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Kentucky Fried Chicken and the Global Fast Food Industry is a case at number 10 of Strategic Management Book by Arthur A. Thompson, Jr. and A.J Strickland III. This case presentation provides very ...

Kentucky Fried Chicken and the Global Fast Food Industry is a case at number 10 of Strategic Management Book by Arthur A. Thompson, Jr. and A.J Strickland III. This case presentation provides very useful information about KFC and Global Fast Food Industry\'s Facts and Figures.

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  • we often hear that an organisation is as great as its technology, now what is the latest gadget that KFC is using that makes it greater then its competitor? and what makes KFC the best fast food? what is it that it is doing that its competitor is not doing?
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Kentucky Fried Chicken & The Global Fast Food Kentucky Fried Chicken & The Global Fast Food Presentation Transcript

  • Kentucky Fried Chicken & the Global Fast Food Industry Presented by: Awais Ahmad CIIT/FA09-MBA-027/LHR M. Adeel Khan CIIT/FA09-MBA-069/LHR Zara Abid CIIT/FA09-MBA-169/LHR Najm-ul-Hassan CIIT/FA09-MBA-112/LHR Sabahat Abid CIIT/FA09-MBA-130/LHR Ghulam Asghar CIIT/FA09-MBA-039/LHR
  • CHAPTER 6: STRATEGIES FOR COMPETING IN GLOBALIZING MARKETS (OVERVIEW)
    • Globalization: Shift towards more integrated and interdependent world economy
    • Why Companies expand into foreign markets?
    • Competing Internationally and Competing Globally
    • Cross-Cultural Differences
    • Multi-country and Global Competition
    • Options for entering in foreign markets (Export, Licensing, Franchising, Multi-country strategy)
    • How a firm can gain competitive advantage? (Location advantage, Transfer competencies and capabilities across borders, Coordinating cross border activities)
    • Strategic Alliances and Joint Ventures
    • Strategies for Local Companies in emerging markets
    • One of the largest fast food segments with over 200000 restaurants & about $120B of sales in US alone
    • Fast food restaurants are also called QSR and the brands they have are called QSB.
    • Largest players: McDonald’s & Yum! Brands (International), Wendy’s & Burger King (Regional), Jack in the Box & Sonic (National)
    • International players are rising their prices as the cost is increasing, but they still have good position in market.
    • Regional players are turning into new marketing campaigns to sustain their growth.
    OVERVIEW OF FAST FOOD INDUSTRY:
  • KFC INTRODUCTION: Mission To sell food in a fast, friendly environment that appeals to pride conscious, health minded consumers. Stated Objectives Product development Increase variety on menu Introduce desert menu Introduce buffet to restaurants
  • KFC INTRODUCTION:
    • Pioneered by Colonel Harland Sanders
    • One of the largest QSB (Quick Service Brand) in the world
    • One of the earliest fast food chain to go international (Canada, Australia, US, China, Korea, Thailand, Mexico, Europe, Latin America, India, now in Japan & Pakistan)
    • Subsidiary of Yum! Brands Inc. (Tricon Global Restaurants Inc.)
    • About 37000 units in more than 110 countries and territories.
    • The Colonel traveled 250,000 miles a year visiting KFC restaurants around the world.
    • Cupola Co. deals with all franchises of KFC in Pakistan.
  • PACKAGES OFFERED:
  • KFC HISTORY:
    • 09-09-1890: Harland Sanders was born outside Henryville, Indiana.
    • 1952: Proper establishment of first KFC franchise in Salt Lake City
    • 1955: An interstate highway was built to bypass Corbin, Kentucky. Sanders sold his station on the same day for $105 but decided to sell his Secret Recipe to restaurants.
    • 1957: KFC was first sold in buckets.
    • 1960: 190 KFC franchises & 400 franchise units in US & Canada1964: More than 600 franchised outlets in US, Canada & first overseas outlet in England. Sold the business for $2m to a group of investors (John Young Brown Jr. & Jack Massey) Headed by John (Future governor of Kentucky) but remained a public spokesman and goodwill ambassador to the company.
  • KFC HISTORY (CONTD.):
    • 1969: The Kentucky Fried Chicken Corp. was listed on New York Stock Exchange. 1971: Heublein Inc. (a company dealing with beer and alcoholic products) acquired KFC Corp. with more than 3,500 franchises in the world.
    • 1977: Decline in the service quality and restaurant openings. Heublein Inc. sent a new management team to redirect KFC’s strategy. New strategy enabled KFC to control its operations & again new restaurant openings were being continued. 16-12-1980: Colonel Harland Sanders died with disease.
  • KFC HISTORY (CONTD.):
    • 1982: RJR Reynolds Industries Inc. (a tobacco products co.) faced fall of sales due to increasing awareness of smoking damages among the public. So it acquired Heublein Inc. with the objective of diversifying into unrelated business. KFC, then became a subsidiary company of RJR Reynolds Industries Inc. Problems faced by KFC were eliminated by let the managers of KFC do their work independently with little interference. 1985: RJR Reynolds Industries Inc. also acquired Nabisco Corp. for $4.9b. After acquisition, RJR Reynolds Industries Inc. became RJR Nabisco Inc.
    • 1986: Pepsi Co. (formed in 1965 with the merger of Pepsi Cola Co. and Frito-Lay Inc., dealing with soft drink products) acquired KFC from RJR Nabisco Inc. with the objective of diversifying into unrelated business. Pepsi Co. formed its three segments business; Soft Drinks, Snack Foods & Restaurants. It entered in restaurant business in 1977 by acquiring Pizza Hut, 1978 by Taco Bell & finally by KFC.
    • 1997: Pepsi Co Inc. announced the spin-off of its QSR (Quick Service Restaurants) KFC, Taco Bell & Pizza Hut into Tricon Global Restaurants Inc.
    • 2002: Tricon Global Restaurants Inc. changed its corporate name to YUM! Brands Inc. Also it owned A&W, All-American Food Restaurants & Long John Silvers in addition to KFC, Pizza Hut & Taco Bell.
    • 2010: KFC was on the ground floor of growth in South Africa and other African countries
    • 2011: Greater opportunities of growth in Africa, Japan, India and Pakistan.
    KFC HISTORY (CONTD.):
  • QUESTION 1: What are the chief Economic and Business Characteristics of Fast Food Industry?
  • ECONOMIC CHARACTERISTICS: •  Market size. According to 2009 figures, Market Share of Yum! Brands reached to 9% of the Total Fast Food Industry
  • Scope of competitive rivalry – International Market •  Market growth rate and where the industry is in the growth cycle? – Maturity Stage in Industry Life Cycle; (The industry has been through the shake-out stage of the industry life-cycle, and the largest companies now own some of their former competitors.) •  Number of rivals and their relative sizes – Is the industry fragmented with many small companies or concentrated and dominated by a few large companies? – Large Companies ECONOMIC CHARACTERISTICS (CONTD.):
  • ECONOMIC CHARACTERISTICS (CONTD.):
  • ECONOMIC CHARACTERISTICS (CONTD.):
    • •  Whether companies can realize economies of scale in purchasing, manufacturing, transportation, marketing, or advertising? – All the large companies have the advantage of economies of scale, which is displayed in their continuing effort to provide low priced value meals to their customers
    • •  Whether high rates of capacity utilization are crucial to achieving low-cost production efficiency.
    • •  Resource requirements and the ease of entry and exit.
    • •  Whether industry profitability is above/below par – above par
    • High Sales by major participants
  • ECONOMIC CHARACTERISTICS (CONTD.):
  • ECONOMIC CHARACTERISTICS (CONTD.):
    • Growth in US is expected to decrease as the demand for fast food is increasing in Asian and Middle-East Countries and more outlets are being setup by KFC in Asian Countries.
    • Growth in 2005 was 2.7% in US, but was expected to fall by 0.5% in the future
    • About 75% revenues of Fast Food Industry come from Quick Service Restaurants.
    • In 2010, KFC was ranked at number 9 among the fast food chains. The reason was slow innovation and less variety of products.
    • By 2011, the Global Fast Food Market is Forecasted to reach a value of $125.4B (Research and Markets – http://www.researchandmarkets.com/reports/c71910)
    • Fast Food Market is divided into 4 segments:
      • Quick Service Restaurants: Locations where the primary function is to provide full meals but where table services are not offered
      • Takeaways: Establishments that provide freshly prepared food for immediate consumption and where typically more than 80% revenues come from consumers who take the food off the premises to consume.
      • Mobile and Street Vendors: Individual or Van mobile stalls offering a limited range of freshly prepared food as well as beverages.
      • Leisure Locations: Locations serving food and drinks for immediate consumption on premises within leisure outlets (cinemas, theatres etc.) that leisure operator owns and operates itself.
    BUSINESS CHARACTERISTICS:
    • Franchise system
    • Target Market:
      • Young Generation
      • Children
      • Busy Families
      • Travelers
      • Health Conscious People
    BUSINESS CHARACTERISTICS (CONTD.):
  • BUSINESS CHARACTERISTICS (CONTD.):
    • Product Varieties in Fast Food Sector
  • BUSINESS CHARACTERISTICS (CONTD.):
    • The only Industry that did not faced losses even in times of crises and suicide attacks (9/11)
    • Cultural factors influence the industry’s positioning in market and consumer’s mind
    • Huge Profits
    • Differentiated Products
    • High Advertisement Cost
    • Advertisement Cost of Major Players of Fast Food Industry
    BUSINESS CHARACTERISTICS (CONTD.):
  • BUSINESS CHARACTERISTICS (CONTD.):
    • Major portion of revenue of fast food come from Quick Service Brands
    • Demand for Fast food is decreasing as the awareness of fast food obesity is prevailing in the world. So the consumers are now shifting to more healthy food and their preferences are being changed.
    • Offering more health conscious, quality products gives the industry core competencies and competitive advantage than rivals
  • QUESTION 2: What Forces are Driven Changes in the Industry?
  • CONCEPT OF DRIVEN FORCES:
    • Industry Conditions Changes Because important Forces are driving industry participation ( customers , competitors or suppliers) to alter their Action: the driven Forces in an industry are the major underlying causes of changing industry and competitive conditions
  • WHY COMPANIES EXPAND INTO FOREIGN MARKETS?
    • There are 4 major reasons for which the Companies go International.
      • To gain access to new customers
      • To Achieve Lower Cost and Enhance the firm’s Competitiveness
      • To capitalize on it’s Core Competencies
      • To Spread it’s Business Risk across a wide Spread Market
  • REASONS (CONTD.):
    • To gain Access to new Customers
    • Benefits:-
    • Helps to Increase long Term Growth
    • Helps to increase revenues
    • Follow domestic customers that go abroad
    • To Achieve Lower Cost and Enhance the firm’s Competitiveness
    • Benefits:-
    • Helps to get Economies Of Scale
    • Helps to Improve Firm Competitive Position
    REASONS (CONTD.):
    • To capitalize on it’s Core Competencies
    • Benefits:-
    • Helps to Get a Competitive Position Not only In Domestic Country but also in the Foreign Countries
    • Helps to Get market Leadership
    REASONS (CONTD.):
    • To Spread it’s Business Risk across a wide Spread Market
    • Benefits:-
    • Helps to mitigate Risk
    • Helps to Cover Worldwide Demand for the Product
    • Get assurance of their Own Investment
    REASONS (CONTD.):
  • MARKET FORCES:
    • KFC is one of the Biggest Fast Food International Industry of America dealt under Yum brand . But as with all corporations dependent on public goodwill and consumer trust, KFC must also have to Keep peace with various events and forces in the environment that Effects It’s Operations.
  •  
  • POLITICAL FACTORS:
    • Government Policies:
    • Government policies of any country plays a vital role for any international organization operation. Although KFC is a foreign company, but they have to obey the policies of the Government where they run their business activities. To handle the situation tactfully KFC obey the policies of the Government as prescribe by the them in order to run this kind of business.
    • Price Policies:
    • Price policies is also an important factor. Most of the international Companies are dropped from the market for only 1 reason that they cannot handle the Price war with their Domestic Rivals. KFC maintain & design its price policies keeping in view the income & income distribution of the people living in the country. That’s why all the classes are the target market of KFC.
  • Cont..
    • Political Stability:
    • Political stability is very important if KFC want to become the leader in fast food business in Pakistan. Pakistan is politically an unstable country, so this is also an important political factor.
    • Animal Right Campaign
    • if Govt. or any other forces Start a Campaign of Animal Protection Campaign, this will also force those Companies to run their Operation according to them
  • ECONOMIC FACTORS:
    • Income:
    • Income is an important economical factor of the fast food industries. This factor decides which class they are going to target. In the early time of KFC they were focusing on the upper class but they introduce some meal through which we can say that they target the middle & the upper level as well.
    • Consumption Behavior:
    • KFC also estimated the consumption behavior of the people, their liking and disliking and KFC made decision accordingly.
    • Low Set Up Cost
    • Low set up cost in any Country also enable most of the international companies to start their Operation in there. The Result is that now almost all the Countries are Comprised off with International Brands. So this Factor Counts a lot for them too.
  • SOCIAL FACTORS:
    • Age:-
    • Age factor counts a lot for any industry to grow into the market .Generally there is no age limit which is focus by the fast food industries. They usually target & focus on each and every age of the society. But for somehow in our opinion they target heavily on the youngster as compared to the middle & old age.
    • Gender:
    • In this case they generally focus on the both Males & Females of the society & similarly target them
    • Population:
    • Population also plays a vital role in the demographical factor of KFC. In the light of this population they can make their strategy.
    • Culture
    • Though the cultures of Most of the countries are Different, the international Brands finds themselves in trouble when they go for a specific Country. Like The Culture of Pakistan is different As compared to the Culture of India. They only way to Success is to Adopt their Local Culture.
    • Religion
    • KFC not only adopt the Pakistani culture but also the Religion as well. They offer Halal foods to the customers, which is the symbol that they adopted the Muslim religion
    • Household Size:
    • Household size plays a vital role in the demographical factor of A Company. In case of KFC they, Generally target the whole family not a single family members. That’s why the had introduced many family packages meals
    SOCIAL FACTORS (CONTD.):
  • TECHNOLOGICAL FACTORS:
    • Pace of Change
    • Pace of change mean rate of change. As the Technology Changes, it also Forces the Industry to changes their mode of Operations too. KFC has strategy to introduce new technology whenever they think that it is a time to introduce new technology.
    • Research & Development
    • Research & Development is also an important factor in the Technological factor. KFC always support the work of research & development in order to introduce the new technology.
    • Capital Formation:
    • In Fast Food Industry , Capital formation means stock of machinery. As the Technology changes it also forces the industry to Modify their Machinery too. In Case of KFC they has a good amount of Capital Formation through which they can meet with the desire changes came in the industry.
  • SOME OTHER FORCES:
    • Globalization
    • Product Innovation
    • Changes in Cost & Efficiency
    • Growing Buyer Preferences on different Brands
  • What does your 5 Forces analysis of the fast food Industry tells you about the competition facing KFC? QUESTION 3:
  • IMPORTANCE OF COMPETITIVE ANALYSIS:
    • An important part of industry competitive analysis is to deeply Study the industry’s competitive process to discover the main sources of competitive pressure and how strong each competitive force is. This analytical step is essential because managers cannot devise a successful strategy without understanding the industry’s competitive character.
  • 5 FORCES COMPETITION:
    • To determine the competitive intensity, and therefore attractiveness of a market we modeled Michael E. Porter’s five forces Because this model has the ability for systematically diagnosing the chief competitive pressures in a market and assessing how strong and important each one is.
  •  
  • 1. Rivalry Among Existing Competitors : The First competitive force is the extent of competition or rivalry among established companies in the industry. For instance, if the rivalry is weak, companies have an opportunity to increase prices and gain more profits. While, if there is a strong competition, companies would compete in prices, which might result in a price war. This would reduce or limit profitability due to the reduction in the sales margins.
  • Factors That Effects The Companies Rivalry Against Existing Competitors:
    • Price is an issue for undifferentiated product:
    • If the products are Homogenous the switching cost of customers will be low the Result will be that the price competition is common. In Contrast if the products are Heterogeneous, in this case the switching cost is high and then the price competition will be High too.
    • In case of global fast-food industry switching cost of the Product is low, Reason is that many products are quite similar among existing players in the industry.
    • Number of Competitors and size of competitors:
    • There are more than 800,000 restaurants and food outlets in U.S Restaurant industry. Out of these full-service and fast-food segments are 65 %. Which shows the Rapid increase of Fast food industry as compared to other food industry.
    • Example of these are the large size of some company like McDonald’s, Pizza Hut, KFC are quite large and they are operating globally.
    • McDonald’s was operating more than 12000 resturants in U.S And 14000 in Foreign Units. In contrast Tricon global restaurants was operating more than 20,000 in USA
    • KFC, Pizza Hut, and Taco Bell restaurants in 85 countries. Because of their early expansion abroad, McDonald’s, KFC, Burger Kind, and Pizza Hut had all developed strong brand name and managerial expertise in the international market.
    • This Strategy made them formidable competitors for the fast-food chain. It reflects that global fast-food industry is unattractive in terms of number of competitors and size of competitors.
    Factors That Effects The Companies Rivalry Against Existing Competitors (Contd.):
    • Demand Conditions
    • The growing demand for the Products takes places because of 2 major things:-
    • Increase in Income Level
    • Customer awareness about the Products
    • But due to immense price competition between different fast food restaurant, these industry is unable to raise its prices to cover the increased costs. As a result global giants focused on developing country as there are huge growths potential like Asia & Latin American countries region countries.
    • So on this point we can concluded that global fast food industry is unattractive in developed country and attractive in developing country.
    Factors That Effects The Companies Rivalry Against Existing Competitors (Contd.):
  • 2. Threat of Entry from new Competitors:
    • Threat of entry from new competitors depends on existing entry barriers and reaction from existing players.
    • Existing Entry barriers are:-
    • Economies of scale,
    • Government regulations
    • Brand Loyalty
    • Economies of Scale:
    • The threat of new entrants can be reduced because most of the established companies in the industry have economies of scale advantage. For instance, PepsiCo has improved its economies of scale within its business operation by adopting the dual branding strategy. Therefore, this enables KFC to improve its customer base by increasing its menu offerings.
    • This will help KFC to reduce the threat of new entrants because they will not be able to compete in the market and hold high cost disadvantages compare to the already established firms.
    2. Threat of Entry from new Competitors (Contd.):
    • Government Regulation:
    • Government regulations and other diplomatic procedure make it difficult for new competitors to enter the market.
    • The Result is that Renown fast food Industry are facing competition with local entrepreneurs who has the basic understanding of local language, culture, customs, law, financial markets, and marketing characteristics.
    • Many of the companies are overcoming this problem by adopting the Strategy of franchising with the local entrepreneurs.
    • The reason behind such a Strategy is that Fast Food industry contains a Huge profit. So, we can say that global fast-food industry is moderately attractive for existing giant as well new Competitors
    2. Threat of Entry from new Competitors (Contd.):
    • Brand Loyalty:
    • In fast-food industry, as it is found in the case brand loyalty is the only identity here for their presence.
    • As the name implies like KFC, McDonalds, Pizza Hut, burger Kind and all the other Fast Food Chains has their strong customer base.
    • Another important thing in Fast-food industry is the taste of food. It is a matter of habituation. There is a natural loyalty to the brand for the taste. So, Brand loyalty is high and as a matter of fact industry is unattractive for the new competitors.
    2. Threat of Entry from new Competitors (Contd.):
  • 3. The Bargaining Power of Buyers:
    • Buyers are of 2 types:-
    • Those who Purchase raw material for suppliers
    • Those who use the Products (end users)
  • 3. The Bargaining Power of Buyers (Contd.): In the First case the Bargaining power of the industry like KFC will be high. As KFC is a single company including others is small in number and big in size, which gives them the ability to bargain for price reduction as they purchase in large quantities from suppliers. KFC is a multinational company. it has large internal cash flow that allows it to invest in cheap and in less risky countries like Asia and Latin America. As a result, the suppliers would be threatened and forced to reduce their prices. Which gave them Advantage to reduce their production Cost and grape more market share
    • On the other hand individual customers can have the power over the fast food companies and force them to reduce their prices.
    3. The Bargaining Power of Buyers (Contd.):
  • 4. The Bargaining Power of Supplier:
    • The bargaining power of supplier could be very strong, if we assumed that the buying companies are not important for the supplier as its business profitability doesn’t depend on them. Therefore, he could set his own terms and offer them to the buying companies and if they refused to approve on the terms, the suppliers could go to other buying companies in the industry such as McDonalds if KFC refused the terms. From this it is clear that the buyer could not force the supplier to reduce prices or improve quality.
  • 5. The Threat from Substitute products:
    • “ Substitute products are alternative products that satisfy customer’s needs in a similar way to those being served and provided by the industry.”
    • The existence of substitute products acts as a strong competitive threat for companies as it restricts its ability to increase prices and boost revenue.
    • On the other hand, if a firm’s products have fewer substitutes in the market, it would have a good opportunity to reflect its prices and gain more Profit
  • What factor do you see as critical to competitive success in the fast food industry? QUESTION 4:
  • CRITICAL SUCCESS FACTORS:
    • Those areas, processes or activities that organizations must focus on in order to achieve success.
    • Allow a firm to focus on meeting its desired objectives
  • CRITICAL SUCCESS FACTORS OF FAST FOOD INUDUSTRY:
    • Location
    • Speed of Service
    • Adaptation of Localization
    • Quality of food
    • New Products
    • Menu selection and pricing
    • Environment
  • Location:
    • Attract the customer
    • Convenient location helps to get profit
    • Contribute to the Satisfaction level of customer
  • Speed of Service:
    • Rapid delivery, on-time delivery and have low preparation time.
    • Maintain consistency in quick service
  • Adaptation of Localization:
    • Local taste and culture
    • More appealing to local buyer
    • Focus on unique food and taste countries
    • Customizing products country to country
    • More attraction
  • Quality of food:
    • Provide acceptable quality to consumers
    • word of mouth
    • consistency quality
  • New Products:
    • New product from time to time
    • Stay on top of the market
    • Develop and introduce new products to attract customer
    • More innovation
  • Menu selection and pricing:
    • Designing an appealing menu
    • Selection of menu items
    • Increasing the value of the menu
    • 2011 Chef Survey Report says
    • Pricing
  • Environment:
    • Delivering the food fast
    • Friendly people working
    • Clean and efficient environment inside and outside
    • Behavior and attitude of the management
  • Critical Success Factors McDonald KFC Burger King Subway Location 9 8 7 9 Speed of Service 10 7 8 9 Adaptation of Localization 9 9 7 8 Quality of food 9 8 7 9 New Products Menu selection and pricing 10 9 7 8 Environment 9 9 8 7 Overall Strength rating (unweighted) 56 50 44 50
  • Is fast food industry attractive? What factors make it attractive? Unattractive? QUESTION 5:
  • ATTRACTIVE AND UNATTRACTIVE INDUSTRY:
    • An attractive industry is one which offers the potential for profitability.
    • An unattractive industry is one which does not offer the potential for profitability.
    • Degree of risk and uncertainty in industry’s future will also make the industry attractive and unattractive.
  • Is fast food industry attractive?
    • High average return on investment
    • Entry barriers are low
    • Suppliers and buyers have modest bargaining power
    • Substitute products or services are high
    • These make restaurants look very appealing to big corporations
  • Attractive Factors:
    • Industry growth
    • Changes in consumer trends
    • Rigid economy
  • Industry growth: Sales of major Fast Food items from 1970 to 2010
  • Industry growth :
    • Strong Development in market growth
    • 4% growth rate
    • 170 billion sale in 2010
    • Expected to grow at 5% during 2011
    • According to US fast food market outlook
  • Industry growth factors Factors that make the Fast Food Industry growing continuously
  • Changes in consumer trends:
    • Changing at a fast pace
    • Change in eating habits and diet
    • Changes in society
    • Its Easier to buy fast food rather than to cook
  • Rigid economy:
    • Struggling economy
    • People buying fast food because it’s fast and cheap.
    • Spending of the dollars on cheaper fast food rather then expensive luxury restaurants
    • Prefer to spend their money on fast food rather than buying grocery.
  • Unattractive Factors:
    • Health related issues
    • Encourages unhealthy eating habits
    • Low level customer commitment
  • Health related issues:
    • Unhealthier than home-cooked meals
    • Higher amounts of salt, fats and calories
    • Obesity
    • Unhealthy meat
    • Variety of negative and costly health outcomes includes high cholesterol, heart disease, high blood pressure and some cancers.
  • Low level customer commitment:
    • Large number of food retail outlets
    • Tendency of customer to switch from one product to other
  • Encourages unhealthy eating habits:
    • Hot meals or snacks that can be eaten by hand on the spot, or taken away from where they are prepared or sold seem easy.
    • Trapping through advertisement
  •  
  • QUESTION 6:
    • What is KFC current strategy and how well is it working? Do you like the company’s competitive position as well as other fast food chains?
  • STRATEGY OPTIONS FOR ENTERING AND COMPETING IN FOREIGN MARKETS:
    • EXPORT STRATEGIES.
    • LICENSING STRATEGIES.
    • FRANCHISING STRATEGIES.
    • MULTI COUNTRY STRATEGIES.
    • GLOBAL STRATEGIES.
    • STRATEGIC ALLIANCES OR JOINT VENTURES
  • EXPORT STRATEGY:
    • “ Maintain a one-country (National) production base & export goods to foreign markets utilizing either company-owned or foreign controlled forward distribution channels”.
  • Benefits:
    • Domestic plants as a production base and export goods to foreign markets.
    • Minimize risk of entering & capital requirements.
    • Limited Involvement of manufacturer.
    • Can establish their control (if advantageous).
  • Exceptions:
    • Where manufacturing cost is substantially higher.
    • High shipping cost.
  • LICENSING STRATEGY:
    • “ Company License foreign firms to use the company’s Technology or Produce and Distribute the company’s Products”.
  • Benefits:
    • Licensing makes sense when a firm with valuable technical know-how or a unique patented product has neither the internal organizational capability nor resources to enter into foreign markets.
    • Does not have to bear the risk & cost of entering foreign markets.
  • Exceptions:
    • Risk of providing valuable techniques.
    • Losing control.
    • Monitoring licensees & safeguarding the company’s proprietary is difficult.
  • FRANCHISING STRATEGY:
    • “ Franchising Strategy is used for global expansion with the efforts of service and retailing enterprise.”
  • Benefits:
    • Less cost incurred as compared to licensing.
    • The franchiser just has to expend only the resources to recruit, train, and support franchisees.
    • Rules & regulations to follow.
    • No compromise on product quality.
    • Goodwill.
  • Exceptions:
    • Franchises usually;
    • Not maintaining quality control.
    • Do not exhibit strong commitment to consistency and standardization.
    • The after all effect is that the company can lose it’s goodwill.
  • Examples:
    • McDonald’s.
    • Tricon Global Restaurants.
    • ( the parent of KFC, Pizza Hut, Taco Bell )
  • MULTI-COUTNRY STRATEGY:
    • “ A multi-country strategy is one which varies from country to country according to the taste & preferences of the people”.
  • Needs Of Multi-country strategy:
    • Where there is a vast differences in
    • Culture ( values, perceptions, preferences and behaviors )
    • Economic ( buying power and spending behavior )
    • Political ( laws, political environment, pressure groups that limit Org. in a society )
    • Demography ( income, age, living standard, purchasing power, occupation, religion, etc. )
    • Social values.
    • And competitive conditions in different countries.
  • GLOBAL STRATEGY:
    • “ A Global strategy is one where the company’s approach is mostly the same in all countries”.
    • Although minor country-to-country differences in strategy do exist to accommodate specific competitive conditions in host countries, the companies fundamental competitive theme (low cost, differentiation, best cost, or focused) remain the same world wide.
  • Strategic alliances
    • This is the strategy in which the companies merges their operations to expand quickly with low cost. In this strategy the companies have the advantage of keeping their independence alive.
  • Joint ventures
    • This is the strategy in which the companies joint together to run their operations with the cost saving and minimizing the risk. The is the good strategy for companies to expand internationally with low risk.
    • For example Sony Ericsson etc.
  • KFC OLD STRATEGY:
    • INDEPENDENT FRANCHISEES
    • KFC started international operations in 1950s by
    • opening as a system of independent franchisees.
    • COMPANY OWNED RESTAURANTS
    • PepsiCo started the expansion of restaurants by company owned restaurants rather than franchising.
    • CONVERTING TO FRANCHISEES AGAIN
    • After spinning off of the restaurants in 1994 into Yum! Brands, the company owned restaurants were again converted into franchisees by better handling by Yum! Brands.
  • KFC INTERNATIONAL STRATEGY:
    • To grow its company and franchisees restaurant base all over the world.
    • By 2000, out of 5595 restaurants 69% were franchised, 21% were company owned and 10% were licensed restaurants or joint ventures.
    • In small markets (Bermuda, Grenada), company was emphasizing on franchising strategy but in large markets (China, Mexico & Canada), the company was emphasizing on company owned restaurants.
  • KFC CURRENT STRATEGY:
    • Multi-Domestic Strategy
      • Menu Differentiation and upscale experience.
    • Target families.
    • Economies of scale and quality control.
    • Extensive Employee Training.
    • High level customer service.
  • KFC CURRENT ACHIEVEMENT:
    • Grabbing the world market in more than 400 countries.
    • 1 st Ranking in fast food chain in chicken segment
    • One of the world’s top 10 fast food chains
    • Good performance in Malaysia, Japan and Pakistan
  • KFC COMPETITIVE POSITION: QSRs (Chicken Segment Rank) QSRs (Fast Food Rank) Chain Sales ($M) 1 9 KFC 5,200.00 2 14 Chick-fil-A 2,962.30 3 20 Popeyes 1,593.00 4 25 Church's Chicken 1,150.00 5 29 Zaxby's 664.00 6 31 Boston Market 648.00 7 33 Ell Pollo Loco 626.00 8 34 Bojangles' 607.00
  • What are KFC internal strengths and weakness? What are its external opportunities and threats? QUESTION 7:
  • SWOT ANALYSIS KFC:
    • If you know your strengths and weaknesses and understand the opportunities and threats, then you can do something about them.
  • Strengths:
    • Strengths can be found internally in a company and can be used
    • to the company’s advantage. The strengths identified are as follows:
    • Name recognition and reputation.
    • KFC's early entrance into the fast-food industry in 1954 allowed KFC to develop strong brand name recognition and a strong foothold in the industry.
    • PepsiCo's success with the management of fast food
    • PepsiCo used many of the same promotional strategies that it has used to market soft drinks and snack food. By the time PepsiCo bought KFC in 1986, the company already dominated two of the four largest and fastest-growing segments of the fast food industry .
    • Traditional employee loyalty
    • KFC's culture was built largely on Colonel Sanders' laid back approach to management. Before the acquisition of KFC by PepsiCo, employees at KFC enjoyed good benefits, pension, and could receive help with other no income needs. This kind of "personal" human resources management makes for a loyal workforce.
    • KFC's secret recipe
    • The secret recipe has long been a source of advertising, and allowed KFC to set itself apart. Also, KFC was the first chain to enter the fast-food industry, just before McDonald's, which opened its first store a year later, and the "secret recipe" was the initial home replacement strategy.
    Strengths (Contd.):
    • Improving operating efficiencies
    • KFC is reducing overhead and other operating costs that directly affect operating profit. Operating Efficiencies is achieved by KFC through improvements in customer service, cleaner restaurants, faster and friendlier service, and continued high-quality products.
    Strengths (Contd.):
  • Weaknesses:
    • Weaknesses are also found internally like strengths, Weaknesses, however, can limit a company's potential. The weaknesses for KFC are identified as follows:
    • KFC has a long time to market with new products.
    • the chicken segment of the fast food industry, innovation was never a primary strategy for KFC. However, during the late 1980's, other fast food chains, such as McDonald's, began to offer chicken as a menu option. During this time, McDonald's had already introduced the McChicken while KFC was still testing its own chicken sandwich. This delay significantly increased the cost of developing consumer awareness for the KFC sandwich.
    • Many sales of KFC lead to a confusing corporate direction.
    • Between 1971 and 1986, KFC was sold three times.
    • The first two sales, to Heublein, Inc and to R.J. Reynolds, left
    • the company largely autonomous. It wasn't until the sale to
    • PepsiCo in 1986 that changes in top management started to
    • take place. These changes happened almost immediately after the sale.
    • Conflicting cultures of KFC and Pepsi Co.
    • KFC's culture was largely based on the Colonel's laid back approach to management, while PepsiCo's culture is more of a "fast track“ attitude. Employees do not have the same level of job security that they enjoyed before the PepsiCo acquisition.
    Weaknesses (Contd.):
    • Turnover in top management.
    • PepsiCo's own management had replaced all of the top KFC managers. However, by 1995 most of this new PepsiCo management had either left the company or been moved to a different division. In addition, Kyle Craig, who was named president of KFC's US operations in 1990, left in 1994 to join Boston Market .
    • contractual disputes with franchisees in the United States.
    • The CEO announced new contract changes - the first in thirteen years. "The new contract gave PepsiCo management greater power to take over weak franchises, to relocate restaurants, and to make changes in existing restaurants". The franchisees protested these changes and the relationship between the corporate KFC and the franchisees in the United States have been strained ever since this announcement.
    Weaknesses (Contd.):
  • Opportunities:
    • Opportunities represent external finding which can
    • enhance a company’s performance. Opportunities that KFC can take advantage of are as follows:
    • The Mexican market
    • The market is saturated and the cost of finding ‘prime one
    • Locations’ is rising. One of the potentially profitable markets is Mexico. Mexico has over 91 million people and growing. This give companies a huge customer base to work with. Also, the companies are able to take advantage of the close proximity to the US.
    • Less expensive for US to buy assets in Mexico.
    • US companies are able to invest less money in buying assets in Mexico
    • due to favorable exchange rate. This opportunity gives the companies a
    • reduced risk in investing in Mexico. Also, the companies that are already In Mexico are able to import raw materials at favorable rate by converting dollars into peso.
    • Dual branding.
    • This strategy helps to "improve economies of scale within its restaurant operations." For many companies that own more than one fast-food chain, "dual branding" is an ideal way to expand quickly and increase profit. The companies no longer need to wait for the store to be built or spend time and money looking for the location.
    Opportunities (Contd.):
    • New franchise laws in Mexico.
    • In January 1990, Mexico passed a law that favored franchise expansion. The law provided for the protection of technology transferred into Mexico. The Law also allowed royalties. Before 1990, there was no protection for patents, information, and technology transferred to the Mexican franchise. Also, Before the new law royalties were not allowed.
    • Australian opportunity
    • Growth in international profits were highest in Australia, which is now KFC’s largest international market.
    Opportunities (Contd.):
    • New distribution channels.
    • Consumers are demanding fast food in nontraditional locations, such as   shopping malls, universities, hospitals, and other high traffic areas. Consumers are demanding greater convenience when purchasing.
    Opportunities (Contd.):
  • Threats:
    • Threats to a company are those business characteristics that endanger the company’s position within its industry as well as jeopardize its profits. The threats that KFC faced with include the following:
    • Saturation of the US market.
    • The restaurant industry has outpaced the overall economy in recent years, there are indications that the U.S. market is slowly becoming saturated.
    • Increasing competition.
    • KFC faced slow sales growth in the fast-food industry, other segments of the Industry have turned to new menu offerings. McDonald’s introduced its McChicken sandwich. Domino’s has introduced chicken wings to its menu. Pizza Hut has tried marinated, rotisserie-cooked chicken.
    • Changing preferences of consumers.
    • consumers began to demand healthier foods and KFC was faced with a limited menu consisting mainly of fried foods.KFC to change its image as a fried chicken chain, changed its logo to KFC in 1991. KFC has introduced Oriental Wings, Popcorn Chicken, and Honey BBQ Chicken as alternatives to its Original Recipe fried chicken. KFC is promoting its lunch and dinner buffet.
    Threats (Contd.):
    • Obstacles associated with expansion in Mexico.
    • KFC is no doubt enjoying the benefits from lower labor
    • costs, but the reason for the fear was the continuity of
    • labor unrest, low job retention, absenteeism, and
    • punctuality. Employee screening and internal training
    • continue to be important issues for KFC in Mexico.
    • Increase prices of wheat and corn flakes.
    • Prices of wheat and corn have doubled over the past year or so, according to the US-based Earth Policy Institute. This means higher prices of food products made directly from them. This directly effect the cost of KFC.
    Threats (Contd.):
    • KFC ready for bird flu.
    • KFC is preparing for a bird flu scare. The fast food chain plans to shoot TV commercials to let customers know its chicken is safe to eat. The moves has been in the works for months to prevent KFC from being damaged if the threat occurs.
    Threats (Contd.):
  • What are the KFC’s alternatives for expanding internationally? Is Latin American market attractive? Why or why not? QUESTION 8:
  • WHAT ARE ALTERNATIVES?
    • One of the two or more ways of achieving the same desired end or goal. An alternative does not have to be a close substitute for the first choice, or must solve the problem in a particular way.
  • ALTERNATIVES FOR KFC EXPANSION:
    • KFC's international corporate planners have earmarked Europe, South America and the Pacific Rim as holding the most promising expansion opportunities. The potential in international markets is immeasurable, but for all of those opportunities, you have a lot of risks. Now we will see what are the alternatives for KFC to expand Internationally.
    • KFC joint ventures.
    • Because of Europe's high real-estate costs, KFC and Taco Bell are exploring the possibilities of jointly developing restaurants there. This helps the business to grow with cost saving and minimize risk.
    • Export equipment to host country.
    • KFC rely on local suppliers, they are fussy about finding manufacturers who can satisfy the restaurants' quality standards. If equipment cannot be sourced in the host country, it can shipped from the United States.
    • Franchising.
    • If the business does not have the resources to first get started overseas, franchising is the best way to go internationally. This would lower the cost of the project and decrease the burden to manage the branches, so that managers can do other profitable work.
    ALTERNATIVES FOR KFC EXPANSION (CONTD.):
    • Transferring expertise.
    • KFC has resources strengths and capabilities suitable for
    • competing in other country market and can transfer its expertise to cross-border market.
    • New products in menu.
    • KFC can uses its foreign markets as a testing ground for new products. It's easier to test new products overseas as you have isolated markets and a small number of stores. You can monitor the situation more easily.
    ALTERNATIVES FOR KFC EXPANSION (CONTD.):
    • Strategic alliances.
    • A strategic alliance is less involved than a joint venture where two companies typically pool resources in creating a separate entity. So it could be the one good alternative for expanding internationally by sharing the resources with the local companies.
    ALTERNATIVES FOR KFC EXPANSION (CONTD.):
  • LATIN AMERICA FOR KFC:
    • Latin America is the big market for KFC to expand and enjoy the leadership as the earliest fast food industry
    • there. Now we will see that how the fast food industry is attractive for KFC and what strategies can help KFC to expand.
    • Market leader.
    • There are great opportunities for KFC in Latin America. By building out of the base-office in Mexico, setting clear goals and working on them. KFC could well become a market leader in that region.
    • Low trade barriers.
    • This region has great advantages as it provides great low trade barriers. NAFTA and Mercosur trade agreements helped the company to expand easily and enjoy low cost trade. As Latin America is close to us so it would be helpful for KFC to expand in that region quickly.
    • Low wages.
    • Latin America including Mexico has low wages, which provides opportunities in producing the goods needed. Mexico can also function as a bridge between the north American company base and the south American market.
    LATIN AMERICA FOR KFC (CONTD.):
    • Favorable government legislation.
    • The economy in Latin America is emerging due to government legislation to privatize former government companies, upgrade infrastructure, modernize the tax system & labor laws, and Improving the international competitiveness in general.
    • Low cost for customers.
    • Income distribution is still highly unequal in Latin America. This means that prices must be adopted to match the average consumer purchasing power or else people would rather eat at home or go to a local diner to get food for half the price that they would pay at KFC restaurants.
    LATIN AMERICA FOR KFC (CONTD.):
    • Proposed strategies for Latin America.
    • Gradually expand into Latin America using Mexico as the base for Latin America. This should be a successful strategy to build a strong customer base.
    • To build a competitive advantage by increased adaption to the local Latin America needs. Like low cost for customer and good quality. To attract the franchisees in Latin American region. Expand operations into neighboring countries.
    LATIN AMERICA FOR KFC (CONTD.):
  • FINANCIAL ANALYSIS OF YUM! BRANDS INC. :
    • In order to briefly analyze the Financial Performance of Yum! Brands Incorporation, we need the following statements:
    • Consolidated Statement of Income
    • Consolidated Balance Sheet
  •  
  •  
  • FINANCIAL ANALYSIS OF YUM! BRANDS INC. : Ratio 2010 2009 Current Ratio 0.945 0.731 Return on Assets (ROA) 13.92% 14.98% Net Profit Margin 10.21% 9.88% Sales Growth 3.93% (4.37%) Earning Per Share (EPS) 2.44 2.28 Return on Equity Ratio 69.38% 96.14%
  • INTERPRETATIONS
    • Less than 1 Current Ratio is indicating that company has not enough assets against its liabilities and it may face problems while paying its liabilities, but it increased by 0.214 which is a positive, but it must be at least equal to 1.
    • Return on Assets is decreased by 1.06%, which is negative impact, it means the industry is not efficiently using its assets to generate income
    • Net Profit Margin is increased by 0.33%, which is good for industry to grow further in future.
    • Sales grew by 8.3%, which were negative in 2009. This is pretty good for the industry as it again achieved the growth margin that was available in 2008.
    • Earning Per Share is increased by 0.16 per share, which means industry’s share price is increasing and the stock is appreciated from 2009 to 2010.
    • Return on Equity is decreased by 26.76%. Neither enough return on equity nor very low return on equity is favorable for industry. In 2009, the industry’s Return on Equity was very high, so it decided to reduce the ROE, which is a good decision by the management of Yum! Brands.
    INTERPRETATIONS (CONTD.):
  • QUESTION 9: What recommendations would you make to KFC’s management regarding the company’s operations in Latin America and Mexico?
  • RECOMMENDATIONS:
    • In order to solve the problem of high competition, the best solution is to expand into international market as explained in the above section
    • KFC needs to differentiate its products and compete at non-price strategies, such as service and variety of menu
    • KFC may want to reduce its cost so that it will survive in case of price wars.
    • The suggestion for PepsiCo is to gradually decentralize KFC to semi-autonomy. This will help KFC at the Operational Level where the existing manager can make the Decision which will be Suited for the KFC’s.
    • Decentralization will increases the flexibility of KFC’s managers so that they become easier to cope with the diversity of the local situations and response to market changes.
    • It will also motivate the Manger in their productivity capacity.
    RECOMMENDATIONS (CONTD.):
  • Regarding Latin America:
    • To avoid the potential threats associated with Mexico business, KFC is recommended to put more weight in franchising strategy combines with multi domestic strategy. These strategies will increase local responsiveness
    • The managers Needs to fully evaluate the Risk factors Such As:-
      • Country Risk
      • Industry Risk
      • Firm Risk
    • the high costs and risks associated with business in Mexico can be shared. However, franchises strategy must build on the trust of the Mexican managers.
    • Invest more & more Capital in these large markets to challenge existing Competitors such as:- E l polo, Habib’s
    • Focus on Building the more & More franchises in Latin America
    • KFC needs to make their Menu items According to the Mexican Taste
    • Increase in their Product Range
    Regarding Latin America:
  • ANY QUESTIONS???
    • Please feel free to ask any question regarding our presentation and the concepts we have presented.