroe, Elvis Presley, James Dean and vintage cars photos.
Burger King is selling burgers, several variations of chicken, fish, salads, breakfast, fries, and sodas. Since Burger King also offering various type of chicken, this might be a threat to KFC’s signature product, chicken. Burger King also promotes their meals in discounted price (RM29.95) that suitable for family and also a group of friends having meal there.
They offering reasonably priced quality food, served quickly, in attractive, clean surroundings. These have built up their brand image to the customers.
Besides that, Burger King also have weakness in Malaysia, because the fewer outlets compare with other fast food industry especially KFC.
5.0 Market Analysis
In this section, we are going to examine the ultimate customers of KFC and distinguish between different customer segments.
We have concluded that all of the fast foods’ customers are ultimate customers. Unlike other food businesses, for example snack food manufacturer that usually sell their product to distributor / retailer before they reach the hand of consumers (end user), there is no strategic customer due to the businesses’ nature as they sell fast food to the public directly, regardless of a customer’s identity as an individual or a business entity.
The target market of fast food businesses is broad, from young age kid to senior citizens. Fast food in Malaysia is accepted by all race and religion because all are in Halal.
Increasing woman involve in labor force, they have lesser time for at-home food preparation. Fast food is often an alternative way for them to settle the meal of their children. Due to two-income family, increasing standard of living of Malaysians make fast food affordable and convenient for most of the families.
As for younger generations like college students, they tend to take fast food as supper as this is the trend of their ‘night life’. Fast food restaurants are often the place of chatting and group studying. Lunch promotion in fast food restaurants is targeted on working people who have the limited break time. While senior citizens enjoy fast foods like others, they may seek healthy offering in the food menus (salad), or choose the one that offer low fat and low calories. However, this customer segment has the lowest consumption on fast foods due to health concern.
The findings of the market analysis are that the consumption of different customers segments differs in terms of demographic, psychographic, geographic, and behavioral variables, though it is not much different between various customer segments except senior citizen. It’s due to the growing trend of fast food consumption that suit the fast-paced lifestyle of students, working people, and two-income families in the modern society.
6.0 Internal Analysis
6.1 Resource-Based View
In order to better understand and perform an internal assessment of a company’s strengths and weaknesses within the industry, Resource-Based View will be our selected framework. KFC is the company we have chosen.
6.1.1 Threshold resources and competences
First of all, we identified the threshold resources that required by KFC in order to survive within the industry. A huge capital is necessary for KFC to run the business smoothly and compete with the other big players within the industry.
The secret recipe of KFC is their trade secret that may help them survive in the industry. So, it is essential to protect their intellectual property to avoid be imitated by the new entrants and the competitors.
Well-trained employees are initial assets for successful firm. They may satisfy the customers’ need and demand and also can translate the company objective to action.
Sufficient of raw material and production capacity are supporting the firm activities and sales.
6.1.2 Unique resources
Physical Resources
Own Poultry farm
KFC holdings has its own integrated poultry farm and processing plants, which bred and supply whole and cut chicken parts and also further processed chicken products to both domestic and export market. This enables them to achieve economies of scale and standardize the quality.
Financial Resources
Increased profits
According to KFC Holdings’ 2008 financial highlights, it achieves consistent and significant growth throughout the recent years except in year 2005 (loss attributable to equity holders). Its operating profit increased nearly 3 times in year 2007 compare to year 2003, and doubled for the profit before tax and profit attributable to equity holders. This high profitability allow for future expansion in business operations and product development.
Human Recources
KFC is doing quite well in managing their human resources. There are more than 7,500 staffs serving customers daily from all the outlets in Malaysia. Fair wages, open communication, working conditions and schedules are the important contributors to create real employee loyalty in KFC which will directly stimulate the staffs’ motivation and passion towards their job.
Intellectual capital
Secret recipe
KFC own secret recipe that hard to imitate by others firms. The Colonel's secret flavor recipe of 11 herbs and spices that creates the famous "finger lickin' good" chicken remains unrevealed as a trade secret. Portions of the secret spice mix are made at different locations in the nations, and the only complete, handwritten copy of the recipe is kept in the headquarters.
Customer database
Another critical unique resource of KFC Holdings’ is its broad customer database. The advantage is that the customer database is shared by its other brands like Ayamas and Rasamas which are the brands under KFC Holding as well.
Brand Name
The other unique resources that help KFC successful are their strong company’s history and their good reputation. KFC now still dominate the chicken fast food industry. Since KFC has the strongest brand in the fast food industry so it is pertinent to consumer loyalty and attracting the right sort of franchisee. This is pivotal to the success of the franchise.
6.2 Key Success Factor
Key Success Factor (KSF) is the factor and activities that required for the success of a firm in the industry. It is necessary for KFC to sustain their business.
Convenience location
KFC located in convenience location bring products closer to their customers. It is because the main reason of taking fast food is seek for convenient and can get to it easily. KFC is multi-brand, in Malaysia, Pizza Hut and KFC operate in same location.
Technology
Technology is required to lower the cost and improve the efficiencies of KFC. Computer information system improve KFC efficiencies in term of employees schedule, compensation, sales analysis, inventory control, front counter service and so on. With modern machinery and technology, food can be prepared and serve in quick and standard quality, result in high profit due to high quantity customers served.
Skills and capabilities
KFC involve in product innovation strategy which keep come out the new products to retain and satisfy their customers. For example is KFC HotRods in Malaysia. KFC is doing successfully in advertising and promotion to attract their target market. KFC also practice Just-In-Time delivery to all the branches in Malaysia which will enable to reduce the handling cost.
Effective store management / cleanliness
The excellent service style and restaurant environment will create repeat business.
Transparent food handling process, modern seating, shop decoration and cleanliness will comfort the customers and achieve high satisfaction.
6.3 Core Competencies
A core competence refers to skills and activities that a firm emphasizes and excels in doing while in pursuit of its overall mission. To identify the core competencies, our group decided to select Value Chain Analysis as the only framework to better understand the ways that a business creates value to customers through the examination on the contribution of different business activities. We figure out that KFC is adopting low cost leadership and differentiation strategy to create value.
6.4 The Value Chain
The Value Chain Analysis is a perspective in which business is seen as a chain of activities that transforms inputs into outputs that customer’s value. In order to identify the core competencies of KFC, we wish to use Value Chain Analysis which consists of support activities and primary activities.
6.4.1 Primary Activities
Inbound Logistic
Group Logistic Division (GLD) was established to provide the Group with the best and most effective logistic service. This involves consolidating and centralizing the logistics.
The GLD is divided into two units which are Logistics Operations (stored and distribute chilled, frozen and dry stocks) and Logistics Support (planning, order taking, Enterprise Resource Planning, human resources, accounts etc).
In order to combat with the rising costs of labors, fuel, maintenance etc, GLD is implementing some initiatives to be more cost effectively and efficiencies such as enhance stock accuracy and integrity; optimize resources and reduce transport costs.
Operation
KFC’s products in Malaysia are HALAL and to ensure the HALAL compliance through their operations, QSR has control over its raw materials, purchases, manufacturing processes and as well as packaging. KFC are diligent in preventing cross-contamination during the storage, preparation, handling, packaging and transportation of the products. Moreover, they are adhering to best practices to maintain the highest standards of quality and hygiene. The careful inspection of products at each step might improve the product performance and lower defect rate.
Outbound Logistic
The delivery of chicken supplies is done by a large fleet of trucks equipped with refrigeration & freezer that owned by in-house distribution system. This direct delivery between plants and KFC protects the freshness of chicken (minimal lead time) and maintain consistent supply. Internal distribution channel also means that KFC can keep the transportation cost down since it eliminates the need of outsourcing to external distributors, as well as easier for KFC to keep an eye on tracking the delivery process in terms of coordination between poultry plants and refrigerated trucks and on-time delivery to KFC branches.
Marketing and Sales
In order to better compete within the industry, KFC has now come out with their new breakfast meal. KFC’s breakfast menu is not just Western oriented with sausage and chicken muffin, but also with porridge and even Nasi Lemak (a local popular breakfast). They are also offering others alternatives chicken-centric meals like Cheezy Chickaroni, Hot Rods, and Zinger Tower. At the same time, they have continued to expand traditional chicken range by introducing variants like the Colonel Burger and X-meal for teens and young adults.
Services
KFC is concerned about their customers’ feedback or comments and the service quality of the frontline staffs in order to continually provide consumers innovation product and strengthen its position in market. In most of the KFC outlets, they provide a box and some forms for customers to complaints or give feedbacks.
6.4.2 Support Activities
General administration
In order to maintain the quality of their product, KFC has sent their quality supervisor to every branches to ensure the food they prepared has followed the procedures.
KFC has introduced healthier products like grilled chicken to target on the health-conscious customers and retain their existing customers.
KFC practice corporate social responsibilities in Malaysia by setting up Tabung Penyayang KFC, a charitable fund, to help orphanages. They also provide a job opportunity to disable people. This will improve their reputation lead to generate long term profit.
KFC enter to Malaysia which is an Islamic country successfully by acquired the JAKIM's Halal Certification. It will become the acceptable food in all Islamic countries that will meet more target market to increase their sales.
Human Resource Management
Human resource management of the KFC will firstly identify and select the best candidate as their employees by providing training to them which the faster and friendly service. According to KFC Holding (Malaysia) Bhd Annual Report (2006), they provide training to operation personnel at outlets and support staff at the head office every year.
The report also shows that they initiatives implemented training facility, new remuneration scheme and additional recruitment avenues. This will create talented and loyal employees.
Technology Development
KFC is very successful in R&D activities to create the new product enable them to meet the opportunities and overcome the threats. KFC keep coming out new products especially on the healthier choice.
Newly established computer information system enables them to improve efficiencies on managing their employees, stock control, and sales analysis.
Procurement
KFC’s chicken supplies products are supplied from its poultry processing plant’s primary processing operation, which the chicken is slaughtered according to Halal requirement and processed to the required specifications. To make sure KFC purchase only the chicken supplies of highest freshness and hygiene, the process from importing feeding grains and breeding activities, to hatching process, supplying day-old-chicks to contract farmer, and poultry processing are strictly regulated by various quality control practices.
7.0 Strategy Issues/ Conclusion
Infectious disease is the issue that encountered by KFC recently. The total revenue of KFC was dramatically dropped due to the reason of bird flu; it caused people become more sensitive and stays away from chicken. Besides that, H1N1 is the latest issue that confronted by KFC. People are more prefer to dine in their house instead of going out for their meals.
Nowadays, the consumers are well-educated and having enough information regarding to the ingredients of the food product. Therefore, as the concern of the good healthy lifestyle, consumers from different demographic and age group wouldn’t choose KFC as their meal.
Another significant issue is the poor service problem which had experienced by its customers in KFC outlets. Drawback from many feedbacks or the researches, basically what the complaint that received by its customer is the staffs in KFC restaurant show bad attitude and impatient towards its customers when they are placing the order.
In addition, fierce competitors such as McDonald and Burger King and other new entrants such as Wendy’s and Subway, they are strong enough to compete with KFC and serve almost same range and variety of the products to the public. It could directly threaten the KFC’s market share in the industry.
Lastly, KFC needs to develop new ideas, products and services endlessly in order to meet the opportunities and overcome the threats. This could retain existing customers, attract new customers and also compete with the substitute products and competitors.
9.0 REFERENCES
-
BURGER KING CORPORATION, 2009, Burger King. Available from:
[Accessed: 19 November 2009]
-
BURGER KING CORPORATION, 2009, Menu. Available from:
[Accessed: 19 November 2009]
-
DOMINO’S, 2009, About Domino’s. Available from:
[Accessed: 18 November 2009]
-
DOMINO’S, 2009, Our Guarantees. Available from:
[Accessed: 18 November 2009]
-
KFC HOLDINGS (BHD) MALAYSIA, 2009, Restaurant Operations- KFC: Malaysia’s No.1 Western Quick Service Restaurant Chai.
Available from:
[Accessed: 17 November 2009]
-
KFC MALAYSIA, 2009 , The Best board Meetings, August 2009. Available from:
[Accessed: 18 November 2009]
-
KFC MALAYSIA, 2009, About Us. Available from:
[Accessed: 18 November 2009]
-
KFC MALAYSIA, 2009, KFC Malaysia. Available from:
[Accessed: 18 November 2009]
-
MALAYSIA SME, 2009, Franchising. Available from:
[Accessed: 20 November 2009]
- Malaysia may ban fast food advertising targeted at children.
Available from:
[Accessed: 21 November 2009]
-
MCDONALD’S, 2009, The McDonald’s History. Available from:
[Accessed: 20 November 2009]
-
MCDONALD’S, 2009, Nutrition Information. Available from:
[Accessed: 20 November 2009]
-
SEAN YOONG, 2007, Malaysia Proposes New Fast Food Rules. Available from:
[Accessed: 19 November 2009]
-
SMO. DK, 2008, Porters Five Forces Analysis. Available from:
[Accessed: 19 November 2009]
- The Fast Food Market: A Stufy of Buying Behaviour and Restaurant Image.
Available from:
[Accessed: 21 November 2009]
-
WT2012, 2009, The Fast Food Chain Revolution. Available from:
[Accessed: 19 November 2009]
