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KFC & the Fast Food Industry
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KFC & the Fast Food Industry

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Presentation for Managerial Policy Course at IBA

Presentation for Managerial Policy Course at IBA

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KFC & the Fast Food Industry  KFC & the Fast Food Industry Presentation Transcript

  • Case 10: Kentucky Fried Chicken & The Global Fast-Food Industry Group Members Haris Rashid Kashif Sajjad Siddiqua Ali Bhai Managerial Policy Case-Study
  • The Evolution of KFC
    • 1939 - Colonel Sanders develops his original recipe chicken
    • 1952 - K entucky F ried C hicken is Formed
    • 1952 -1997 KFC grows into national Restaurant Chain
    • - Many owners and stake holders along the way.
    • 1986 - PepsiCo’s acquisition of KFC
    • 1997 - Tricon Global Restaurants Inc is formed as
    • a spin-off from PepsiCo.
    • 2002 - Tricon changes its corporate name to YUM! Brands.
    • 2007 – KFC introduces its Zero grams Trans Fat recipe
  • KFC in Pakistan
  •  
  • SWOT Analysis
    • Threats
    • New Entrants / Better Quality Brands.
    • Bird Flu
    • It’s becoming increasingly expensive to acquire real estate for stand alone restaurants.
    • Health Trends Changing Customer Demands.
    • Cannibalization of own products.
    • Opportunities
    • Undeveloped Markets, abroad.
    • Growth in U.S. Median income.
    • Increase in the 18 – 24 age group in the U.S.
    • The Chinese market (The World’s fastest growing economy)
    • Increasing trend to take meals out of home.
    • Weaknesses
    • Most KFC products have close substitutes in the market.
    • Franchising strategy is not culturally sensitive.
    • Slow in reacting (product innovations after long gaps)
    • Inconsistent Quality of Service in many outlets.
    • Lack of control in Joint-venture arrangements.
    • Strengths
    • Delicious and Well-liked recipes (Finger Lick in’ Good).
    • Strongest category share amongst all its competitors.
    • First Mover Advantage / Global Penetration.
    • Widely recognized brand Image. (Face from Space – World’s largest logo in Rachel, Nevada)
    • Strong cash flows generated via, Franchise and License Fee revenues.
  • Strategic Approaches to preparing for Future Market Conditions
  • Marketing strategy & Product Innovation 1980 – 1990: Limited Menus, focus on opening new outlets. 1990’s : Focus on increasing sales in Individual restaurants by launching new appealing products. 2007 : 0 gram Trans-fat Chicken Launched 2008 : “Life Tastes better with KFC” Campaign launched. 2008 : Toasted Wrap introduced after consumer survey
  • Global Strategy
    • Key Success Factors:
      • Quality
      • Service
      • Cleanliness
      • Satisfying Consumer needs (Now)
    • KFC’s Traditional franchising strategy has been:
      • emphasizing standardization
      • reducing financial risk.
      • KFC’s Market Entry Strategies :
      • Franchising,
      • Licensing &
      • Joint-ventures.
  • Allegations / Issues
    • Animal Cruelty
    • Unsafe Chicken / Bird Flu
    • Un-healthy and Fattening Food.
  • KFC and the Internet
    • KFC utilizes the internet for :
    • Promotion of New Products
    • Creating awareness about existing products
    • Distribution of free coupons
    • Nutrition calculator & Health Tips
  • Recommendations Develop effective operational strategies to ensure the execution of the new business model.
  •  
    • Problems & Issues
    • 1977 – 1982 The Heublein, Inc Years
    • Heublein Had Little Experience in The Restaurant Business – Tried To
    • Actively Manage KFC Using Its Own Managers
    • New Restaurants Opening Slowed Down to 20 A year
    • Few Restaurants Were Being Remodeled
    • Service Quality Had Declined
    • Quality Control
    • Restaurant Cleanliness
    • 1986 – 1997 The PepsiCo, Inc Years
    • Atmosphere of PepsiCo Management Vs KFC Management
    • Conflicts Between Corporate Cultures of PepsiCo & KFC – Created A
    • Morale Problem
    • Arrogance Of PepsiCo Executives led to:
    • i) Loss of Employee Loyalty
    • ii) High Employee Turnover
    • Problems & Issues Cont’d
    • PepsiCo’s Poor Relationship With KFC Franchises
    • 1989 New Franchise Contract – The First Contract Change in 13 Years
    • i) Greater Power To PepsiCo to Take Over Weak Franchises, Relocate
    • Restaurants, & Make Changes in Existing Restaurants
    • ii) Restaurants Would No Longer Be Protected From Competition From
    • New KFC Units
    • iii) Raise in Royalty Fees When Existing Restaurants’ Contracts Came Up
    • For Renewal
    • 1990 – 1996 Operating Margins In The Fast-Food Restaurant Division
    • (KFC, Pizza Hut & Taco Bell) Of PepsiCo Fell From 8% to 4% Due To:
    • i) Declining Margins As The US Fast Food Industry was in The Advanced
    • Maturity Stage
    • ii) Intense Competition In The Fast Food Sector
    • The Restaurant Division Of PepsiCo Absorbed Half Of PepsiCo’s Annual
    • Capital Spending & Generated Less Than 1/3 rd Cash Flows.
    • Problems & Issues Cont’d
    • KFC Had Fewer Opportunities To Expand In The US Market
    • (As Its Leadership In The US Market Was Extensive)
    • KFC Was Losing Market Share To Competitors:
    • i) Popeyes
    • ii) Chick-Fil-A
    • iii) Boston Market
    • iv) Church’s
    • KFC’s Share Of Chicken Segment Sales Fell
    • From 71% (1989) To 56% (1999)
    • Baby Boomers, Generation Xers Grew Older
    • & Preferred Dinner Houses & Full Service Restaurants
    • Ethnic Foods Were gaining Popularity (Japanese, Indian, Vietnamese)
    • Shortage Of Employees in The 16-To-24 Age Category
    • i) US Economy Was Expanding: Prosperity
    • ii) Unemployment Was At Its Lowest Point
    • Labour Cost Was High – But Intense Competition Did Not Allow Increase In
    • Price
    • Problems & Issues Cont’d
    • Higher Cost Of Real Estate (US$ 1.5 To 2.5 Million)
    • Poor Availability Of Prime Location
    • Market Saturation Decreased Per Store Sales
    • Going Global
    • KFC Had Trouble Breaking Into The German Market
    • Long Distances Between Headquarters & Foreign Franchises Caused :
    • i) Difficulty In Controlling The Quality Of Individual restaurants
    • ii) Problems In Service & Support
    • iii) Higher Costs Were Incurred In Transportation & Other Resources
    • Communication & Operational Problems due to Time, Culture & Language
    • Differences
    • Limited Menu & Inability To Quickly Bring New Products To Market
    • Serious Setback in 1989: KFC’s Chicken Sandwich Lost The Race To
    • McDonald’s Chicken Sandwich
    • Colonel’s Crispy Strips & 5 New Sandwiches Accounted For 30% Of The
    • Sales But Cannibalized Sales of Fried Chicken Items
    • Problems & Issues Cont’d
    • In Mexico:
    • McDonald’s Restaurant Base was Growing Rapidly & Beating KFC In
    • Terms Of Sales
    • Major Competitors:
    • Burger King
    • El Pollo Loco (The Crazy Chicken)
    • Habib’s
    • Analysis Of The Company’s Situation
    • The Process Of Strategy Crafting
    • The Chief Architect Approach – Colonel Sander’s Era
    • The Delegation Approach – The RJR Era
    • The Corporate Intrapreneur Approach – The Tricon Global Restaurants Era
    • Innovation in Products – Line Extension
    • Colonel’s Crispy Strips
    • Chicken Sandwiches
    • Strategic Inflection Point
    • PepsiCo Running The KFC Setup: New Franchise Contract
    • Entering The European Market
    • Analysis Of The Company’s Situation
    • Cont’d
    • The Driving Forces Of The fast Food Industry
    • Globalization: Expansion
    • Product Innovation:
    • i) Healthy, Nutritious Options: Salads, Grilled Chicken
    • ii) Catering To Host Nation’s Tastes e.g., Spicy Zinger,
    • Arabian Rice
    • Technology: Production Equipment, POS, Tracking of Inbound Logistics
    • Changes in Preferences, Tastes, Lifestyles
    • Recommendations
    • KFC Should Venture In To Latin American Markets of Argentina, Brazil &
    • Venezuela
    • It Should Go For Franchise Operations & Multibranding
    • KFC Should Continue To Adapt To Host Nation’s Tastes
    • Yum! believes Multibranding is the key to the future of the QSR business. Owning more than one brand allows you to "eliminate the veto vote" and give your consumers a "WOW" experience. Research shows that consumers prefer Multibrand restaurants six to one over single brands.
    • http://www.franchising.com/kfc/
    • Thursday, March 29, 2007
    • Yum Brands Inc 's international unit has reached an agreement with Brazil Fast Food Corp , owner of hamburger fast-food chain Bob's, to franchise Yum's KFC brand in Brazil.
    • Under the agreement, Brazil Fast Food will operate KFC's four existing company-owned restaurants in Rio de Janeiro and will expand the KFC chain throughout Brazil, according to a news release.
    • Yum opened its first Brazilian KFC restaurant in 2003, the release said.
    • http://louisville.bizjournals.com/louisville/stories/2007/03/26/daily23.html
  • Thank you