Opportunities Threats
i) More varieties to be offered in the menu as customers are inquisitiveii) Low labor cost in other countries, creating an opportunity for international expansioniii) International markets-KFC well received in other countriesiv) Expansion of product line – to embrace healthier choices to meet the market demands like having roasted or steamed chicken which have less oil contentv) Co-branding with Pizza Hut and Taco Bellvi) Malls, home delivery, and other non-traditional distribution channelsvii) Upgrade of the facilities in the smaller outlets viii) Localize the global ads to meet the customer’s cultureix) Going into burger businesses x) Localize the menusxi) Introduce a brand new selling concept like having a buffet style where customers are able to choose the food from the shelves and make the orderxii) Serving additional customer groups or expanding into new geographic markets and product segmentsxiii) Go after customers of those rivals whose product lags on quality and services.xiv) Move in on rivals that have weak brand recognition. i) Diversion of fast food menu (new chicken product line) offer by other fast food chainsii) Entry of more competitors - saturated fast-food industryiii) Entry of Hardee’s, Wendy’s and McDonald’s and other chains into chicken items. This may also contribute to more pressure of lower prices by competitioniv) Limited menu (given that more fast-food chains are offering chicken products)v) McDonald’s is moving aggressively in Brazil and Mexicovi) More upscale chicken chains (Pollo Loco, Boston Chicken)vii) Indirect competitors - Increased competition from microwave food segment and most households have a microwave.viii) Continued moves of consumers away from fast food to more upscale chains and diningix) Consumer’s expectations are ever changing (demographics, lifestyle, spending power)x) Possibility of the government putting a banned on unhealthy foodxi) Increase of trends of more vegetariansxii) Bird flu (strain that infected 18 people in Hong Kong and killed six of them in 1997)
4.2 Porter’s 5 forces
The Five Competitive Forces shall be used to determine the intensity of competition and hence the profitability and attractiveness of the fast food industry. The Five Competitive Forces are typically described as follows:
4.2.1 Bargaining Power of Suppliers
The suppliers to the fast food industry have very little leverage and bargaining power for numerous reasons:
o The items purchased in bulk are generally commodity items.
o Competitive - The products in demand are standard and offered by many other suppliers and are only differentiated by the services, prices, delivery and other terms and condition.
o The switching costs from one supplier to another are high.
o Customers are important to the supplier.
o World wide market of suppliers
o Bigger organizations can negotiate for a lower pricing
Therefore the supplier bargaining power is likely to be low, mainly caused by the saturated market.
4.2.2 Bargaining Power of Customers
In the current competitive market, customers have a wide selection of food choices, which gives the customers more selection power. Bargaining power of the customers is likely to be low when:
o Fast-food consumers are price sensitive.
o Fast-food consumers want convenience and are location sensitive.
o Fast-food consumers are quality sensitive.
o Fast-food consumer switching costs are low.
o Fast-food consumer prefer varieties
o Fast-food consumer search for ambience in restaurants
o Fast-food consumer prefer healthier food menus
From the standpoint of individuals looking for a meal away from home, there are many substitutes and almost no switching costs between competing restaurant chains. Customers tend to be price sensitive, location sensitive, relatively health conscious, and increasingly more quality conscious. They may be more loyal to some chains/locations than others.
So the positive buyer perceptions of a fast food chain’s product offering are definitely a competitively relevant consideration. Buyers of fast-food products do not have significant bargaining power for there is wide selection of fast food restaurants available to the customers and none offer concessions for return patronage, customers will have little brand loyalty.
4.2.3 Threat of New Entrants
A moderately strong force and growing stronger as existing chains look to new geographic markets for expansion, especially in countries where consumers may be attracted to fast-food products and there is significant growth potential for fast-food enterprises to establish new locations
Newcomers (especially new start-up enterprises) have several formidable entry barriers to overcome:
o Slowing industry growth rate domestically (especially in the U.S. where the market is pretty saturated with fast-food locations)
o High costs of market entry (to build outlets, recruit/train franchisees, and fund advertising/promotional efforts)
o Established competitors with well-known reputations and menu selections
o Existing brand loyalties
o High cost to exit, thereby increasing resistance of existing competitors to new entrants.
However, several major chains pursue growth in foreign markets to escape domestic market maturity. New chains crop up quite frequently, so there is some threat of entry, even in the saturated U.S. market. Perhaps the greatest entry threat from KFC’s perspective would be the likelihood that other fast-food chains would decide to add popular chicken items to their menus—thus entry into the chicken segment is a very real and potentially strong competitive force.
But the real issue here is the threat of existing restaurant chains to enter the markets of foreign countries where they currently have little or no market presence. Here the threat is very real and growing. Existing fast food chains function as “new entrants” when they expand into geographic markets where they have no outlets. Plainly, the global expansion efforts of a number of rival fast-food chains currently pose significant entry threats. Hence, the threat of additional entry is a relatively strong competitive force in those country markets where fast-food opportunities present themselves—certainly there are entry threats in Latin America and Mexico.
4.2.4 Threat of Substitutes
There are numerous substitutes for fast-food and for the fast-food offerings of the chicken chains like KFC:
i) Microwavable products
These products are conveniently available at all supermarkets that can be easily prepared at home
ii) Convenience shops
This neighborhood shops offers microwavable food products with microwave oven available in the shops so that customers can heat up the food upon making the purchase. They have a wide variety of products (including chicken) catered to the masses.
iii) Supermarket delis
These delis provide delicious chicken cooked food at a lower price targeted at shoppers who are shopping in the supermarket.
iv) Full-service, formal restaurants
Some people have the preference of being served and would not mind paying a slightly higher price.
v) Homemade meals
Homemade meals are cheaper and healthier as compared to fast food, which are usually fried and contains lots of calories. It is more suitable for those people who are more health conscious.
vi) Other Ready-to-eat cooked food
Other fast food restaurants / restaurants can also be considered as substitutes since they offer products that are traditionally offered by fast-food chains in other menu segments, the competitive line between the various fast-food segments is getting blurry indeed. Chicken products are offered in most fast food restaurants and the difference may be one is offering chicken burger while the other is offering chicken parts.
Other restaurants do provide other high quality, reasonably priced eating alternatives. Family restaurants, cafeterias, and other quick-serve food establishments with other menu concepts (fish and seafood, dim sum, pasta dishes, sandwiches, sushi and others), to add to the competition, there are numerous restaurants and other eating alternatives located near KFC. Customers can frequent anywhere they like since the switching costs are low.
4.2.5 Competitive Rivalry between Existing Players
Competitive rivalry among the leading fast-food chains is the strongest of the five forces due to market maturity and a slowdown in industry growth rates, the high market visibility of the 50 or so largest fast-food chains, and the fact that, except for industry leader McDonald’s, the major players in the industry are relatively similar in size and resources. Plus, many are choosing to pursue expansion into many of the same foreign markets with relatively similar strategies.
The weapons of competition are price, quality, menu attractiveness and appeal, location, dining atmosphere and cleanliness, advertising and promotion (including celebrity endorsements in some instances), and brand name recognition.
When a rival acts in a way that elicits a counter response by other firms, rivalry intensifies. The intensity of rivalry commonly is referred to as being cutthroat, intense, moderate, or weak, based on the firms' aggressiveness in attempting to gain an advantage.
Rivalry is strong for several reasons:
o Slow market growth causes firms to fight for market share. In a growing market, firms are able to improve revenues simply because of the expanding market.
o There’s intense jockeying for sales and market share among existing chains—fresh competitive moves are made frequently by one or more players in order to gain business at the expense of their rivals.
o High first mover rewards (e.g., McDonald’s created brand awareness for its chicken sandwich by introducing its sandwich before KFC).
o Low customer switching costs increase pressure on chains to attract customers through advertising, new product offerings, and price discounts. Also when a customer can freely switch from one product to another there is a greater struggle to capture customers.
o Low levels of product differentiation is associated with higher levels of rivalry. Brand identification, on the other hand, tends to constrain rivalry.(chicken products are also available in Mac Donald’s)
o High exit barriers place a high cost on abandoning the product. The firm must compete. High exit barriers cause a firm to remain in an industry, even when the venture is not profitable. A common exit barrier is asset specificity. When the plant and equipment required for manufacturing a product is highly specialized, these assets cannot easily be sold to other buyers in another industry.
o Changing prices - raising or lowering prices to gain a temporary advantage.
5.0 Company Analysis
Kentucky Fried Chicken (KFC) was the world’s largest chicken restaurant chain and the third largest fast food chain in 2000.
5.1 Culture
PepsiCo's culture emphasized a lot on the performance and top performers are expected to move up through the ranks quickly. It made used of KFC, Pizza Hut, Taco Bell and Frito-Lay and training grounds for its managers, rotating them every two years. This performance driven practice created immense pressure for the managers to demonstrate their managerial skills and maximize their potential for promotion.
For Colonel Sanders, he adopted a laid-back approach. Employees were entitled to benefits, pension, and other non-income needs. This created strong loyalty among it employees. The above management style contrasted greatly with KFC’s traditional laid back approach, where employees were accustomed to stability and employment security.
5.2 Leadership
Organizational weaknesses include the extreme pressure that was placed on PepsiCo's managers to produce, and the limited flexibility of their restaurant franchisees. These policies create high turnover in management and contract difficulties with franchise owners. The unwanted effects of the performance driven culture also brought about lost of employee loyalty.
5.3 Finance and Management Issue
PepsiCo is financially stable. The net sales for the year for its restaurants in year 1996 rose to $31,645,000. (Refer to Appendix 1 – Consolidated Statement of Income)
6.0 Stakeholder Analysis
The figure below is the identified stakeholders of KFC.
Figure 6.0 Stakeholders of KFC
(Sources: Self-created)
6.1 Primary stakeholders
Primary stakeholders are immediate communities of interest for the organization. They are vital to KFC’s growth. If their involvements are high, then KFC will be able to expand. However, if these groups of stakeholders have negative feelings towards KFC, the impact is likely to be high. For e.g., if the products from KFC is not up to the usual standards, the stakeholders might switch to other alternative since the switching cost is low. Moreover, through the word of mouth, others may be influenced in believing that their standards had drops, may also do a switch.
6.2 Secondary stakeholders
This group belongs to the intermediaries in the process, and may include government agencies and other institutional bodies. The influence from this group of stakeholders is far greater than those from the primary stakeholders. For instance, if the media is to release some negative articles of KFC, it will give a very bad impression. On contrary, if the media is to release an article to the advantage of KFC, then business in KFC will improve.
7.0 Macro-environmental Analysis
7.1 Economic Environment
Fluctuating foreign currency exchange rates in Mexico. An increased inflation rate in Mexico poses an economic threat of lower profits and revenues in KFC's Mexico locations. In addition, the tendency of having strikes is high and this will bring down the economy.
7.2 Social – Cultural Environment
Society's attitudes have changed in the past decade toward eating healthier food selections, eating fewer fried foods, and eating more reduced-fat food selections. The majority of KFC's menu items are fried foods. This is due to the increasing population that is obese and articles that criticized fast food being the main culprit.
KFC could improve the social environment of local communities and society in general by offering innovative, community-involvement programs.
Identifying the cultural differences in other countries is important. For e.g.: some Asia countries have a majority population of Muslims (Malaysia) therefore, the menu must be Halal and no pork can be served.
7.3 Political Environment
The government may implement stricter heath and safety guidelines, which may affect KFC sales. An example will be Bird flu strain that infected 18 people in Hong Kong and killed six of them in 1997. If the bird flu were to hit US, then KFC will be greatly affected.
7.4 Technological Environment
As the technology continues to improve, it creates unlimited opportunities for innovation. Online information seeking by customers is easy due to Internet. In addition, the use of computers to advertise via the Internet, targeting on the yuppies. Computer ordering via Internet can be made possible since they are an increasing population that is Internet savvy. Internet enabled KFC to develop global brands and worldwide consumer base.
Computers can be used to improve labor, scheduling, payroll, accounting, inventory control and communications with other franchisees. This will give KFC a greater control over its employees and even to the franchisees.
Hi – tech equipment that will be able to determine of the cleanliness of oil content be used since majority of the products offered in KFC are deep-fried. Other technological methods can be implemented, like new cooking method whereby there will be a reduction of oil content in the fried food.
In the recent years, the market is growing as single-person households are on the rise. This is due to factors like rising incomes, higher divorce rates and people getting married later. There are also more women in the workforce than ever before. As a result of this, individuals are spending more disposable income on eating out. Moreover, there is a perceived value for money for the fast food products offered. They tend to be cheaper as compared to other cooked food.
7.5 Demographic Environment
Dual income households are on the rise, with higher household purchasing power. These working executives have hurried lifestyles and a desire to avoid food preparation at home has made the fast food business an attractive market. Moreover, there are more women in the work force than ever before, and this continues to increase. Because of this, traditional family income has risen. Due to these demographic changes, opportunities exist for expansion of restaurant chains to compliment and meet the new demands created by these changes. Meals offered in any fast food restaurants will usually consist a main course, side dishes, and a drink, which make it very convenient.
8.0 Alternative Action
1. Expand into Mexico and Puerto Rico
Advantages:
Ø KFC is popular with the Mexicans
Ø Close proximity with US
Ø Free trade agreement with Mexico
Ø Strong competition as competitors are already in Mexico, however; their specialty products are burgers and not chicken
Ø Standards can be maintain easily
Ø Growing economy in Mexico
Ø Cheap labor and chicken parts
Ø Demand for fast food expected to grow
Ø Tax brakes of 5 years when investments are made into Mexico
Ø Growing rate of the Mexican population is high and constant
Disadvantages:
Ø Poor working attitudes of the Mexicans
Ø Majority of the workers are unskilled and requires training
Ø Unstable economy – depreciation of Pesos
Ø Do not like the Americans
Ø Unstable economy (strikes often)
2. Leave Mexico and enter into other foreign market
Advantages:
Ø Focus investment on other stronger growing segments like South America
Ø Less political and financial risks in other foreign market
Ø Maintain a minimal presence in Mexico for future growth when the stability is greater
Disadvantages
Ø Forgoing a potential growth in a profitable market
Ø Servicing of Mexico units without the increase of the of the economy of scale
Ø Still have not mitigated the risk in Mexico
Ø Limited resources and cash flow
Ø Large distance causes difficulty in exercising control, servicing, support and other problems
3. More advertisements with promotional features attached to it
Advantages:
Ø Attract more customers to patronize KFC
Ø Capture competitors market share
Ø Increase brand awareness
Disadvantages
Ø Higher cost incurred for the promo features
Ø Lower perceive value of KFC (brand) when they have frequent promotions
4. Wider varieties available in the menu
Advantages:
Ø Appeal to a greater number of customers
Ø Capture competitors market share
Ø Increase brand awareness
Ø Healthy food like low oiled items may attract new segments (health conscious)
Disadvantages:
1. Higher cost incurred in experimenting, advertising (new product) and recruiting.
9.0 Recommended Option
Our selection is to expand into Mexico and Puerto Rico, which is currently a growing market. The obvious advantages shall be the close proximity to U.S., whereby KFC can maintain its standards, the existing North America Free Trade Agreement (NAFTA), GATT and the availability of cheap workforces and products. Operating efficiency in the restaurants is largely dependent on controlling food and labor cost.
Another pull factor is that there is no competitors from the chicken segment, therefore, can be said as an untapped market. Being the first mover, KFC will be able to establish a strong foothold before other competitors enter the Mexico. First time customers remain usually remain strongly loyal to pioneering firms in making repeat purchases. Making investment into Mexico, the government allows tax brakes of 5 years.
The world is divided in different regional markets (like Europe, Asia, Latin America, and etc.). If a crisis happens in a specific country it tends to affect all countries within the same economic region with which it has close economic relations. KFC should focus not only on ‘Latin America’ but also in other markets. That way it can minimize possible economic crisis in one region with the profits of another region.
10.0 Steps of Implementing the Option
Since KFC is a new company, it will be necessary for the franchisees to register for the business.
10.1 Organizational
The strategy to enter into Mexico and Puerto Rico shall be through franchising as avoid the risk of committing resources into an unfamiliar market. To grant franchises to only the highly motivated, talented entrepreneurs with integrity and business experience and train them to become active and aggressive owners of KFC. A revision of franchise contracts would need to be made to protect KFC from having other KFC franchises in too close a proximity to one another and the prevent franchisees from having sub standards. The traditional Colonel's way of life philosophy would be brought back into KFC's mission and goal statements to improve relationships and to reduce management turnover and internal discontentment. Additionally, it is very important to have well trained marketing staff, with sufficient knowledge of the evolution of the Mexico’s market, Mexicans laws and regulations.
10.2 Product
KFC will increase their product line to include new menu items in various locations to test acceptability and possible sales in relation to demographics. While expansion of their menu is necessary, they need to continue their focus on the "healthy foods" the domestic population is demanding. They can do this by adding additional items such as oriental chicken dishes and grilled chicken sandwiches and dinners.
10.3 Place
In this industry, distribution and new product introduction are the keys to success.
Therefore, KFC shall expand into more nontraditional locations such as hospitals, gas stations, convenience stores, malls, airports, concert halls, amusement parks, and college campuses. They will need to implement new, culturally-specific procedures such as serving beer in German restaurants, more Asian chicken dishes, familiar dress in Asian restaurants, a pub-type atmosphere for European restaurants with a leisurely atmosphere conducive to long conversations and others depending on the Mexican’s culture.
10.4 Pricing
This will be a determining factor for the customer making their first purchase. The price should be set reasonably and competitively with other local restaurant offer chicken in their menu. The price for the initial launch must be low. (Refer to 10.5 Promotion)
10.5 Promotion
Promote all three divisional products combining ads and reducing costs for individual advertisements. Offer special introductory bargains for newly opened locations to get customers' attention. Continue with celebrity promotions of KFC. Promote beneficial societal programs by continuing their neighborhood grant programs and expanding opportunities for more neighborhood youths as they build new restaurants as an outreach and advertisement of PepsiCo's traditional values and "caring" attitude.
10.6 Operational
Hire and train new employees in all areas including customer relations. KFC must deploy a program that will create a more disciplined work force. That can be accomplished by giving a bonus for those that had high punctuality rates, good growth perspectives, etc. Prepare and test menu items in restaurant and maintain high cleanliness standards. Increase efforts to improve work environment for workers and customers such as implementing a smoke-free facilities policy of all restaurants.
10.7 Financial
KFC needs the financial backing of PepsiCo to expand into the nontraditional locations and foreign countries. Due to increased competition domestically, the financial stability of PepsiCo is essential for KFC and the other restaurant divisions to expand into the nontraditional locations. PepsiCo needs to increase the amount of funds budgeted for employee training programs, community betterment programs, and equipment for new franchises. They can still increase funds used to promote beverages in their battle against Coke, but not concentrate all their monies in that direction.
10.8 Sustaining Competitive Advantage
Sustaining competitive advantage means to create unique service and product, which cannot be easily imitated. This would include:
(a) International SO Standards
(b) Cleanliness of restaurant
(c) Restaurant of the year
(d) Unique advertisements
(e) Unique packaging
(f) Introduce new products frequently
(g) Obtain feedback from customers and making modifications to meet their needs
11.0 Conclusion
The global fast-food market is competitive, with rivalry, substitutes, and the threat of entry presenting the strongest sources of competitive pressure. Some country markets are more competitive than others; however the U.S. fast-food market – high saturation so growth opportunities are relatively lesser but still can grow considerably by offering franchisees to open more outlets. Declining margins in the fast food chains reflected that increasing maturity in the fast food industry.
We anticipate that, despite the inherent risks and generally higher general and administrative expenses of operations, we will continue to invest in key international markets with substantial growth potential. As an alternative to domestic expansion, many restaurants began to expand into the international market. Our selection is to expand into Mexico and Puerto Rico as the target market niche is big enough to be profitable and offers good growth potential. Franchising to build a presence in Mexico and Puerto Rico without risking any resources. Being a first mover will help KFC to build up their reputation and image with the buyers.
The world is divided in different regional markets (like Europe, Asia, Latin America, and etc.). If a crisis happens in a specific country, it tends to affect all countries within the same economic region with which it has close economic relations, therefore, our recommendations for the international strategy will begin by focusing into Mexico and Puerto Rico.
12.0 References
1. The Manager, http://www.themanager.org/Models/p5f.htm, Accessed 18th
August 2003
2. PepsiCo, http://www.pepsico.com/investors/annual-reports/1996/financial/page6.shtml , Accessed 5th August 2003
3. George E. Belch & Micheal A. Belch, 2001, “ Advertising and Promotion”, McGraw-Hill
4. Kleindl, Brad Alan, 2001, “Strategic E-Marketing: Managing E-Business” South-Western Publishing
5. Susan Dann and Stephan Dann, 2000, “Strategic Internet Marketing”, John Wiley and Sons
6. Kotler & Armstrong, “ Principles of Marketing”, 9th Edition, Prentice-Hall, Inc, Upper Saddle River, New Jersy
7. Arthur A. Thompson. Jr. & A.J. Strickland III, 2003, “ Strategic Management”, 13th Edition, McGraw-Hill
8. Subhash C. Jain, (2001), “International Marketing”, 6th Edition, South-Western College Publishing
13.0 Glossary
Brand A name, term, sign, symbol, or design, or a combination of these intended to identify the goods or services of one seller or group of sellers and to differentiate them from those competitors.
Culture The complexity of learned meanings, values, norms and customs shared by members of society.
Franchise A contractual association between a manufacturer, wholesaler, or service organization (a franchiser) and independent business people (franchisees) who buy the right to own and operate one or more units of the franchise system
Internet A worldwide means of exchanging information and communicating through a series of interconnected computers.
Porters 5 Forces Tool for analyzing an organizations industry structure in strategic process
SWOT Stand for Strength, Weakness, Opportunity and Threats.
Word-of-mouth Personal communication about a product between target buyers, friends family members and associates
14.0 Appendixes
Appendix 1 - Operating Results
Appendix 2 - Consolidated Statement of Income
Appendix 3 – Consolidated Balance Sheet
1. Brief Introduction about KFC
KFC Corporation, based in Louisville, Kentucky, is the world's most popular chicken restaurant chain, specializing in Original Recipe®, Extra Crispy™, Twister® and Colonel's Crispy Strips® chicken with home style sides.
Every day, nearly eight million customers are served around the world. KFC's menu includes Original Recipe® chicken -- made with the same great taste Colonel Harland Sanders created more than a half-century ago. Customers around the globe also enjoy more than 300 other products -- from a Chunky Chicken Pot Pie in the United States to a salmon sandwich in Japan.
KFC has more than 11,000 restaurants in more than 80 countries and territories around the world. And in quite a few U.S. cities, KFC is teaming up with sister restaurants, A&W, All-American Food™, Long John Silver's, Taco Bell and Pizza Hut, selling products from the popular chains in one convenient location. KFC is part of Yum! Brands, Inc., which is the world's largest restaurant system with over 32,500 KFC, A&W All-American Food™, Taco Bell, Long John Silver's and Pizza Hut restaurants in more than 100 countries and territories.
As Yum! A brand continues to grow the world over, so do the ranks of our key business partners who reflect the diversity of the markets we serve. As a KFC, Pizza Hut, or Taco Bell franchisee, you'll enjoy the satisfaction and rewards that come from owning your own business, yet with the assurance that your efforts are supported by a global restaurant leader. Our brands are committed to making sure that our franchisees represent our diverse customer base. Our partnerships with the International Franchise Association's (IFA), for example, assist our brands in educating and attracting prospective minority franchisees. Our franchisees are key to our overall business growth, and help us build thriving neighbourhoods and provide economic opportunities for everyone.
Problem Identification
• Poor relationship Between Pepsi Corporation and KFC franchises.
• KFC loose their market share because of other chicken chain competitors (Popeyes, Chick-fill-A, Boston Market, and Church’s) increase sales at a faster rate.
• Cultural factors influence when they going to expand their business overseas.
• Other chicken chain competitor’s differentiate their products. (For example Boston Market introduce new restaurant chain that emphasized roasted chicken rather than fried chicken.
• Conflicts between KFC and Pepsi Cola’s corporate cultures create a moral problem within KFC.
• Low Research and Development funding from Hubelin, the division found it difficult to match the expansion plans of its main competitors.
• Local franchisees often were more interested in maximizing profits in the short term rather than to adhere to corporate standards and strategic plans.
2. Assumption
Strategic management is concerned with matching the organization’s internal capabilities with the external opportunities and threats and developing plans to achieve the medium to long-term goals. There are few Assumptions need to make in order to achieve those goals.
• Foreign exchange rates dose not change significantly.
• Political instability in Asia not last long.
• Current tax system not going to change
• Bank interest rate will be stable.
• No new environmental laws introduce for the industry
• KFC should ignore their competitors in the fast food restaurant chain, such as McDonald’s which is technically in the sandwich segment and go where it will be more profitable.
• Fast food chains had already experimented with new forms of existence such as in shopping malls, airports, department stores, universities, etc
• Socio-cultural trends in U.S. were favourable to the fast food industry, except for consumer demands for lower and lower prices.
3. Situation Analysis
3.1. S.W.O.T Analysis
It is an easy-to-use tool for developing an overview of a company’s strategic situation. It forms a basis for matching your company’s strategy to its situation.
Strengths
It had expanded early in its corporate history and had experience
Strong brand name
Its affiliation with pizza hut and taco bell allowed it to create operational efficiencies abroad as well as domestically.
It prior relationship with PepsiCo, which had extensive international efficiencies abroad as well.
KFC had focused on countries in which McDonald’s did not have a strong presence.
World largest chicken chain restaurant
Third largest fast food industry
KFC continued to dominate the chicken segment, with sales of $4.4 billion in 1999.(Source; Jeffrey A Krug, 2001)
Weaknesses
As a competitor in international market KFC mostly consider only about franchising market. This is not a very good idea as other imported fast food is catching the domestic market.
• KFC was losing market share as other chicken chains increased sales at a faster rate.
• KFC’s share of chicken segment sales fell from 71% in 1989 to less than 56% in 1999,a 10 year drop of 15%.
• Tight Financial control
• High Share price
• Higher returns to the share holders
Opportunities
As the fast food market is rapidly growing KFC may expand it operation in to the domestic market by putting more efforts to it and grab the market share of the local fast food market. KFC’s leadership in U.S. market was so extensive that it had fewer opportunities to expand its U.S. restaurant base which was only growing at about 1%
Threats
Any company who operates in the international market has to face the fierce competition in the market place. Apart from that growing concern regarding fast food and takeaway related restrictions in the community is becoming a new threat to industry.
• Competition –.chick – fill A and Boston market increased their combined market share by 17%. (Pleases see Appendix), in the early 1990s, many industry analysts predicted that Boston market would challenge KFC for market leadership.
• Product development treats – Boston market was a new restaurant chain that emphasized roasted rather than fried chicken. It successfully created the image of an upscale deli offering healthy, “home style “ alternatives to fried chicken and other fast food.
• New Entry to the Market place
• Asian market of fast food industry growing Eg; china, Thailand
• Increasing competitive product-
• More new entries for end market place
• Technological improvements
3.2 Industry and competition Analysis
The five forces model of competition expands the arena for competitive analysis.
Historically, when studying the competitive environment, firms concentrated on companies with which they competed directly. However, today competition is viewed as a grouping of alternative ways for customers to obtain the value they desire, rather than as a battle among direct competitors. This is particularly important, because in recent years industry boundaries have become blurred.
Threat of new entrants
Evidence suggests that KFC have always found it difficult to identify new competitors. This is unfortunate, in that new entrants often have the potential to be quite threatening to incumbents. One reason new entrants pose such a threat is that they bring additional production capacity. Unless the demand for a good or service is increasing, additional capacity holds consumers’ costs down, resulting in less revenue and lower returns for an industry’s firms. Often, new entrants have substantial resources and a keen interest in gaining a large market share. As a result, new competitors may force existing firms to be more effective and efficient and to learn how to compete on new dimensions
Bargaining power of suppliers
Increasing prices and reducing the quality of products sold are potential means through which suppliers can exert power over firms competing within an industry. If a firm is unable to recover cost increases through its pricing structure, its profitability is reduced by its suppliers’ actions. A supplier group is powerful when:
• It is dominated by a few large companies and is more concentrated than the industry to which it sells;
• Satisfactory substitute products are not available to industry firms;
• Industry firms are not a significant customer for the supplier group;
• Suppliers’ goods are critical to buyers’ marketplace success;
• The effectiveness of suppliers’ products has created high switching costs for industry firms
• Suppliers are a credible threat to integrate forward into the buyers’ industry. Credibility is enhanced when suppliers have substantial resources and provide the industry’s firms with a highly differentiated product.
As a result of its success, initially in its US domestic market and now globally as well, Wal-Mart is an example of a company over which few suppliers have power. The sheer size of its purchases and the relatively low switching costs it faces when choosing among suppliers often combine to yield significant power for the firm.
Bargaining power of buyers
Firms seek to maximise the return on their invested capital. Buyers (KFC customers of an industry or firm) want to buy products at the lowest possible price, at which the industry earns the lowest acceptable rate of return on its invested capital. to reduce their costs, buyers/customer’s bargain for higher quality, greater levels of service and lower prices. These outcomes are achieved by encouraging competitive battles among the industry’s firms.
Customers (buyer groups) are powerful when:
• They purchase a large portion of an industry’s total output;
• The product being purchased from an industry accounts for a significant portion of the buyers’ costs;
• They could switch to another product at little, if any, cost; and
• The industry’s products are undifferentiated or standardised, and the buyers pose a credible threat if they were to integrate backward into the sellers’ industry.
Substitutes
One of the main problems that face many companies today is the threat of substitute products. There main substitute products competitors are McDonalds, Burger King, Wendy’s, Domino’s, chi-fi -A and Boston market, popeyes, etc.
Industry rivalry
Beyond seeking to deter entry, firms also use strategies to reduce the level of industry rivalry because unrestricted competition over prices or output can reduce profits. Several strategies are available.
1. Price signalling is the process by which firms convey their intentions to rivals concerning pricing strategy, or how they will react to the competitive moves of their rivals. Firms can announce that they will respond vigorously to other firms’ hostile moves if attacked. Also it indirectly allows firms to coordinate their prices.
2. Price leadership, in which one firm takes the responsibility of setting industry prices, is another way of using price signalling to enhance industry profitability. The price-setter creates a model that other firms can follow.
3. Non-price competition usually occurs through product differentiation whereby firms compete for market share by offering products with different or superior features, or by applying different marketing techniques. There are four non-price competitive strategies.
a. Market penetration involves expansion of market share in a firm’s existing product markets by advertising and other promotional means.
Example: Toys R Us based its CA on being a low-price, low-service store but now competes on having more toys in stores than competitors.
b. Product development is the creation of new or improved products to replace existing ones. It can help to maintain product differentiation and build market share.
Example: KFC very recently they rolled out buffet that included some 30 dinner, salad, and dessert items.
c. Market development involves finding new market segments for a firm’s existing products. It uses the firm’s brand name to get market share as it enters these segments.
d. Product proliferation (a range of products for a range of niches) is also a strategy for managing rivalry. Firms compete over perceived quality and uniqueness.
4. Capacity control is aimed at controlling the level of industry output. Although firms prefer non-price competition, periodically price competition does break out.
This occurs because industry over-capacity leads to reduction in prices for firms attempting to dispose of the product. If one firm reduces prices, the others follow to avoid being left with unwanted goods.
Excess capacity can occur because of new low-cost technology or new entrants. Two strategies are available:
a. A preemptive strategy is used when one firm, recognizing an opportunity, moves quickly to establish a first-mover advantage. It hopes that other firms will recognize that they are too far behind to catch up and thus not increase their capacity.
b. A coordination strategy involves firms signalling their intentions concerning their future capacity to one another. By indirectly informing one another of their plans, they seek to ensure that capacity does not become so large that it promotes a price war. As a result, the risks associated with increasing capacity (investments therein) are reduced.
Sources: www2.bus.okstate.edu/mgmt/labig/(15/08/03)
Is the Kentucky Fried Chicken is Profitable?
The company opened over 1,000 new international restaurants in 2001 and expects to open another 1,000 in 2002. The company's target for new restaurant growth is +5% to +6% per year in net new international restaurants.
In year “2000 was a year of growth, growth, growth for our international business! We opened
929traditional restaurants around the world, grew operating profit to $309 million, up 16% from1999, and improved international system sales by 6%. And we did it while achieving solid reduction and margin improvement.”
“Our big international winners were Greater China, which increased profits a whopping 47%, and our KFC United Kingdom and Pizza Hut Korea businesses, which each increased profits by 25%.“We also boosted the global popularity of our food, scoring big wins with the debut of Pizza Hut’s Stuffed Crust pizza in Malaysia and the Philippines,
and the continuing success of KFC’s Twister in Australia and Korea. In Asia, we launched two delicious new product variants, Honey Mustard Twister and Spicy Twister, which are helping to drive strong sales growth in the region.” (http://www.yum.com/investors/annualreport.htm)
WHY
KFC Corporation, based in Louisville, Ky., is the world's most popular chicken restaurant chain specializing in Original Recipe®, Extra Crispy™, Colonel's Crispy Strips® chicken and Popcorn Chicken with home-style sides and freshly made chicken sandwiches. Since its founding by Colonel Harland Sanders in 1952, KFC has been serving customers delicious, already-prepared complete family meals at affordable prices. There are over 11,000 KFC outlets in more than 80 countries and territories around the world serving some 8 million customers each day. KFC Corporation is a subsidiary of Yum! Brands, Inc., Louisville, Ky.
KFC leads the way as China's largest, oldest and most popular quick-service restaurant chain with locations in approximately 150 cities. KFC was the first QSR to enter China in 1987 in Beijing. KFC had approximately 200 restaurants in 1997 and has quickly grown to 700 today.
What trends exist?
The number of demographic and societal trends influenced the demand for food eaten outside of the home.
Consumer decision making trends
During the last two decades, rising incomes, greater affluence among a greater percentage of American households, higher divorce rate, and the fact that people married later in life contributed to the rising number of single households and the demand for fast food. More than 50% of woman worked out side of home, a dramatic increase since 1970. They expect this percentage going up over 65% by 2010. Less time to prepare meals inside the house added to this trend.
Labour cost made up 30% of a fast food chain’s total costs, second only to food and beverage costs. Intense competition. However, made it difficult for restaurants to increase prices sufficiently to cover the increased cost of labour. There are many fast food restaurants in the fast food market, and it has different food with different taste, price and quality. Consumers do not like eat same food with same taste every day. . Therefore consumers could change their decisions and move to purchase another product because there are lots of substituted products in the market. Consumers made decisions about where to eat partially based on price. There was another important fact is time duration. Consumers there’re always expect Fast and Quality service. most of the restaurant operation viewed computers as their number one tool for improving efficiency. New technology may help to increases customer attention to purchase the product. For a e.g. Mc Donald and Carl’s, converted to new food preparation systems that allow them to prepare food more accurately and to prepare a great verity of sandwiches using the same process.
Restaurant location also the very impotent facts to make Consumer decision consumer.Consumers always looking for convenable place to purchase there needs.
Demographic tends:
Income:
More than 50% of woman worked out side of home, a dramatic increase since 1970. They expect this percentage going up over 65% by 2010.doble- income households contributed to rising household incomes and increased the number of times families ate out.
Life style trends:
Higher divorce rates and the fact that people married later in life contributed to the rising number of singles household and the demand for fast food. After 1970 more than 50 percent increase of women worked outside of the home and this number was expected to raise 65 percent by 2010. Household income also effect to change the consumers life style.
As consumers aged, they become less enamored with fast food and were more likely to patronize dinner houses and full- service restaurants. Sales of Mexican restaurant were very popular with American people in 1980’s, began Indian, Japanese and Vietnamese restaurant are become a more fashionable.
Ethnic food in general was rising in popularity as U.S. immigrants, who constituted 10% of the U.S. population in 2000, looked for establishments that sold their native foods.
Age
In the fast food industry baby boomers (age 35-50) are the largest consumer group, and Generation Xers (ages 25 to 34) and the “mature” category (ages51 to 64) made up the second and the third largest group in the market respectively.
The greatest concern for fast food operations was the shortage of employees in the 16 to 24 age category. Most American in this age category had never experienced a recession or an economic downturn.
Competitive behavior trends:
Competition with in fast food industry is particularly strong due to the large number of stores and their geographic proximity.
Competition tends to be based on price, range of fast food products, quality, service, location and promotion.
The number of factors will lead to increase of competition. One of the most important will be continuing diffusion of the fast food industry. Even as competitive strength increases, leading fast food industries will become more adept at anticipating the responses of their competitors. Instead of using destructive competition, businesses will tacitly cooperate on price and promotion and seek competitive advantage based on superior understanding of customers need and effective management of the innovation process to meet those needs.
Who are the Key Competitors
There are was eight major segments made up the fast food sector of the restaurants industry: sandwich chains, pizza chains family restaurants, grill buffet chains, dinner houses, chicken chains, nondinner concept, and other chains.
Other indirect fast food restaurant competitors are:
Sandwich chain: - McDonalds, Burger King, Wendy’s, Taco Bell, Subway and etc.
Dinner Houses:-Applebee’s, Red Lobster, Outback Steakhouse, Olive Garden and etc. Pizza Chain: - Pizza Hut, Domino’s, Papa John’s, Little Caesars, Sabarro and etc.
Family Restaurant: Denny’s, Craker Barrel, IHOP, Shoney’s and etc.
Other dinner chain: - long John Silver’s, Walt Disney Co, Old Country Buffet & etc.
Grill Buffet chain: - Golden Corral, Ryan’s and etc.
Nondinner Concepts: - Dunkin’s Donuts, 7-Eleven, Starbuks and etc.
McDonald’s with sales of more than $19 billion in 1999, accounted for 15% of sales of the sales of the nation’s top 100 restaurant chain. According to the sales figure shown that second largest chain burger King had less than a 7% share of the market.
Sandwich chains (McDonald 35%, Burger king 16%, Wendy’s 9.7%, taco bell 9.6%, subway 5.9%, etc.) made up the largest segment of the fast food market.
(Source; Jeffrey A Krug, 2001, p208)
According to the above figure we can identified, McDonald’s is generated the greatest per store sales about $1.5 million per year. The average U.S. chain generated $800’000 in sales per store in 1999.
Dinner house made up the second and fastest- growing fast-food segment in 1999
On what basis do they compete?
Boston market was a new restaurant chain that emphasized roasted rather than fried chicken. It successfully created the image of an upscale deli offering healthy, “home style” alternatives to fried chicken and other fast food.
Dinner house came from new unit construction, a market contrast with other fast food chains, which had already slowed U.S construction because of markets and small towns.
How successful are they?
Sales of dinner houses increased by more than 13% during the year, surpassing the average increase of 6% among all fast- food chains.
The hardest-hit segment was grilled buffet chains, which generated the lowest increase in sales( less than 4%).dinner houses, because of their more upscale atmosphere and higher-ticket items, were better positioned to take advantage of the aging and wealthier U.S population, which increasingly demanded higher- quality food in more attractive settings.
Dinner houses, however, faced the prospect of market saturation and increased completion in the near future.
What are the key industry success factors?
• The Colonel perfected his secret blend of 11 herbs and spices for Kentucky Fried Chicken in 1939 and signed up his first franchisee in 1952. By the time KFC was acquired by PepsiCo in 1986, it had grown to approximately 6,600 units in 55 countries and territories.
• KFC restaurants offer fried chicken products and some also offer non-fried chicken-on-the-bone products, with the principal entree items sold in pieces under the names Original Recipe, Extra Tasty Crispy and Tender Roast.
• KFC restaurants also offer a variety of side items, such as biscuits, mashed potatoes and gravy, Cole slaw and corn, as well as desserts and non-alcoholic beverages.
• In 1996, KFC's worldwide system sales of over $8 billion grew faster than the industry average even though the number of restaurants in its global system did not materially increase.
• Quality, service and cleanliness represent the most critical success factors to KFC's global success.
• Adequate capitalization, to provide reserves against market downturns and to benefit from market upturns.
• There was another main factor is they conduct the business in an environmentally responsible way. There’re complying with all applicable laws and regulations and provide safe and healthy work environments. In the absence of specific laws and regulations we continue to operate responsibly.
• Using research and new technology, we work to improve our environmental performance through source reduction, recycling and innovative product packaging.
• There are known for great operations, marketing innovation, delivering the highest quality food and superior service by responding to the voice of the customers, not just listening to them.
• In Asia, we launched two delicious new product variants, Honey Mustard Twister and Spicy Twister, which are helping to drive strong sales growth in the region.
• Reliable supply of key raw materials at a competitive price.
3.3. Company Analysis
3.3.1. Organisational Strategy (pleases see Appendix...)
Organisational strategic plan can be divided in to two parts such as corporate level strategies and Business, unit, product and market level strategies. ( Kotler P, Armstrong G, Meggs D, Bradbury E, Grech.J, 1999, pp448)
Corporate level strategies
Defining the company mission : KFC’s parent company Yum Brand Inc., mission is satisfying customers every time they eat their food and doing it better than any other restaurant company with their sister companies such as A&W, KFC, Long John Silver's, Pizza Hut, and Taco Bell. They offer customers to food they crave, comeback value, and customer-focused teams. The unique eating experience at each of their restaurants make their customers smile and inspire their loyalty for life. (www.yum.com)
• Setting company objectives and goals:
KFC’s parent’s company mission needs to be turned into detailed supporting objectives for each level of management. Each manager in the industry should have objectives that they are responsible of archiving and that ‘flow down’ through the levels of the organisation. These mangers have a responsibility to increase or keep the market share stable. In the case study explain during 1980s to 1990s surrounded it limited menu and suddenly they introduce new products in the fast food market as a strategy.
• Designing the business portfolio:
The business portfolio is the one that best fits the company’s strengthens and weakness to opportunities in the environment. KFC always try to expand their business as a strategy to increase global market share using franchise system and the company owned system. They always try to keep high growth and high share in the fast food industry, but the coemption always against them. To keep competitors down they need to use new strategies to grow their business and market share.
Business strategy
• Planning:
KFC’s marketing plan is satisfying customers by designing strategies and delivering a marketing mix targeted at defined market segments and aimed at achieving a series of marketing objectives which combined to meet their company objectives.
• Marketing:
Customer value and satisfaction are the most important ingredient that the KFC looking when they market the product. They always try to provide good quality products with low cost to the customers. They change the taste of the product when the customers do not like.
• Perceived competence – all businesses are public and diversified activities were high volume, low cost products with strong brand names.
• Market leadership – diversification moves typically started by capturing a significant domestic market share through the acquisition of companies with highly visible or quality brand names.
• Restructuring – considerable success in taking what had appeared to be relatively expensive acquisitions and reduced the cost through stripping out unproductive assets, and investing capital to improve productivity.
• Strong brands and customer focus – managing outstanding brands with high public awareness.
• Acquire or develop ‘world best’ technology.
• International expansion.
• Financial control and performance measurement.
• Organisation and management
• Management development.
Developing Growth Strategies
Market Penetration Strategies
• Attracting Competitor’s customers – Differentiation of products such as new menus design which shows clearer differentiation from competing fast food.
• Increasing Promotional Effort - Mass advertising within the domestic and globally
• Decreasing Prices. - Special offers price competition things such as student discount.
Product Development Strategies
• Product line extensions - Offer customers with varieties food.
• Developing quality variations - Developing food quality of the KFC.
• Developing new products aiming at the present market - Develop new products those related to the countries cultures.
Market Development Strategies
• New Geographical Markets
*Setting up franchising and merger systems using the regional and national expansion.
*Attracting Investors by consolidating the positioning and image of the business and be well known and trusted.
*Advertising in other media such as on the internet where globally executed.
*Lowering price to attract price sensitive buyers and increasing price on certain product and services in order to attract prestige and quality seekers segments
Diversification
Into related businesses (concentric diversification)
Fabricating assortment of menus for breakfast, lunch and dinner.
Cheap quality foods for lower class
What Generic Strategy is it Pursuing
Generic strategy can be divided into three parts.
• Focus strategy
• Differentiate strategy
• Cost leadership strategy ( www.business.bond.edu.au)
KFC’s focused on their product differentiate to reduce substitutability with rivals: -
KFC still experimented with the chicken sandwich concept when McDonald’s test marketed its “Mc’Chicken Burger” in the Louisville market. Shortly McDonald’s rolled out the Mc chicken sandwich nationally. By beating KFC to the market.
By the late 1990s, KFC had refocused its strategy. The cornerstone of its new strategy was to increase sales in individual KFC restaurants by introducing a variety of new products and menu items that appealed to a greater number of customers. KFC settled in three types of chicken product: original recipe, Extra Crispy and Tender Roast.
When consider the generic strategy KFC can be differentiating their products in many ways, such as quality, uniqueness, responsiveness and prestige of the product. For example when KFC try to expand their business to overseas they need to focus on the product differentiate because those countries should have different cultures, taste and values. KFC very recently they rolled out buffet that included some 30 dinner, salad, and dessert items. The buffet was particularly successful in rural locations and suburbs. It was less successful in urban locations because of space considerations. KFC then introduced its colonel’s Crispy Strips and five new chicken sandwiches to appeal to customers who preferred boneless chicken products.
If a firm can consolidate a fragmented industry, it can achieve high return on investment. It has occurred in retailing (for example, Wal-Mart) in fast foods, (McDonald’s and KFC), and in legal and accounting firms (Baker & McKenzie). Firms seeking to consolidate their industries and become leaders use strategies of chaining, franchising, and horizontal merger
With this strategy, based on cost-leadership, a firm establishes networks of linked stores or service-centres that are so closely interconnected as to simulate one large entity. The firm uses regional distribution centres to reduce transportation & inventory holding costs; it increases its buying power vis-a-vis suppliers; and it realizes economies of scale by sharing management costs and advertising across stores.
.3.3.2 Operations
Plant Locations
KFC had expanded early in their corporate history and their experience operating abroad put it in a strong position to take advantage of the growing trend toward international expansion. In year 2000, more than 50percent (5,595 restaurant) of the KFC’s restaurants were located outside the United States and the rest of the restaurant located inside the United States. Their major overseas markets are located in Mexico, China, Canada, Australia, Puerto Rico, Korea, Thailand, and United Kingdom.
Equipment (Technology, Use Age, Flexibility, Capacity utilization)
Technology use: cost could also be lowered and operation made more efficient by increasing the use of technology. Most restaurant operators viewed computers as their number one tool for improving efficiency. For an e.g.: improve labour scheduling, accounting, payroll, sales analysis etc..
Most restaurant chains were also using point of sales systems that recorded the selected menu items and gave the casher a breakdown of food items and the ticket price. Currently the company looking forward to develop their production cycle by the use of modern technology. The best example would be the use of new recycling papers
Age: the age category between 16 -24 are widely used staff which the company tend to employ. It creates good job opportunities as well as a good experience.
Capacity utilization: higher cost and poor availability of prime real estate was another trend that negatively affected profitability.
A plot of land suitable for a normal sized freestanding restaurant cost between $1.5 and $2.5 million. Leasing was a less costly alternative to buying. Nevertheless, market saturation decreased per store sales as newer unit’s cannibalised sales for existing units.
since there are variety of retail outlets the company tend to move into non traditional methods such as opening outlets as, hospitals, shopping molls, air ports, gas station, food court and in highly crowded public areas.
Flexibility- To make meal planning easier and more convenient, KFC has partnered with cybermeals, Inc., the Internet’s largest online ordering system, to give San Diego residents the option of ordering KFC for delivery or takeout via the Internet. Customers will be able to place online orders only when they are within a KFC delivery area and during business hours. (http://www.kfc.com/about/pr/020999.htm)
Operating cycle
The company’s operating cycle mainly based in to two types which are company owned and franchise by the company. The main purpose of the operating cycle is to dominate the international and domestic market. KFC’s early international strategy was to grow its company and franchise restaurant base throughout the world. By early 2000, KFC had refocused its international strategy on several high growth markets such as Canada, Australia, UK, china, Korea and etc. KFC hope planned to expand their company owned business into other international market in Europe and lain America in future.
Cost structure, cost drivers
The topical emphasis is on productivity growth and its dependence on the cost structure. The methodological focus is on application of the tools of economic analysis – the `thinking structure' provided by microeconomic theory – to measure technological or cost structure, and link it with market and regulatory structure. This provides a rich basis for evaluation of economic performance and its determinants.
(Sources: http://kapis.www.wkap.nl/prod/b/0-7923-8403-2)
Break Even Analysis
When consider the companies break even analysis can be used to evaluate the relationship between fixed cost, variable cost, selling price, and profit using the basic formula: break- even analysis setting price to break even on the cost of making and marketing a product or setting price to make a target profit.
3.3.3. Human Resources
Organisation Structure
KFC has seen 4 different management structures in the last 50 years. The management philosophy employed by each one of these companies has been different, creating a constantly changing environment for company employees and franchisees. PepsiCo (now YUM brands), the parent company of KFC, places an added emphasis on performance and is closely looking at ways to increase return on equity by buying out under-performing restaurants and investing in company-owned restaurants. This has created a strained relationship between corporate management and KFC franchisees. (www.google.com, access- 15-08-03)
TRICON GLOBAL RESTAURANT INC Organization chart, 2000
(Sources: Jeffrey A Krug, 2001)
Reward Systems
KFC® knows a thing or two about food-and it knows about parents and kids. Now, with the introduction of its new Kids Laptop Pack kid’s meal, it brings together all of these honest-to-goodness truths:
• kids are picky;
• kids don't like their food touching other food;
• kids want to eat at their own pace; and
• Kids want to feel in control of their mealtimes as they push the limits of both their own independence and their parents' patience. (Louisville, KY, Nov. 13, 2002 http://www.kfc.com/about/pr/111302.htm)
To gain a customer reputation and customer satisfaction the company tend to offer verity of rewards schemes as strategy to attract customers. The reason rewards system was to draw coupons and prize draw.
As part of KFC's ongoing commitment to diversity and the development of its associates, KFC will provide one scholarship per year over the next four years to eligible students attending UNCF schools. (http://www.kfc.com/community/uncf.htm)
Age and experience profile
Tricon Global Restaurants, Inc. is already the largest restaurant company in the world. Together, we serve more than 150 million people each week in nearly 30,000 restaurants in over 100 countries! And, we're growing every day through the success of dynamic professionals...like you! (http://www.kfc.com/careers/ )
Tricon provides a flexible benefits program designed with our employees' individual needs in mind. All part-time and full-time domestic permanent salaried employees are eligible after 60 days of continuous service.
Tricon and its brands are a fun, flexible place to work. KFC, Taco Bell and Pizza Hut all support a work/home/life balance. Whether company has begin as an hourly employee, work your way up through the ranks or come to us with management experience, the opportunities for success are a promise from us to you. We embrace a "promote from within" philosophy and enjoy continued growth in an otherwise rapidly changing market. We're an equal opportunity employer committed to creating a diverse workforce.
KFC has developed a support structure that celebrates the Restaurant General Manager. Among the best-rewarded Restaurant Managers in the industry, each is equipped to train and motivate with generous reward programs that assist them in creating unprecedented team environments. KFC has mastered the art of motivating teams - which can be fun for everyone and contribute to strong sales growth and great customer service.
Dominate attitudes and values (culture)
With the on going progress of the Tricon Global Restaurants Company, Kentucky Fried Chicken will continue to grow and expand in order to fulfill the wants and needs of an ever changing society. As they expand into different countries they adapt to fit the local tastes and trends in accordance with local customs and beliefs. The use of local management in the franchises has benefited KFC because of there knowledge of the local market. Their flexibility and determination to provide quality, service, and cleanliness while focusing on the specific demographics of each specific region.
Number of locations, physical and reporting relationships between related areas
KFC is part of Tricon Global Restaurants, Inc., which is the world's largest restaurant system with nearly 30,000 KFC, Taco Bell and Pizza Hut restaurants in more than 100 countries and territories. KFC has more than 11,000 restaurants in more than 85 countries and territories around the world. Kentucky Fried chicken corporation use franchise for expand their business around the world. The mother company of the KFC located in United States and they franchised their business to other countries to make more profits.
Key personalities
Good relationship with consumers, suppliers and the workers.
Outstanding employees within the organisation. .
Qualified employers are fitted to the right job.
KFC listen and respond to the voice of the customer
They believe in people, trust in positive intentions, encourage ideas from everyone and actively develop a workforce that is diverse in style and background.
We do what we say, we are accountable, we act like owners.
Good management skills.
We execute with positive energy and intensity...we hate bureaucracy and all the nonsense that comes with it.
3.3.4 Marketing
Since a company have in a good reputation over the product its marketing strategy would be clearly defined as a major part of the company. By use of 4P’s the KFC had developed their marketing strategies.
Products: Innovate new products with new tastes. Team of leading technologists that do research for develop new tastes of fast food for KFC in many years to attract customers.
Place: Expand the yum brand products to other countries with the suitable menus. When reopen the new restaurant they need to consider the competitors behaviour in the particular area. KFC have good distribution chancel for supply their products to the franchisees.
Price: Create attractive price that can afford all social classes. Marketing manager will be doing with the help of financial department. To have very attractive and profitable price for both us and the consumers
Promotion: Start advertising in TV radio and internet, also billboards bus shelters and public transports. The promotions manager will take the responsibility. It has to be inform consumers in around the world when the new menus introduce to the local and international markets.
3.3.5. Research and development
KFC should emphasize on growing the KFC franchises abroad. This will allow KFC to expand into different countries with less capital investing. By allowing franchisees larger flexibility as they expand abroad, they will have a better chance to appeal the local markets. It will be important to make an investment in Research & Development in order to better determine what countries will provide the best growth opportunities for the organization. In addition, KFC should build ties with local organizations in these foreign in order to achieve brand recognition in these new markets.
According to 2000 annual report Research and development expenses were $24 million in both 2000 and 1999 and $21 million in 1998.
3.3.6. Performance
KFC is delivering quality products and good customer service by millions of consumers around the world. The main advantage the company facing is their working environment. By creating better working environment it creates a better service towards the consumers. The performance of the organization is highly recognised by many consumers due to highly publicity activities they undertake
3.4 Stakeholders Analysis
Who are the key stakeholders?
Stakeholders Responsibilities
shareholders Higher dividens, share price, assist and profits.
Sound, well planned and implemented growth strategy.
Accurate and prompt financial reporting.
Prompt annual general meeting.
Joint Ventures & Franchise partners Fair dealing with parent company.
Profit maximizing
Consumers
Value for money KFC products
Product or brand choice.
Range of products, good customer service and distribution channel.
KFC foods that will balance their health awareness.
Reliable KFC products.
Employees
Job satisfaction.
High wagers.
Long term holidays.
Suppliers Management and knowledge transfer.
Fair trading: reasonable price, business reliability.
Prompt payment and order processing time.
Long term growth rate.
Price strategies.
Sustained growth rate of company.
Competitors High competition
No misleading advertising or promotion
Government
Prompt and accurate financial reporting and tax paying.
Contribution to nation’s economic indicates. (Eg. GDP).
Good corporate citizens.
Loyalty to legislation.
Job creation and security to country labour force.
Local society
Minimize environmental pollution.
No excessive or cultural –insensitive advertising.
Avoid wastage of products and raw materials.
Good corporate citizen.
Banking and other financial resources
Company profitability
Financial resource.
What are their values?
Shareholders: - high profit margin.
Customers: - high expectation of the product such as quality, price and brand loyalty.
Employees: - friendly environment, flexible time schedule, reasonable salary, challenging career.
Suppliers:- Good reliable service
Competitors: - value of challenging higher rank competitors.
Government:- government income (tax)
Their outside interests
The main outside interest are that the KFC seeking for is to create a better friendly environment within the employees. This could be a great advantage to the consumers to increase much awareness of the existence of the company. The other factor would be to create environment friendly company which tend to minimize the environment pollution by using recycling products.
3.5 Portfolio analysis
This analysis generating of strategic alternatives through the use of matrix techniques, sustainable competitive advantage and the experience curve. Portfolio matrix is actual concept of a portfolio (of brand, of product, of personal investments etc.) (John, 2003, study Guide)
Related Market Share
High Low
Product Sales Growth Rate High (Stars)
(Question Mark)
Low (Cash Cows)
KFC (USA) (Dogs)
KFC (Mexico)
KFC(Brazil)
star Question Mark Cash Cows Dogs
KFC’s located in star category have high market growth and a large share of the market. Significant amounts of cash are required to maintain their growth rate. Special promotions, high sales costs, lack of economy, and high competition (new market entries) force the firm to spend a great deal of cash to enhance or maintain its market position.
KFC’s located in question mark category may be the stars that lost their market share position to competition or cash cows whose position was eroded by superior competitive products KFC’s located in cash cow category moves out of the growth stage of the product life cycle, it no longer needs large amounts of cash to support its growth and defend its market position. At this point the product has reach maturity (high experience) and generates cash that can be used to support new product development (stars) and enhance the position of a problem child.
KFC’s located in dogs categories are faced with no growth potential and low market share. Since future opportunities for these products are unlikely, management may give serious consideration to eliminating them, depending on the impact on sales of other product in the line.
Beginning in 1995, we have been strategically reducing our share of total system units by selling Company restaurants to existing and new franchisees where their expertise can generally be leveraged to improve our overall operating performance, while retaining Company ownership of key U.S. and International markets. This portfolio-balancing activity has reduced, and will continue to reduce, our reported revenues and restaurant profits and has increased the importance of system sales as a key performance measure. We expect to substantially complete our enfranchising program in 2001.Estimated reduction in Company sales, restaurant margin and general and administrative expenses (“G&A”), (b) the estimated increase in franchise fees and (c) the equity income (loss) from investments in unconsolidated affiliates (“equity income”). The amounts presented below reflect the estimated impact from stores that were operated by us for all or some portion of the comparable period in the respective previous year and were no longer operated by us as of the last day of the respective year.
The following table summarizes the estimated revenue impact of the Portfolio Effect:
2000
U.S. International Worldwide
Reduced sales $(838) $(246) $(1,084)
Increased franchise fees 39 13 52
Reduction in total revenues $(799) $(233) $(1,032)
The following table summarizes the estimated impact on ongoing operating profit of the Portfolio Effect:
2000
U.S. International Worldwide
Decreased restaurant margin $(90) $(25) $(115)
Increased franchise fees 39 13 52
Decreased G&A 11 6 17
Equity income (loss) – (1) (1)
(Decrease) in ongoing operating $(40) $(7) $(47)
Profit
3.6 Macro- Environmental Analysis
Economic
The health of a nation’s economy affects the performance of individual firms and
industries. Because of this, companies study the economic environment to identify changes, trends and their strategic implications.
The economic environment refers to the nature and direction of the economy in which a firm competes or may compete.
Economic environment, that potentially positively or negatively affects the KFC’s ability to conduct the business in local and the overseas market. .
When consider the Mexican economy by year 2000 had stabilized and the GDP was increased at an average annual rate of 24% and unemployment had decreased to slightly more than 2 percent. This economic condition better grow in KFC and other fast food industries in the Mexico.
Mexican Peso is depreciated against US dollar because of inflation and higher interest rates.
Social- Cultural
The socio-cultural segment is concerned with a society’s attitudes and cultural values. Because attitudes and values form cornerstone of a society, they often drive demographic, economic, political/legal and technological conditions and changes.
This case study, historically franchises made up a large share of KFC’s international restaurant base, because franchises were owned and operated by local entrepreneurs who had grassroots understanding of local language and culture.
"Attitude towards customer service" due to large number of foods, services and considerable number of competitors in the fast food industry, customers are faced with high variety of options; therefore they demand a quality standard of customer service driving to satisfy their expectations. That causes changes in attitudes, beliefs, norms, customs and lifestyles and culture. These forces strongly affect the way people live and help determine what, where, how and when customers buy a firm’s products. Customers are increasingly demanding that marketers behave socially-culturally responsible.
Political
This involves assessing the political environment of the country/countries of destination. It includes such factors as the type of government (e.g. democratic, authoritarian), the actions of the host country government (e.g. limits on the amount of foreign ownership, subsidies), the type of economic system (e.g. capitalist, socialist), and the stability of the government (e.g. how long it has been in power).
• Political situation in Asia is not stable because of that industry has to take risk to invest money in Asian countries.
• With the setting up with World Trade Organization (previously named GATT), countries are increasingly lowering down trade barriers. This will open up potential new market. For example Mexico, one of the markets for KFC had been lowering its tariffs since it had become a member of GATT.
• Government rules and regulations effect to fast food industry. Changes government policies, changes in tax related laws on the industry.
• North American Free Trade Agreement (NAFTA) had eliminated tariffs on goods shipped between Canada, Mexico, and the United State.
• Argentina, Paraguay, Uruguay, and Brazil signed a custom union agreement (Mercour) in 1991 to eliminate tariffs on trade among those four countries.
• Investors do not like to invest when countries have war, revolution and changers government rapidly.
Technological
Pervasive and diversified in scope, technological changes affect many parts of societies. Their effects occur primarily through new products, processes and materials. The technological segment includes the institutions and activities involved with creating new knowledge and translating that knowledge into new outputs, products, processes and materials.
Demographic
The demographic segment is concerned with a population’s size, age structure,
Geographic distribution, ethnic mix and income distribution.35 As previously noted, the firm analyses demographic segments on a global basis rather than a domestic-only basis.
As a USA and global market of the KFC has to be very concern with those demographic factors because slight change of one factor could affect the whole market at once.
For example aging population of most countries are increasing these days and new younger generation is taking the world therefore market is changing due to their needs and taste if we think that we do the same thing that we did during the post war period or baby boomers time it is not going to work now. But the fast food industry still mainly based on the baby boomers.
According to theCase study indicates that the fast food industry mainly based on these age categories such as baby boomers aged 35 to 50 constituted the larger consumer group for fast food restaurants. Generation Xers (ages 25 to 34) and the “mature” category (aged 51 to 64) made up the second and third large groups who use fast food in the country.
4. Statement of alternative options
• The Company is fulfilling its promises by delivering
• Increase the number of stores over the next two years
• Advertising and promote KFC’s products in targeted countries
• Joint ventures. KFC should continue its joint ventures operation with local and international.
• An important measure against which the board must and should be judged is the growth in the price of the Company's stock. At this time their performance in this regard is deficient.
• Generating shareholder value.
• Focusing on the customers.
• Capitalize on their technological advantage in fast food improvement.
• Satisfying a global demand for the next generation of fast food.
• Try to produce more innovative new tastes and menus and bring them to market.
• The demand for a healthier life-style among consumers would create defection from fast food to healthier food types.
• Concentrating on positioning KFC as an international brand name.
• Emphasize innovation in production to increase quality and reduce costs.
5. Reasons for rejecting the other options
• KFC doesn't have ability to concern any options with price considerations.
• Tricon International Restaurant must show the profits and new investments. This is depending on gain the trust from investors. Bit hard to increase the price of the shares.
6. Recommendations
• Extend the use of local suppliers in the form raw food supplies and distribution services.
• Create and add local food items on the menu that cater to global market taste.
• Create a management hub in the Latin American region to oversee operations of franchises in those countries.
• The non-tariff and free-trade agreements would only ease the management of these franchises.
7. Implementation and Action Plan
Action Responsibilities Time Action step
Conducting a market research on fast food consumption in globally. The Yum brand Inc, Board of directors,
Market research organization. I year
Announce the actions, conducts the research acknowledge the shareholders.
Expand the plant capacity, and build a new branches in Asia
Announcing and tendering to find the best fast food market. Start the advertising campaign
Develop marketing strategies and plans. Yum brand Company Board of Directors On going
Expand the Business Yum brand board of directors and Pepsi Inc. On going
Starting the new branches in Asia Board of Directors, Middle managers and workers and franchisers. 1 year
Designing an advertising campaign. Advertising department, marketing department.
One year
Make new advertisements Advertising department 1 year
Starting the new advertisements in media.
