KFC & the Fast Food Industry

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  • KFC & the Fast Food Industry

    1. 1. Case 10: Kentucky Fried Chicken & The Global Fast-Food Industry Group Members Haris Rashid Kashif Sajjad Siddiqua Ali Bhai Managerial Policy Case-Study
    2. 2. The Evolution of KFC <ul><li>1939 - Colonel Sanders develops his original recipe chicken </li></ul><ul><li>1952 - K entucky F ried C hicken is Formed </li></ul><ul><li>1952 -1997 KFC grows into national Restaurant Chain </li></ul><ul><li>- Many owners and stake holders along the way. </li></ul><ul><li>1986 - PepsiCo’s acquisition of KFC </li></ul><ul><li>1997 - Tricon Global Restaurants Inc is formed as </li></ul><ul><li>a spin-off from PepsiCo. </li></ul><ul><li>2002 - Tricon changes its corporate name to YUM! Brands. </li></ul><ul><li>2007 – KFC introduces its Zero grams Trans Fat recipe </li></ul>
    3. 3. KFC in Pakistan
    4. 5. SWOT Analysis <ul><li>Threats </li></ul><ul><li>New Entrants / Better Quality Brands. </li></ul><ul><li>Bird Flu </li></ul><ul><li>It’s becoming increasingly expensive to acquire real estate for stand alone restaurants. </li></ul><ul><li>Health Trends Changing Customer Demands. </li></ul><ul><li>Cannibalization of own products. </li></ul><ul><li>Opportunities </li></ul><ul><li>Undeveloped Markets, abroad. </li></ul><ul><li>Growth in U.S. Median income. </li></ul><ul><li>Increase in the 18 – 24 age group in the U.S. </li></ul><ul><li>The Chinese market (The World’s fastest growing economy) </li></ul><ul><li>Increasing trend to take meals out of home. </li></ul><ul><li>Weaknesses </li></ul><ul><li>Most KFC products have close substitutes in the market. </li></ul><ul><li>Franchising strategy is not culturally sensitive. </li></ul><ul><li>Slow in reacting (product innovations after long gaps) </li></ul><ul><li>Inconsistent Quality of Service in many outlets. </li></ul><ul><li>Lack of control in Joint-venture arrangements. </li></ul><ul><li>Strengths </li></ul><ul><li>Delicious and Well-liked recipes (Finger Lick in’ Good). </li></ul><ul><li>Strongest category share amongst all its competitors. </li></ul><ul><li>First Mover Advantage / Global Penetration. </li></ul><ul><li>Widely recognized brand Image. (Face from Space – World’s largest logo in Rachel, Nevada) </li></ul><ul><li>Strong cash flows generated via, Franchise and License Fee revenues. </li></ul>
    5. 6. Strategic Approaches to preparing for Future Market Conditions
    6. 7. 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
    7. 8. Global Strategy <ul><li>Key Success Factors: </li></ul><ul><ul><li>Quality </li></ul></ul><ul><ul><li>Service </li></ul></ul><ul><ul><li>Cleanliness </li></ul></ul><ul><ul><li>Satisfying Consumer needs (Now) </li></ul></ul><ul><li>KFC’s Traditional franchising strategy has been: </li></ul><ul><ul><li>emphasizing standardization </li></ul></ul><ul><ul><li>reducing financial risk. </li></ul></ul><ul><ul><li>KFC’s Market Entry Strategies : </li></ul></ul><ul><ul><li>Franchising, </li></ul></ul><ul><ul><li>Licensing & </li></ul></ul><ul><ul><li>Joint-ventures. </li></ul></ul>
    8. 9. Allegations / Issues <ul><li>Animal Cruelty </li></ul><ul><li>Unsafe Chicken / Bird Flu </li></ul><ul><li>Un-healthy and Fattening Food. </li></ul>
    9. 10. KFC and the Internet <ul><li>KFC utilizes the internet for : </li></ul><ul><li>Promotion of New Products </li></ul><ul><li>Creating awareness about existing products </li></ul><ul><li>Distribution of free coupons </li></ul><ul><li>Nutrition calculator & Health Tips </li></ul>
    10. 11. Recommendations Develop effective operational strategies to ensure the execution of the new business model.
    11. 13. <ul><li>Problems & Issues </li></ul><ul><li>1977 – 1982 The Heublein, Inc Years </li></ul><ul><li>Heublein Had Little Experience in The Restaurant Business – Tried To </li></ul><ul><li>Actively Manage KFC Using Its Own Managers </li></ul><ul><li>New Restaurants Opening Slowed Down to 20 A year </li></ul><ul><li>Few Restaurants Were Being Remodeled </li></ul><ul><li>Service Quality Had Declined </li></ul><ul><li>Quality Control </li></ul><ul><li>Restaurant Cleanliness </li></ul><ul><li>1986 – 1997 The PepsiCo, Inc Years </li></ul><ul><li>Atmosphere of PepsiCo Management Vs KFC Management </li></ul><ul><li>Conflicts Between Corporate Cultures of PepsiCo & KFC – Created A </li></ul><ul><li>Morale Problem </li></ul><ul><li>Arrogance Of PepsiCo Executives led to: </li></ul><ul><li>i) Loss of Employee Loyalty </li></ul><ul><li>ii) High Employee Turnover </li></ul>
    12. 14. <ul><li>Problems & Issues Cont’d </li></ul><ul><li>PepsiCo’s Poor Relationship With KFC Franchises </li></ul><ul><li>1989 New Franchise Contract – The First Contract Change in 13 Years </li></ul><ul><li>i) Greater Power To PepsiCo to Take Over Weak Franchises, Relocate </li></ul><ul><li>Restaurants, & Make Changes in Existing Restaurants </li></ul><ul><li>ii) Restaurants Would No Longer Be Protected From Competition From </li></ul><ul><li>New KFC Units </li></ul><ul><li>iii) Raise in Royalty Fees When Existing Restaurants’ Contracts Came Up </li></ul><ul><li>For Renewal </li></ul><ul><li>1990 – 1996 Operating Margins In The Fast-Food Restaurant Division </li></ul><ul><li>(KFC, Pizza Hut & Taco Bell) Of PepsiCo Fell From 8% to 4% Due To: </li></ul><ul><li>i) Declining Margins As The US Fast Food Industry was in The Advanced </li></ul><ul><li>Maturity Stage </li></ul><ul><li>ii) Intense Competition In The Fast Food Sector </li></ul><ul><li>The Restaurant Division Of PepsiCo Absorbed Half Of PepsiCo’s Annual </li></ul><ul><li>Capital Spending & Generated Less Than 1/3 rd Cash Flows. </li></ul>
    13. 15. <ul><li>Problems & Issues Cont’d </li></ul><ul><li>KFC Had Fewer Opportunities To Expand In The US Market </li></ul><ul><li>(As Its Leadership In The US Market Was Extensive) </li></ul><ul><li>KFC Was Losing Market Share To Competitors: </li></ul><ul><li>i) Popeyes </li></ul><ul><li>ii) Chick-Fil-A </li></ul><ul><li>iii) Boston Market </li></ul><ul><li>iv) Church’s </li></ul><ul><li>KFC’s Share Of Chicken Segment Sales Fell </li></ul><ul><li>From 71% (1989) To 56% (1999) </li></ul><ul><li>Baby Boomers, Generation Xers Grew Older </li></ul><ul><li>& Preferred Dinner Houses & Full Service Restaurants </li></ul><ul><li>Ethnic Foods Were gaining Popularity (Japanese, Indian, Vietnamese) </li></ul><ul><li>Shortage Of Employees in The 16-To-24 Age Category </li></ul><ul><li>i) US Economy Was Expanding: Prosperity </li></ul><ul><li>ii) Unemployment Was At Its Lowest Point </li></ul><ul><li>Labour Cost Was High – But Intense Competition Did Not Allow Increase In </li></ul><ul><li>Price </li></ul>
    14. 16. <ul><li>Problems & Issues Cont’d </li></ul><ul><li>Higher Cost Of Real Estate (US$ 1.5 To 2.5 Million) </li></ul><ul><li>Poor Availability Of Prime Location </li></ul><ul><li>Market Saturation Decreased Per Store Sales </li></ul><ul><li>Going Global </li></ul><ul><li>KFC Had Trouble Breaking Into The German Market </li></ul><ul><li>Long Distances Between Headquarters & Foreign Franchises Caused : </li></ul><ul><li>i) Difficulty In Controlling The Quality Of Individual restaurants </li></ul><ul><li>ii) Problems In Service & Support </li></ul><ul><li>iii) Higher Costs Were Incurred In Transportation & Other Resources </li></ul><ul><li>Communication & Operational Problems due to Time, Culture & Language </li></ul><ul><li>Differences </li></ul><ul><li>Limited Menu & Inability To Quickly Bring New Products To Market </li></ul><ul><li>Serious Setback in 1989: KFC’s Chicken Sandwich Lost The Race To </li></ul><ul><li>McDonald’s Chicken Sandwich </li></ul><ul><li>Colonel’s Crispy Strips & 5 New Sandwiches Accounted For 30% Of The </li></ul><ul><li>Sales But Cannibalized Sales of Fried Chicken Items </li></ul>
    15. 17. <ul><li>Problems & Issues Cont’d </li></ul><ul><li>In Mexico: </li></ul><ul><li>McDonald’s Restaurant Base was Growing Rapidly & Beating KFC In </li></ul><ul><li>Terms Of Sales </li></ul><ul><li>Major Competitors: </li></ul><ul><li>Burger King </li></ul><ul><li>El Pollo Loco (The Crazy Chicken) </li></ul><ul><li>Habib’s </li></ul>
    16. 18. <ul><li>Analysis Of The Company’s Situation </li></ul><ul><li>The Process Of Strategy Crafting </li></ul><ul><li>The Chief Architect Approach – Colonel Sander’s Era </li></ul><ul><li>The Delegation Approach – The RJR Era </li></ul><ul><li>The Corporate Intrapreneur Approach – The Tricon Global Restaurants Era </li></ul><ul><li>Innovation in Products – Line Extension </li></ul><ul><li>Colonel’s Crispy Strips </li></ul><ul><li>Chicken Sandwiches </li></ul><ul><li>Strategic Inflection Point </li></ul><ul><li>PepsiCo Running The KFC Setup: New Franchise Contract </li></ul><ul><li>Entering The European Market </li></ul>
    17. 19. <ul><li>Analysis Of The Company’s Situation </li></ul><ul><li>Cont’d </li></ul><ul><li>The Driving Forces Of The fast Food Industry </li></ul><ul><li>Globalization: Expansion </li></ul><ul><li>Product Innovation: </li></ul><ul><li>i) Healthy, Nutritious Options: Salads, Grilled Chicken </li></ul><ul><li>ii) Catering To Host Nation’s Tastes e.g., Spicy Zinger, </li></ul><ul><li>Arabian Rice </li></ul><ul><li>Technology: Production Equipment, POS, Tracking of Inbound Logistics </li></ul><ul><li>Changes in Preferences, Tastes, Lifestyles </li></ul>
    18. 20. <ul><li>Recommendations </li></ul><ul><li>KFC Should Venture In To Latin American Markets of Argentina, Brazil & </li></ul><ul><li>Venezuela </li></ul><ul><li>It Should Go For Franchise Operations & Multibranding </li></ul><ul><li>KFC Should Continue To Adapt To Host Nation’s Tastes </li></ul><ul><li>Yum! believes Multibranding is the key to the future of the QSR business. Owning more than one brand allows you to &quot;eliminate the veto vote&quot; and give your consumers a &quot;WOW&quot; experience. Research shows that consumers prefer Multibrand restaurants six to one over single brands. </li></ul><ul><li>http://www.franchising.com/kfc/ </li></ul><ul><li>Thursday, March 29, 2007 </li></ul><ul><li>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. </li></ul><ul><li>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. </li></ul><ul><li>Yum opened its first Brazilian KFC restaurant in 2003, the release said. </li></ul><ul><li>http://louisville.bizjournals.com/louisville/stories/2007/03/26/daily23.html </li></ul>
    19. 21. Thank you

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