Kfc proj docu

Final Project KFC (Kentucky Fried Chicken)

Submitted To:

Muhammad Asim Awaan

Developed By:

Madiha khalid (07108118)
Hijab Ashraf (07108124)
Rizwan Khalil (07108125)
Sami Ullah (07108140)

BBA Fall – 2007
Section “B”

Date of Submission:

15 – 06 – 2011


1.


Dedication

“We dedicate our project to AL-Mighty ALLAH without whose guidance
we were unable to do so and also to our parents who support and
helped us to complete this uphill task in a better and perfect way”

GIFT Business School Page 1


Acknowledgement

We firstly thank ALLAH Almighty the most Beneficent and the Merciful, and the
Master of the Day of Judgment, who bestowed upon us the endurance to bring this
work to an end.

We deem it our utmost pleasure to avail this opportunity to express gratitude and
keep sense of obligation of our Sir Muhammad Afzaal for her valuable guidance,
scholarly criticism, untiring help, compassionate attitude and enlightened
supervision during the whole project and making of the report.

Last but not the least, we feel highly obliged and earnestly pay humble and
heartfelt thanks to most affectionate fathers and mothers for their moral and
financial support and encouragement and specially our mothers because they
always remember us in their prayers.



Table of Contents

1. Introduction of Company........................................................................................................1
1.1 KFC in Pakistan..................................................................................................................2
1.2 Nature of the Business........................................................................................................2
1.3 Current Products.................................................................................................................3



2. Introduction of Company
KFC is the world largest and most well known chicken restaurant. Every day, more than 12
million customers are served at KFC restaurants in 109 countries and territories around the
world. KFC operates more than 5,200 restaurants in the United States and more than 15,000
units around the world. KFC is world famous for its Original Recipe® fried chicken -- made
with the same secret blend of 11 herbs and spices Colonel Harland Sanders perfected more than
a half-century ago. Customers around the globe also enjoy more than 300 other products -- from
Kentucky Grilled Chicken in the United States to a salmon sandwich in Japan.

John Y Brown and Jerry Messy purchased KFC for USA for $2 million in 1964 that time KFC
become a corporation. After five years, Colonel buys first 100 shares of KFC. In 1986, Pepsi
Company purchased KFC. Pepsi company changed the logo from Kentucky fried chicken to
KFC in 1991 and then in 1992 KFC 1000th restaurant opened in Japan and in 1994 9000th
restaurant in china. KFC is the part of Tricon global restaurant. Tricon global restaurant is the
world largest restaurant group, with in nearly 100 countries around the world, which in turn was
spun off in 1997, and has now been renamed to Yum! Brands.



1.1 KFC in Pakistan
In 1997, KFC franchised with Gray Mecanza International and started work in Pakistan with its
first branch in Gulsha-e-Iqbal, Karachi, Rawalpindi branch started work in 1999 and in
Islamabad in August 2002 and now in Pakistan it currently has 69 branches operating in 19
major cities. It is operated by a Dubai based company, Cupola, which took it over in 1999 with 4
major outlets. Major competitors include McDonalds, Nandos, Hardees, AFC, HFC, Fri chicks,
Go chicks and Dixy Chicks when talking about similar products. As in industry, however, KFC’s
competitors will include all fast food chains: McDonalds, Pizza Hut, Geno’s, Hardees, Cock n
Bull, and Subway etc.
KFC occupies a major position in the fast food industry, being the largest seller of chicken
products in Pakistan. It captures 50 percent of the total fast food market in the country. KFC
wore the title of being the market leader in its industry. Serving delicious and hygienic food in a
relaxing environment made KFC everyone’s favorite. Since then, KFC has been constantly
introducing new products and opening new restaurants for its customers. In Pakistan totally
Chicken buy from Pakistani Poultry Forms, and also this Chicken is 100% Halal.

1.2 Nature of the Business
Kentucky Fried Chicken (KFC) - one of the most known fast food chains in the world. Quality
and cleanliness (QSC) represents the most critical success factors to KFC's global success. It is
the fast food franchise so its nature of business is providing the fast food services.
Its business type is “Business to Consumers”.
KFC has large chain of consumers. According to KFC, “We are growing only with our
customer.” KFC has great environment for their consumers and families. They are concerned
about the comfort and satisfaction of their customers. That is why 40 million is need to open a
single outlet. KFC is multinational company. They have outlets, almost in every country. So they
have international customers all over the world.



1.3 Current Products

Mighty Zinger Cola slaw
Zinger burger Scope of wall
Fish zinger burger Fruit salad
Col. Fillet burger Mineral /water
Salsa twister Espresso
Macho’s burger Cappuccino
Chicken burger
Cheese
Sub 60
twister
Nuggets
Hot wings
Fries Milo
Frothe
Corn on the cob
Arabian spice
Chicken mania
Dinner rolls
Crispy chicken chunks
Hot and crispy soup
Soft Drink



KFC stands on “the Champs Program”
The CHAMPS Program
Champs stands for our belief that the most important thing each of us can do is to focus on the
customer. It stands for our commitment to provide the best food and best experience for the best
value.
CHAMPS stand for the six universal areas of customer expectation common to all cultures and
all restaurants concepts. These are:
Cleanliness
Hospitality
Accuracy
Maintenance of Facilities
Product Quality
Speed of Service
CHAMPS is the philosophy to ensure that the customer has the consistent quality experience in
every restaurant, everyday, on every occasions and you will be playing role in delivering
CHAMPS to our customers.

1.4 Size
KFC is part of Yum! Brands, Inc., the world's largest restaurant company in terms of system
restaurants, with more than 36,000 locations around the world. The company is ranked #239 on



the Fortune 500 List; with revenues in excess of $11 billion. KFC specializes in Chicken Based
Products.
In Pakistan, It currently has 69 branches operating in 19 major cities. It has high sales volume as
they have great turnover. New outlets are being opened because they have greater sales volume
(as per day worth 4.5 million is being consumed). Presently KFC has provided employment to
over approximately 1200 Pakistanis, which adds up to 6000 individuals directly dependent on
KFC Pakistan.

1. Strategic Issues
Through an analysis of the strengths, weaknesses, opportunities, and threats of KFC, the
following strategic issues are identified:

1. How would KFC maintain a market leadership in the Pakistan fast food industry?
Pakistan’s fast food franchise industry is still unsaturated and is in its growth phase.
There is a lot of room for firms to enter and be profitable. As barriers to entry to the
industry as a whole are low, more and more firms as well individuals are entering in this
business. For past few years the industry is growing at the rate of 10% annually. For
Instance, Subway successfully entered the industry a few years ago and now Hardees has
also followed suit. Although KFC enjoys a market leader position in the country but the
issue now is that how can it maintain its market leadership and how can it gain a
sustainable competitive advantage.

2. Consumer Health food trend
KFC faces a lot of threat from its substitutes, especially with growing health concerns
among its customers. Health and obesity issues associated with KFC food have diluted
the trust people once had in them. It now faces an issue of catering to the changing needs
of customer demands.



3. Occupies a Strategic Position
KFC occupies a strategic position in the market. It is in a profitable business with
maximum returns. However, the entire positioning is based upon one single secret recipe
which if eluded by one of the competitors can cause serious damage to the brand.
Therefore, the business though profitable is risky.

4. Limited variety of menu items
KFC tries to project an image of “chicken expert” in the fast food industry for
differentiating its products with other competitors. As one of KFC’s key competitors,
McDonald’s also introduce chicken products. It is obvious that the competitive advantage
of KFC may not be sustainable. The limited menu may be one of the main issues for
KFC. Lack of variety of menu items, customers may not be attracted for consumption.
Customers may go to other fast food restaurant which with more choices and
combination. It may affect the competitiveness of KFC in the fast food industry.

5. Lack of communication between marketing and operation
According to some of the KFC staff, they mentioned that there is lack of communication
between marketing department and operation of KFC. Marketing departments may not
give the details of new promotion and new products to the KFC operation or not clearly
explain about the campaign. This leads to many problems for the operation. Operation
team may be confused about the new promotion or coupons. They may not be able to
explain the details to customers with enquiries. In addition, it could affect the efficiency
and effectiveness of operation as crewmembers may not be familiar with the new



marketing strategies. They may not be able to up sell the products as the corporate wants.
As a result, profit may be affected.

6. Fewer opportunities to expand its restaurants base (due to financial reasons)
KFC is not a listed company because they say that they don’t need investors yet they say
that they are not opening up new franchises due to lack of resources and jut focus on
maintaining their current franchises. This can cause them harm because the market is still
unsaturated and there is market which is still not being entertained. They need to open up
franchises there to cater the demands of that market and gain market share which can be
taken by competitor if it makes the move before KFC.

7. Lack of communication channel for customers
The mission of KFC is “people be the first, customers be the focus”. It is found that KFC
did not take a proactive approach on listening to customers and employees. There is no
systematic customer survey for its products and services. It wholly relies on the branch
managers and public relation officers to get the customers’ opinion. As customers of
KFC, however, they would realize that it is not usual that managers and public relation
officer would take the chance to ask for opinion. Although the website of KFC has a
customer service comment box for customers to send suggestion. It may ignore those
customers who are not computer users. In addition, its customer service hotline is not
highly promoted. It means that it lacks communication channel between KFC and
customers.



1. SWOT Analysis
Strengths
50% Market share in Pakistan
Global presence in 109 countries
Extensive fast food franchise network with 68 outlets in Pakistan
Quality Assurance; KFC has a product excellence system to ensure quality raw materials,
packaging, equipment and new products that delight customers. In order to ensure
consistent quality, KFC also executes ingredient and equipment specifications. Food is
freshly cooked and fried chickens that are not sold for more than 45 minutes would be
withdrawn from sale to ensure the food quality. Fresh ingredients are provided to the
branches and hence it would ensure the quality of the food.
Vertical linkages with value chain of suppliers; suppliers of KFC chicken is K&N’s and
drinks are supplied by Pepsi, in Pakistan
KFC's secret Original Recipe® fried chicken -- made with the same secret blend of 11
herbs and spices Colonel Harland Sanders perfected more than a half-century ago.
Brand Equity because of being oldest and finest in Business
Does not have any Core competitor In chicken serving
Ranks highest among all chicken restaurants
Chains for its convenience and menu variety
Loyal customers
Faces numerous advantages of being a Multinational Organization e.g. economies of
scale.



Weaknesses
Lack of focus on Research & Development
Imported raw material rise their prime cost
Inflexibility of prices makes it unaffordable to middle class people.
High rates on the prices as compared to the other brands selling same items may cause
the customer’s shift.

Opportunities
Increase consumption of fast food has increased the market size
Consumer prefer “All under one roof” in order to increase their sales turnover they can
increase or add the served items
They can open more outlets to get maximum market.
They can capture more customers by decreasing the price of their products
Updating their restaurants, Balanced menu, customer focus and Increase delivery service



Threats
Competition from other international outlets – like Pizza Hut, McDonalds, Subway.
Entrance of New competitors into the market; as barriers to entry to the industry as a
whole are low, more and more firms as well individuals are entering in this business. For
past few years the industry is growing at the rate of 10% annually. For instance, Subway
successfully entered the industry a few years ago and now Hardees has also followed
suite.
High political instability/uncertainty. The deaths of political figures or any other such
incident are a threat in a way that angry public burns the outlets. Such incident happened
in Karachi.
Health Trend away from fried foods; KFC faces a lot of threat from its substitutes,
especially with growing health concerns among its customers. Health and obesity issues
associated with KFC food have diluted the trust people once had in them. It now faces an
issue of catering to the changing needs of customer demands.
Changing customer demands
Some international events badly affected the market of KFC in Pakistan like IRAQ and
AFGHAN war and we know KFC is American based. Therefore, it creates a great impact
on the performance of KFC.
Diseases like bird flu cause the decreases in sales because customers don’t buy chicken
or chicken related products in fear of this disease.
Increasing inflation rates directly affect menu prices. Government has also increased the
sales tax from15% to 21% that has raised the prices of these products.



3.1 Competitive Analysis
The major competition in Pakistan market faced by KFC is McDonald’s. As KFC and
McDonald’s offer similar type of products. A product offered by KFC is substitute a product
offered by McDonald’s and vice versa.

Factors that contribute towards a competition are:
Price – Value for money is a major factor; when one company changes its prices in any
product the other company has follow it to maintain its position.
Quality of Food – As both KFC and McDonald’s are following their international
standards, therefore it’s not a major concern
Flavors’ – This is one major factor that contributes towards attracting customers.
Different customers have different preferences.
Outlets – Number of outlets contribute towards market share which gives KFC an edge.

Market Share



3.2 BCG Matrix

✔ Star

According to BCG Matrix, Management says that KFC is a star. The reason for this is its
high market growth and high market share in the Pakistani market.

✔ Question Mark
According to BCG Matrix, all small outlets like HFC, AFC falls in the question mark,
because of low market share in the fast food industry of Pakistan.

✔ Cash Cows

On the other hand McDonald’s and Pizza Hut are the cash cows because of their low
growth rate and high market share. During past some years McDonald’s and Pizza Hut
have lost their market growth because of the fact that they could not provide the taste
according to the Pakistani culture.

✔ Dog

Another direct competitor of KFC is Subway. According to BCG Matrix it is a dog.
Some of the reasons that are responsible for its low market share and low market growth
are the less expansion strategies being followed by the company. Secondly they are not
focusing at all on all the major cities.



3.3 Competitive Advantage
The competitive advantage of KFC is its position as the as the dominant firm. It currently enjoys
50% market share in Pakistan.
Firm’s competitive advantage can be divided into two categories:
“Advantages based on the firm’s position” and “Advantages based on the firm’s
capabilities.”

KFC has positional advantage from heterogeneity within the industry.

Other positional advantage includes KFC’s brand name.

KFC has a largest number of outlets in Pakistan and they also enjoy economies of scale
that is why they are able to generate more profits.

It also enjoys tacit nature of capability based knowledge because of its secret original
recipe of fried chicken of seven herbs by Colonel.

It enjoys some advantages in defending itself such as reputation, economies of scale,
cumulative learning, and preferred access to suppliers and channels.



3.4 Sales Analysis
In Rupees
2010 2009 2008
Total Chicken Served
in KFC Restaurant 1.914 Billion 1.825 Billion 1.729 Billion
Annually

Total KFC Chicken 5.89 Billion 5.61 Billion 5.31 Billion
Pieces Sold Annually

Total Retail Sales 8.9 Billion 8.49 Billion 8.04 Billion

Above table shows that the total chicken served in KFC Restaurant Annually in 2008 was Rs/-
1.729 billion, and in 2009 it increases from Rs/- 1.825 Billion. The increasing ratio was 5.35%.
And in 2010 it jumps up to Rs/- 1.914 Billion with the increase of 4.65%. The total KFC chicken
Pieces Sold Annually in 2008 was Rs/- 5.31 Billion, Rs/-5.61 Billion in 2009 and Rs/- 5.89
Billion in 2010 with the increase of 5.35%.
Thus, the total Retail Sales of KFC in 2008 was Rs/- 8.04 Billion, 8.49 Billion in 2009 and in
2010 it increases from 8.49 to Rs/- 8.9 Billion with the increasing percentage of 5.35%.
According to the management of KFC, their profit margin increases year by year.



3.5 PEST Analysis
The Pest Analysis includes the political, economical, socio-culture and technological factors.
These are described in detail as under.

Political Factors
The political factors include the government policies as KFC being a foreign company, but they
have to obey the policies of the Government laid by the government of Pakistan, the country
where the business activities are being carried out. KFC has handled this situation very tactfully
and has obeyed the policies of the Government as prescribe by the government in order to run
this kind of business. And the most important factor is the political instability. As in Pakistan,
there are political crises faced by the government, these greatly affect the business of KFC.
There are certain government regulations pertaining to the fast food franchise industry in
Pakistan. Some of the requirements include Halal food production and selling, Corporate Social
Responsibility, standardization checks, a test to prove quality before entering the market,
renovation after every 8 to 10 years as mentioned per contract, tax duty and numerous other
certifications, especially if operating on a large scale. . KFC complies with both of the
requirements and provides Halal food and contributes to the local sales up to 95%.

Economical Factors
The economic factors includes the income of the people, KFC is going to target. Income is an
important economical factor of the KFC. This factor decides which class KFC is going to target.
In the early time of KFC, they were focusing on the upper class but they after some time
changed their strategies and started to target the mass market by introducing some different kinds
of meals and offers through which we can say that they target the upper middle & the upper level
as well. In Pakistan there is a mixed economy so private organization easily perform their tasks
within any given economic system of course, organization are influenced by a variety of



economic features over which they have little independent control, such as inflation, interest
rates and recession.
Another important input to the enterprise is the nature of government fiscal and policies. KFC
pays tax properly. Moreover, the Government of Pakistan receives over Rs.10 million per month
from KFC Pakistan as direct taxes, and 95% of all food and packing material used in KFC
Pakistan is procured locally, which sums up to a purchase of over Rs.35 million per month. So
KFC plays an integral role in developing the economy of Pakistan.

Socio – Cultural Factors
Culture element includes the attitudes, values, norms, beliefs, behaviors and associated
demographic trends that are features of a given geographic area.
Multinational company faces the challenge to understand about the culture of that country where
they work. To solve these problems KFC hire all employees of local area and now it is easy for
them to understand about the culture of Pakistan. KFC management knows about that Pakistan
is a Muslim country; therefore they use 100% Halal (Zibiha) chicken.
KFC start their branches in those cities which are famous for food eating. Pakistani people like
spicy foods, therefore KFC also provide spicy foods in Pakistan. KFC open its branches in
advance cities of Pakistan like Lahore, Karachi, and Islamabad/Rawalpindi etc. In these cities
mostly come out with their family because KFC mainly focus family.

Technological Factors
The technological factors include the Pace of change at a fast level. Pace of change means rate of
change. KFC has strategy to introduce new technology whenever they think that it is a time to
introduce new technology. 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 means stock of machinery. KFC has a stock of
machinery in order to run its business activities. In other words KFC has a good amount of
Capital Formation. New techniques affect the quality of products and services in better way.
Technology is very important in order to compete with the competitors. Organizations have an


eye on their competitors and also new techniques which their competitors used. Today the world
going fast and market is globalize, new techniques comes in production and services
departments.
Although KFC and McDonald’s has same cooking machinery but KFC has efficient delivery
system; they provide home delivery so quickly. KFC purchase machinery from Hanney Penny
company, they are main suppliers of machinery throughout the world.



3.6 Porter’s five forces
Porter’s five forces help to identify the key structural factors determining an industry’s
competitive position in the market and its profitability. They highlight the strengths, weaknesses
opportunities and threats along with their significance of the industry. Analysis helps to
understand the current competitive position the industry occupies, animates positioning and
clarifies areas of improvement. It will also help determine intensity of industry competition and
the forces impacting strategy formulation.
Pakistan fast food Industry Analysis
KFC operates in the fast food industry. However, for convenience of understanding and
application the group has carried out the analysis by considering KFC to be in two major
industries, the first being fast food and the second being franchise. Hence, industry analysis is
carried out by taking the industry to be fast food franchise.

3.6.1 Rivalry
Numerous competitors operating as fast food franchises exist in the market. Some of them are
Nandos, McDonalds, Pizza Hut, HFC, AFC, Go Chicks, Dixy Chicks, Cock n Bull, Hardees,
Salt and Pepper and Subway. These continuously fight against each other for a better position in
the market. Rivalry among competitors takes place in the form of price competitions, advertising
battles, product differentiation and increased customer services. Rivalry in fast food industry can
be measured by analyzing the following:
Number of competitors and size
Fast food franchise industry in Pakistan consists of large number of firms having large
variance in size and scale. Also, they differ a lot in prices, quality and service. So, they
do not have to monitor all the firms for their actions and they can make moves without
the risk of severe retaliation. However, few large players that compete against each other
have resources for vigorous retaliation when some close competitor makes an important
move. Hence, KFC’s competition is restricted to the size of the competitor. KFC will
usually not consider what Cock n Bull or AFC is doing as important as to what



McDonalds or Pizza Hut is doing. Fierce competition might result in the form of various
deals and price cuts offered specially in burgers between McDonalds and KFC, but on
the whole rivalry in the industry remains moderate due to the existence of numerous
players operating in various sizes.

Industry growth
Pakistan’s fast food franchise industry is still unsaturated and is in its growth phase.
There is a lot of room for firms to enter and be profitable. As barriers to entry to the
industry as a whole are low, more and more firms as well individuals are entering in this
business. For past few years the industry is growing at the rate of 10% annually. For
instance, Subway successfully entered the industry a few years ago and now Hardees has
also followed suit. Due to industry’s absorbent and unsaturated nature competition for
gaining market share is not bitter. Also, existing firms are increasing their number of
outlets quite fast. Moreover, firms continue to introduce products and expand their
product lines, hence, entering the new markets and targeting the new set of buyers.
Hence, because the overall profitability from the industry is high, the rivalry is not very
bitter and everyone gets its share of profits without diverging into severe price-wars and
advertising battles. However, major players in the market, mostly equal in size, do get
influenced by each other’s strategies and imitate quickly but that usually does not result
in price wars. The rivalry thus remains moderate.

High fixed and storage costs
For the fast food franchise industries the fixed costs are usually high due to the royalty
charges they have to pay to operate as a franchise. As for KFC, it takes the cooperation
approximately 40 million to open a new outlet. Similarly, for its close competitors the
costs are similar, as they are about equal in scale, size and operations. High sales,
however, help these firms to earn sustainable profits. Storage costs are also high due to
expiry and quality issues. This also places pressure to increase sales hence increasing
marketing efforts and cutting prices which can drive profits low. Therefore, with the



fixed and storage costs being high, the firms compete against each other vigorously when
storage and expiry issues arise. In these cases they might even indulge in severe
advertising battles. Therefore, the rivalry increases. However, this is only the case with
small franchise businesses. The firms following quality standardize do not usually face
the problem of over capacity and hence do not have to incur costs of wastage of storage
materials. The rivalry overall remains moderate.

Differentiation and switching costs
Product differentiation in the fast food industry exists but is not quite high and generally
the products are perceived as commodities so their choice largely depends on price and
service so the pressure to ensure competitive price and service escalate. Also, switching
costs are quite low, as customers do not have to incur any cost for not buying from a
firm. This industry’s customers are characterized as highly price sensitive so they can
easily switch to a product that is like in quality and service but offered at lower price.
Therefore, rivalry can become high. Competitors have to enter into price and advertising
wars to attract customers. However, this usually happens in small franchises who are
unable to differentiate their products either on price or quality or the by increasing the
product line. Larger firms including KFC, McDonalds, Hardees, do get influenced by
each other’s techniques to attract customers but always try to differentiate rather engage
into bitter rivalry for a higher share, but, since competition is there, rivalry does exist. On
the whole, the industry operates in conditions where rivalry is moderate.

Increasing capacity in large increments
In the mentioned industry, there are expiry issues so raw material is not purchased in
bulk. KFC never purchases in large quantity that would result in overcapacity, because it
has set quality standards and KFC never compromises on that. Overcapacity can result in
huge wastage of raw materials because most of the raw materials are perishable. Hence,
KFC do not face this issue so price cutting or chronic overcapacity is not a problem.
Small firms like HFC might increase capacity, but in the long run they may suffer due to



quality, health and accountability issues. Firms following strict quality standards which
the multinationals in particular do, usually do not face the problem, thus the rivalry in the
industry resulting from overcapacity remains moderate to low.

Diverse competitors and high strategic stakes
There exist diverse competitors in the fast food industry as it consists of local franchises
to huge multinationals. However, they are operating for a primary goal of making profits.
So, no firm will make a move that might harm profitability. And almost all firms
operating in the industry are profitable and no one would be willing to sacrifice high
returns for some other reason. Apparently, no one is operating for some other strategic
stake. This makes rivals to operate for single goal of profitability and hence their actions
are not destructive for existing rivals. Therefore, KFC can easily make profitable
decisions. KFC competes directly with companies like McDonalds on products like
burgers and chicken variants. The products are the same, both provide fun meals and play
place for children, both provide home delivery and both occupy prominent locations
throughout the country. Rivalry thus among competitors is not bitter. However, both have
differentiated these products on the basis of quality, taste, efficiency etc to position
themselves. The strategies behind are different. Thus, the rivalry among them stays
moderate.

Exit barriers
Exit barriers are economic, strategic, and emotional factors that keep companies
competing even in times of low profits. The exit barriers for a firm in the industry remain
moderate and so does the rivalry. Exit barriers can be explained as following:

Specialized assets & fixed cost of Exit



KFC does not have highly specialized assets and the nature of assets are such that they
can easily be sold in the market. Therefore, it can easily sell its assets, as it purchases its
fixed assets from Hanny Penny from outside Pakistan, and a buyer will easily pay the
price to get these. Same is the case with other firms; assets usually do not create an exit
barrier.

Strategic interrelationships
It has high strategic importance as apart from fulfilling commitment of serving delicious,
fresh and hygienic food and at the same time provides customer with the ultimate
entertainment; KFC also plays in the economics development of Pakistan. Also, it has
relationships with other companies like K&Ns and Cupola. For K&Ns, as K&Ns claims,
KFC makes its products more acceptable to people because of KFC’s brand name and
image. Cupola runs KFC’s franchises in Pakistan. Therefore, these strategic relationships
might make it difficult for KFC to leave the industry. Firms in the franchise industry,
hence, do face an exit barrier as per strategic inter relationships are concerned.

Emotional Barriers
KFC has high emotional barriers as presently it has provided employment to
approximately 7000 individuals who will lose jobs in the case of KFC’s exit from the
industry. So, management of KFC, or any other firm for that matter, might show
unwillingness to make economically justified decisions due to loyalty to employees and
fear for their own careers. KFC Pakistan is helping the people suffering from impaired
hearing. It is helping them accelerate their career development, personal and professional
growth. Cupola does it by empowering the special persons creating role models for the
rest. KFC is providing a platform for the disabled youngsters of Pakistan. It strives to



give equal training and promotion opportunities to the disabled based on merit and work
performance. So, all these emotional ties can make it difficult for KFC to leave.

Government and Social Restrictions
This is a foreign country so government cannot impose any kind of exit restrictions on
KFC and most of the multi nationals in business. However, economic effects will be
negative and people will lose jobs. Moreover, the Government of Pakistan receives over
Rs.10 million per month from KFC Pakistan as direct taxes, and 95% of all food and
packing material used in KFC Pakistan is procured locally, which sums up to a purchase
of over Rs.35 million per month. So, it might be discouraged to leave. However, there are
no restrictions as such for KFC or any other franchise to exit the industry as far as it does
not have any loans it needs to pay back.
3.6.1 Threat of Entry
New entrants will impose a threat to the existing players in the industry. These entrants may be
potential entrants of acquisitions and will bring new capacity and resources and will lay
foundations for enhanced competition for market share. These threats to entry are determined by
barriers to entry along with expected reaction of the existing competitors. As the barriers set by
the existing players increase, the threat of new comers to enter the market will decrease.
Barriers to entry
If the barriers to entry are high the threat of entry is low. Here, we will be focusing on the
barriers to entry in fast food industry to which KFC belongs.

Economies of Scale
Economies of scale refer to reduction in unit price due to large volumes produced which
can be a result of efficient production, marketing, purchasing etc. Although, when food
products are produced at large scale economies of scale occur as fixed cost is spread over
large volume of products, however, due to the nature of the industry products these
economies are constrained by the volume of sales. Therefore, these economies of scale
are no incentive for existing firms to keep new entrants away. Also, there are no by



products that are produced to earn incremental revenues that means new entrant would
not have to face a cost disadvantage on this account. However, patents and established
brand names provide large economies of scale as these can be shared across all company
products. That means that new entry will only have to face disadvantage, if it wants to
enter in direct competition with the established firms which are quite few in Pakistan.
There exists no vertical integration across the industry but only few established firms like
KFC itself. However, this would not keep the entrants away as the industry allows a lot
of flexibility for size and scale with which new entries can set up business. In conclusion,
economies of scale in fast food industry for established franchise business exists and may
serve as an entry barrier, and so contribute towards building a threat to potential entrants.

Product Differentiation
Product differentiation means that established firms have brand identification and
customer loyalty. In Pakistan’s fast-food franchise industry, product differentiation does
play a role in the growth of a business. Potential entrants will have to differentiate
slightly to capture the attention of the customers. It is hence not very easy to enter and
operate profitably. KFC has differentiated its products on the basis of “Food, fun &
Festivity”, providing numerous variants of its special recipe in the form of chicken meals.
It also offers various deals to differentiate its products from its competitors. Apart from
the products it offers, KFC differentiates itself on the basis of the experience it provides:
the right chicken, the right place and the right celebration! Hence the emphasis on ‘we do
chicken right’. Seasonal discounts (Ramadan deals), sales promotions (Ufone, Standard
Chartered, and Bareeze), birthday parties, chicky area and events organized for social
responsibility (donations for SOS and FARYAD) are all ways of differentiating what it
offers. KFC also differentiates service in the form of the dine-in experience, take away
and KFC on Wheels. Thus product differentiation is a tool utilized by most businesses



but not to an extent to enter a blue ocean. The core products offered by all remain more
or less the same; hence do not pose a high barrier to entry. Therefore, there is not a high
threat to entry into the industry. Firms come in, differentiate slightly and run businesses
without competing on product differentiation.

Capital Requirements
Capital requirements are the financial resources needed for investment to set-up the
business and to compete. It may also include R&D, human resource and marketing costs
to differentiate and overcome brand loyalty of competitors. In this industry, capital
requirements for entry are high because franchises usually require a lot of set up cost,
specially the royalty they have to pay on land. Furthermore, for penetration in the market,
it might have to incur some amount on marketing and advertisement for not only
awareness but differentiation. Thus, the capital requirements are huge: setup, plant and
equipment, management and employees, suppliers, production, marketing and promotion
etc. Therefore, the capital for entering the industry is a barrier to entry and poses a threat
to new comers.
Access to distribution channels
Distribution channels include retail and wholesale firms that would help distribute
products to end users. In the franchise industry finding an appropriate place for the
restaurant, sometimes becomes an issue, but mostly it remains at a low scale. All new
entrants if they have the required capital and resources do find a place to set their
business up. So, access to distribution channels cost for new entrants is low, however,
established firms go to an extent of building their strategy on their distribution network.
To come and grow as large as them is surely impossible, but to find a place in the market
as a newcomer is not very hard. Hence, the barrier remains low ad the threat high.

Cost disadvantages independent of Scale
Competitors might have cost advantage based on several other factors independent of
their size and economies of scale:



✔ Proprietary product technology: On the whole, the industry has got no product
technology that would make a real difference in products offered or the way they
offer. However, there exist some established firms that have patents for some recipes.
For instance, KFC has a secret recipe.

✔ Favorable Access to raw materials: Raw materials for this industry include buns,
bread, chicken, oil, flour, spices, vegetables etc. These materials are easily available
locally. Their procurement is not a hard task.

✔ Favorable Locations: Fast food franchise market in Pakistan is still much
unsaturated and room for finding favorable locations is high. A glance at urban areas
of Pakistan and fast food restaurants located there shows that a lot of markets are still
not served. In other words there are enough people in urban Pakistan for any
restaurant to survive. New entrants can easily secure for them a favorable location as
shopping malls and markets continue to expand. Therefore, this barrier does not
necessarily serve as shield against new entrants. Entrants can easily enter the market
and find a favorable location for them.
✔ Learning or Experience Curve: Because this is food-based industry, the more you
cook the more you master it. Moreover, those who are serving in the industry for so
long have more experience about customers taste, buying behavior, switching options
etc. than new entrants. For them, efficient production is easy; hence, unit cost also
decreases. KFC has experience of 13 years of serving in Pakistan and more than
seven decades in business. Moreover, it is the most experienced firm in chicken
production. Therefore, experience curve might provide some barrier to entry and
decrease threat of entrants.

Government Policy



There are certain government regulations pertaining to the fast food franchise industry in
Pakistan. Some of the requirements include Halal food production and selling, Corporate
Social Responsibility, standardization checks, a test to prove quality before entering the
market, renovation after every 8 to 10 years as mentioned per contract, tax duty and
numerous other certifications, especially if operating on a large scale. In general, this
barrier is moderate, since nearly all the companies in Pakistan produce Halal food and
contribute to some extent to the local sales; they also fulfill other requirements since
entering the franchise industry. Therefore, entry is not highly difficult, and new firms can
enter the industry making the competition fierce and increasing the threat of entry. KFC
complies with both of the requirements and provides Halal food and contributes to the
local sales up to 95%. Food and packing material used in KFC Pakistan is procured
locally, which sums up to a purchase of over Rs.35 million per month.

Expected retaliation
In past, retaliation shown by established firm has been quite low. For instance, recent
entries like HFC, AFC, Subway and Hardees show the ease with which they entered.
Also, no major moves against them have been observed from existing firms, because they
are already well established or reaping profits. No doubt, all firms will compete against
each other to grab the better share in the market, but sever retaliation has not been usually
observed. Hence, expected retaliation is low and threat of entry is high.

Entry-deterring price
The prevailing price structure of huge companies like KFC is a balance of the value
provided with the associated cost. Entrants will either have to come up with a similar
structure, which suggests providing quality product for a high price. However, most
products already exist in the market and so anything provided by the entrant would have
to be well differentiated to motivate customers to pay the high price. Since KFC had in
house baking facility and an efficient value chain network, it can afford to offer products
at a reasonable price; now targeting the middle class as well. In contrast a developing



business cannot afford to offer similar prices for equally good products, hence will suffer
a loss. The entry deterring price is thus high and imposes a major barrier to entry. The
threat of entry hence becomes low.

3.6.3 Bargaining Power of Buyers
KFC as a buyer or the customers of KFC can compete in the industry by forcing down prices or
demanding higher quality and more incentives. The following factors determine the bargaining
power housed by the buyers:
Concentration of buyers
KFC has a large customer base. Its revenues are not dependent upon the buying power of
a single customer. Hence, the customer buying power is low unless a major action of the
company causes distress to a group of buyers like the incident of opera coupons, where
the customers got upset by the non-functioning of the coupons and KFC has to reimburse
them along with a public apology. Buyers always hold sufficient power to bargain with
the firm. However, if the customer base in large, the sales and profitability is not affected
by retaliation by a small group. If the group is large however, the bargaining power
increases.

Price sensitivity
The population in Pakistan is price sensitive; people would rather go for similar product
selling for fewer prices than buying an expensive one. Also, there are lots of alternatives
to within and outside the fast food industry as a whole. While a brand loyal customer
may pay whatever price KFC asks for a customer looking for just good fast food would
go to a place where his need is satisfied with the least amount of cost incurred. Hence,
price sensitivity gives a lot of power in the hands of the buyers.

Products are undifferentiated
Products in the fast food remain undifferentiated, as discussed before. Marketing efforts
help differentiate the products a bit and build brand awareness; it does not help customers



lock up with the firm as they can find similar products elsewhere. There are some firms
offering a different range of products, like Subway, who have managed to differentiate
their products from the rest of the industry, targeting the health conscious people.
However, if we talk only about KFC and other chicken specialists, the products remain
more or less the same. Taste, in the Pakistani market does matter, but the prospect is not
strong enough to stop people from switching. Everyone is willing to go and try food from
a new comer. Therefore, as the differentiation itself, the bargaining power also remains
moderate.

Switching costs or substitution costs
There is no monetary cost associated with switching from KFC. As discussed earlier,
switching costs depend upon buyer behavior: their extent of price sensitivity or
inclination towards preferred taste etc. Those emotionally connected with it might suffer
switching cost of psychological nature concerning their emotional attachment with the
brand. However, that does not necessarily decrease their bargaining power as they still
can switch to other brand at their discretion.
Therefore, the bargaining power of a single buyer is not much, but on the whole they have got
bargaining power based on their buying behavior, price sensitivity and low switching cost

3.6.4 Pressure from Substitutes
Substitutes are the products that can perform the same function as the industry product. For fast
food the substitutes are home-made-meals, ready- to -cook meals offered by Knorr, Mon Salwa,
K & N’s Chicken and local vendors, other restaurants as they could choose anyone of these
foods over fast-food. Moreover, increased health consciousness has lead people to switch from
fast food to health oriented food as offered by Subway or made at home.
Switching costs
When a customer switches from a product to its substitute, then he has to bear a
switching cost. If the cost is high then the probability of customer to switch will be low.
In the industry, there is low switching cost as customers do not have to incur any


additional cost to switch from a product. Therefore, there is increased pressure of
substitutes because customers can easily switch from products on the basis of low prices.
In the market there are numerous substitutes available for fast food. Firms like K&N’s
and Menu offer Ready-to-Cook meals. The long range of products offered by these firms
provides best substitutes for KFC. In price sensitive market like Pakistan, products of
comparable quality with low price attract customers. Same is the case with KFC; the
substitutes available have low price, comparable quality and long expiry life than the
products of KFC. Moreover, local restaurants and cafés also deal as substitutes of KFC.
Health and obesity issues keep rising which again push people towards healthy eating
and fast food is not considered to be one. On the whole, the switching cost remains low
and pressure from substitutes high.

Buyer inclination to substitutes
Buyers have greater inclination towards substitutes because they are considered healthier
and more health conscious people would rather move to other substitutes. KFC faces this
threat, because it can lose its loyal customers as health consciousness and obesity issues
increase. It has made efforts by advertising and launching its trans-fat meals which have
low fat content. Nevertheless, fast food remains as such and people refrain from eating it
especially if advised by a doctor. The buyer inclination towards substitutes thus
increases, increasing the pressure from substitutes too.

Substitute’s price-quality trade-off
Analysis of substitutes shows that most of the products have attractive price-quality
combination. Also, range of products at different prices is available. Hence, price-quality
combinations offered by substitutes may tend to motivate customers to shift, especially
with increasing health concerns. So, KFC has to face the pressure from the substitutes
available in the industry it belongs to. Although, KFC claims that it provides quality
chicken based on secret recipe that no else has it, has already been replicated to an extent,



by its competitors. So, it can increasingly lose its customers due to above mentioned
factors. The pressure from substitutes hence rises.

3.6.5 Bargaining Power of Suppliers
Suppliers of KFC include K & Ns, Pepsi Co, Hilal, Nescafe and bread and buns are produced
internally. Marination is imported from California, India and Dubai. The suppliers within
Pakistan can compete in the industry by raising prices or reducing quality of produced goods or
services.
Supplier concentration
In Fast food industry there are lots of suppliers available as the raw materials needed for
the end products are widely available across Pakistan. Firms can easily switch suppliers.
Overall, supplier concentration of chicken in Pakistan is low, but drinks suppliers are
concentrated. So, the bargaining power differs across different vendor industry. However,
KFC produce bakery products in-house. However, Suppliers of KFC chicken is K&N’s
and drinks are supplied by Pepsi, in Pakistan. As for chicken other alternatives such as
Zenith and Menu are there. KFC has to rely solely on Pepsi for drinks because there is no
other quality supplier except Coca-cola that is the major supplier to McDonalds. Hence,
the bargaining power of Pepsi is high. It is difficult for KFC to find an equivalent
supplier. However, both being multinationals benefit from each other. K & N’s too, being
certified for quality and Halal food possesses some bargaining power but options are
available and in the case K & N’s is the beneficiary; to be associated with a huge
company like KFC. Amongst all the suppliers, maximum bargaining power is with Pepsi,
also it is strongest multinational. K n N’s come second. Recently, a firm is said to launch
which will provide chicken to the restaurants at a much convenient price than K n Ns,
and at the same quality. If the firm is successful, it might hurt the bargaining power
which K n Ns possesses.



Size of supplier
In industry there are suppliers of different sizes. Smaller the size of certain supplier
lowers the bargaining power of the supplier. Pepsi is huge and won’t be affected if KFC
stopped buying. KFC on the other hand cannot afford to let go of Pepsi, especially when
Coke is already serving McDonalds and various other competitors. Not that Coke will
refuse to supply to KFC, the firm itself will prefer to be different from its major
competition. KFC is major buyer of K&Ns which would not want to lose partnership
with KFC, especially when new chains like Zenith and Menu are coming up. Also,
affiliation with KFC makes it more acceptable to people. On the other hand, KFC does
not have an option to buy from a well known and certified chicken supplier. Zenith is
new and Menu is also not as large and popular as K n Ns. Thus, suppliers overall do
possess bargaining power.

Uniqueness of service/Product
The products and services offered by the suppliers are alike as the products they supply
are naturally produced that they do not produce artificially. So, the uniqueness of the
products and services is not there. However, KFC have choice to buy from big chicken
suppliers like Zenith, Menu and Knorr, they are not perfect alternatives for KFC
suppliers, because K&Ns have better standard and it is HACCP, it helps build KFC’s
image as Halal, and it also got brand of the year award in 2009. All these factors make it
best for KFC’s brand image. These factors can make K&Ns stand apart and give it some
bargaining power. Pepsi too, of course, is unique in what it offers. Halal on the other
hand has no uniqueness in service. KFC could easily shift it for Knorr or National.
Hence, the suppliers providing some uniqueness have more right to bargain than the
others.

Switching costs to KFC



KFC faced the issue of not providing halal chicken some years back, which deteriorated
its image. But due to its present supplier, K & N’s, which is largest Pakistan-based
company and known for best practices for slaughtering but also follow stringent quality
standards has regained the trust of public. Indirectly KFC has based its halal chicken on
K & N’s brand name. So, switching cost for KFC can be higher if it switches from K&Ns
and even Pepsi, for both brands complement each other. These factors raise bargaining
power of its suppliers.

Threat of forward integration
Forward integration by suppliers can pose a major threat to the company to which it is
supplying, especially when not many alternatives are available. K & Ns can start their
own restaurant and fast food chain. This may pose a threat to KFC’s supply of chicken in
Pakistan and thus gives some bargaining power to the supplier.



3.7 Value Chain Analysis
Primary activities are the sequence of activities through which raw materials are transferred into
benefits enjoyed by customers. While support activities provide inputs that allow the primary
activities to take place which in turn improve coordination across and achieve efficiency within
the firm (Hill and Jones, 1998).
C.H.A.M.P.S. stands for cleanliness, hospitality, accuracy, maintenance, product quality and
speed of service. It is found that KFC has its core competence in its C.H.A.M.P.S. operating
system to ensure food quality, service standard to earn customers smile with more value,
improved service and better facilities. In addition, by using Colonel Harland Sanders to build up
its distinctive brand image makes KFC be one of the well-recognized brands in fast food
industry.

Primary activities
✔ Inbound Logistics
In Pakistan to ensure the quality of products, most of ingredients of KFC are imported from
other countries instead of Pakistan. When the chickens have been seasoned, they would be
transported to the branches in a daily basis. Fresh ingredients are provided to the branches
and hence it would ensure the quality of the food. However, outsourcing of logistic service, it
may increase the transportation cost and in turn would be added into the cost of food. It leads
to an increase of the food cost.
✔ Operation
The foundation of KFC relationship with franchisees is built up by the partnership pact. It
states that it gets franchisee inputs and involvement before decisions are made. It is
always mindful of franchisee economics in all it recommend by establishing clear,
customer-based system performance standard and providing opportunities first and
foremost to its current partners. In order to ensure the consistent food quality and service
standard, it also builds a one system mentality at its restaurant support centers.



KFC has a product excellence system to ensure quality raw materials, packaging,
equipment and new products that delight customers. In order to ensure consistent quality,
KFC also executes ingredient and equipment specifications. Food is freshly cooked and
fried chickens that are not sold for more than 45 minutes would be withdrawn from sale
to ensure the food quality. It also has its brand standard product designs, such as
distinctive packaging of the “Bucket” of chicken. The system with clear instructed
procedures would effectively guide the staff to do operational work, hence it ensure
quality consistence in each KFC’s branches.
✔ Marketing and Sales
Brand excellence system of KFC helps to ensure continuing high Yum! Brands monitors
and promotes the value of its brand in the market by clearly communicating the
personality of KFC. By using animated Colonel Sanders to market the brand, it builds up
a brand image of American style chicken expert in Hong Kong and adheres to its primary
concept with friend chicken as core products. The slogan used is now “We do chicken
right” and appears on poster advertising in newspapers and magazines. The website
provides KFC with an additional marketing avenue to promote KFC’s extensive products
and specials on offer. The site will allow KFC to further strengthen its icon and continue
Colonel Sanders and the company’s spirit and heritage. KFC also creates a disciplined
positioning strategy. It positions itself as an up-scale, eat-in and quick service restaurant
that targets customers from 16 to 39 years old with emphasis on young age group
including office workers and young executives. KFC usually advertise specific products
with consistent campaign to pull those products together. Integrated marketing strategies
would enhance effectiveness of promotion.
✔ Service
KFC commits to delight every customer on every visit in every restaurant. For its
customers, it is obsessed to go the extra miles to make them happy. In order to develop
restaurant excellence system, Yum! Brands provide supporting programmes needed to
run a restaurant and satisfy customers. KFC has to follow global operating standards,
C.H.A.M.P.S. to define the restaurant excellence.



Support activities
✔ Procurement
The franchise agreement provides for buying approved equipment, service ware and the
cooking spices from KFC approved suppliers. With Centralized distribution of food
purchasing and ware provider, this gives KFC great strength as quality could be ensured.
Cost control could also be achieved as KFC purchases their supplies in bulk directly.
✔ Human resources management
Although human resources management is carried out on a decentralized basis for
recruitment and hiring operational staff, KFC does provide training for the management
team. They would be hired in a centralized basis by the Head Office in Karachi and
Lahore. KFC trains management for people planning process to identify and plan staffing
and development needs. Restaurant human resources tool kit assists managers for human
resources issues at restaurant level. The training program would provide practical
practices and useful information to staff. It could ensure quality staff to provide quality
services. In its mission, KFC believes in people, trust in positive intentions, encourage
ideas from everyone and actively develop a workforce that is diverse in style and
background. It celebrates the achievements of others, coach and support employees. It
also executes with positive energy and intensity within the company and stay away from
bureaucracy. “Team together, team apart” indicates that it practices teamwork after
collaborative debate. In each branch, there is a C.H.A.M.P.S board to recognize
employees who are able to perform up-to-standard services.
✔ Infrastructure



In order to assist the restaurant planning and management practices, KFC starts with a
strategic analysis of the opportunity by market development strategic plan. KFC maps
demographics to determine where to develop and identify restaurant locations and
provides asset management to determine the optimum concept mix and number of
locations. Construction and project management by Yum! Brand helps to design and
build individual restaurants. With market development system of Yum! Brand, that KFC
would try to locate in convenient location (Steele, 1996).

1. Stakeholder Analysis

1.1 Internal Stakeholders of KFC

Managers
Managers of KFC want the company to succeed Better chance of promotion. They know
that Successful Company may reward them by paying them higher salaries, giving them a
bonus, Better fringe benefits and if company fails they could lose their job.

Employees
Employees of KFC want the company to succeed more likely to get better pay, chance of
promotion, Better facilities. Because they know if the KFC fails, then company will
threaten their jobs, Freeze their pay, and possibly cut their wages.

Suppliers
KFC has numerous suppliers among which K & N’s supplies the major chicken to KFC
and those chickens are further processed to serve into their chain of restaurant all over the
Pakistan. Proper steps and methods are applied to evaluate the suppliers and their
products as suppliers largely affect the overall operation and business of KFC. Suppliers



must want the company to succeed to get more orders for them and more success for their
business, as KFC is the supplier’s main buyer of their chickens in huge mass.

1.1 External Stakeholders of KFC
Customers
Customers do have a say in the working of the brand they are so loyal to. No company
can afford to lose its customers. Although, the customer base is huge and one single
customer does not have much bargaining power, KFC tries to listen to each and every
buyer via feedback and opinion cards. Mass customization is what KFC is trying to do to
make all customers happy thus it makes it a point to do whatever is possible to cater to
the needs of the customers. Customers continue to return to the KFC because of the good
quality and same taste of their food products. KFC has many fans and continue to go to
provide better customer services. KFC provides their customers best quality, good
services and they always introduce innovative products to attract their customers. That’s
why customers of KFC are loyal. KFC has high emotional barriers as presently it has
provided employment to approximately 7000 individuals who will lose jobs in the case of
KFC’s exit from the industry.



Government
Government is the external stakeholder of the KFC i.e. when a KFC business succeeds;
the more profit the business makes the more taxes it pays. The Government of Pakistan
receives over Rs.10 to 11 million per month from KFC Pakistan as direct taxes. But if the
business of KFC drop off then workers are made unemployed. Presently KFC has
provided employment to over 1200 Pakistanis, which adds up to approximately 6000
individuals directly dependent on KFC Pakistan.



1. Recommendations

Product Differentiation
KFC faces a lot of threat from its substitutes, especially with growing health concerns
among its customers. Health and obesity issues associated with KFC food have diluted
the trust people once had in them. Hence, the reason, substitute pressure is there. KFC
has tried launching salads and promoted production using vegetable oil in the past in
foreign companies. It should expand its product line and add variety into its served items
to cater the demands of this market in Pakistan.
KFC chooses differentiation strategy by emphasizing the preparation of food with high
quality ingredients as well as unique recipes and special seasonings to provide appealing,
tasty and attractive food at competitive prices. As the diversity of products of its
competitors, it is suggested that KFC should provide more innovative food products in
order to gain its competitiveness in the fast food industry. It may increase the variety of
menu products and give customers more choices. Different packaging of its menu may
also increase the variety of menu.
So, KFC should try and differentiate its products on other lines than only chicken to
capture other segments in the fast food industry. Product differentiation in the fast food
industry exists but is not quite high and generally the products are perceived as
commodities so their choice largely depends on price and service so the pressure to
ensure competitive price and service escalate. Also, switching costs are quite low, as
customers do not have to incur any cost for not buying from a firm. This industry’s
customers are characterized as highly price sensitive so they can easily switch to a
product that is like in quality and service but offered at lower price. Product
differentiation means that established firms have brand identification and customer
loyalty. In Pakistan’s fast-food franchise industry, product differentiation does play a role
in the growth of a business. Potential entrants will have to differentiate slightly to capture



the attention of the customers. It is hence not very easy to enter and operate profitably.
KFC has differentiated its products on the basis of “Food, fun & Festivity”, providing
numerous variants of its special recipe in the form of chicken meals. It also offers various
deals to differentiate its products from its competitors. Apart from the products it offers,
KFC differentiates itself on the basis of the experience it provides: the right chicken, the
right place and the right celebration! Hence the emphasis on ‘we do chicken right’.
However, the entire positioning is based upon one single secret recipe which if eluded by
one of the competitors can cause serious damage to the brand. Therefore, the business
though profitable is risky.
Products in the fast food remain undifferentiated, as discussed before. Marketing efforts
help differentiate the products a bit and build brand awareness; it does not help customers
lock up with the firm as they can find similar products elsewhere. There are some firms
offering a different range of products, like Subway, who have managed to differentiate
their products from the rest of the industry, targeting the health conscious people.
However, if we talk only about KFC and other chicken specialists, the products remain
more or less the same. Taste, in the Pakistani market does matter, but the prospect is not
strong enough to stop people from switching. Everyone is willing to go and try food from
a new comer. So KFC should do differentiation. They should also try the local desi taste
addressing the desi food lovers, thus it will help to increase their market share.

Better communication channel
Lack of communication in the operation would lead to many problems. Inconsistency of
products and services may occur due to misunderstanding of different internal
departments. It is therefore recommended that KFC should provide more communication
channel for gathering opinion so as to improve the service quality. Daily briefings may
be held by branch managers in order to keep crewmembers knowing up-to-date
information in a timely manner about the operation, promotion and direction of KFC. It
may help to improve the communication between marketing and operation and hence
minimize inconsistency of service in the restaurant chain. Informal tasting of new


products for employees may also help to gather opinion on how to promote the products
as crewmembers directly contact with customers. They may be the direct source to gather
customers’ opinion about products. It therefore may save marketing budget to promote
on unpopular menu items and concentrate on public accepted food products and in turn
enhance sales.

Enhancement on value of product and services
As shown in the strategies of KFC, it tries to minimize the costs, the decentralized
trainings for crewmembers, the bulk purchase of production ingredients and materials
and so forth. However, as the costs of food products are high, KFC may not be able to
decrease price of its food products to maintain its competitiveness in the fast food
market. In the other words, cost leadership is not a business strategy that it mainly takes.
Instead of competing on price, it is suggested that KFC should enhance the value and
maintain the quality of its products and services. Bigger portion of food may eliminate
the expensive impression for its products. Quality is always something that customers
look for. With unique recipe and tasty chicken as well as other innovative menu items,
KFC may have more sustainable competitiveness achieved by its differentiation strategy.

Adopt different pricing strategy to attract the customers
Price is always a primary concern for the customer; therefore, they should adopt certain
strategy to attract the customers. And it can only be done by lowering the prices. It could
be by introducing some discount packages for families, employees, students or regular
customers. The membership card can be used to provide certain extra value to the
customer. It can gain sustainable competitive advantage by either cost or differentiation.
If you have cost advantage you can cut your prices which will generate high sales volume
and this will ultimately result in higher profits. You can get cost advantage because of
economies of scale. If firm achieves differentiation, it can charge premium prices and
gain higher margins.



Environment friendliness
It can develop a competitive advantage for itself by introducing environment friendliness
concept as it has been introduced in Northampton USA. The restaurant is designed to
environmental goals that include cutting energy and water consumption by 30% and
reducing CO2 emission. Other than this is an effort to reduce its packaging by 1400 tons,
KFC is now switching from cardboard to recyclable and biodegradable paper wrapping
for some its products. It can start producing its own biodegradable paper and reduce cost
due to economies of scale.
Geographic Incumbency
As far as placement of the products is concerned, it is an important factor, for a company
to increase its market share, by targeting the right customer. KFC needs to have more
outlets, at commercial areas. It will help to target the actual as well as the potential
customers. Mobile outlets may be an effective addition as well. Geographic incumbency
can be another strategy by which it can gain advantage. Pakistani fast food market is still
unsaturated and there are some urban an most of rural areas where there is no outlet to
serve this need so KFC can use geographic incumbency advantage here and open up
outlets in these areas, fulfill the demands of this market and increase its market share.

Promotional Campaigns
KFC has large customer equity, but being a market symbol, a company should strive for
having more actual customers. KFC should work for having more solid marketing
departments. They should organize and run the proper advertisement campaign. It would
definitely be an incremental factor for their sales. They can also use the brand
promotions. They can set up the promotional campaigns. All they need is an effective
marketing department to facilitate t he promotional activities.

Ways for gathering customer feedback



As mentioned in marketing strategy, marketing team relies on customers’ feedback for
choosing their marketing promotion. Customers’ feedback means high sale volume and
positive sales revenue. It, however, may not reflect the positive customers’ feedback on
sales. Whenever a new product is out in the market, it may lead to sudden sales increase
of that particular product as customers may want to try something new. However, it may
not mean that the product is popular because product may be a fad. It therefore is
suggested that marketing team in KFC should carry out more comprehensive market
researches on product development. Branch manager or public relation officers could
take a chance to communicate with customers in the restaurant and collect their
feedbacks on the products as well as services. To increase the response rate, coupons or
other souvenir could be given to customers. Employees are always one of the sources to
gather customers’ feedback. Informal meetings may be held for operation team in order
to gather the customers’ response on new products and services. It would lead to a much
more clear direction for product development rather than keep introducing new products
with uncertain popularity.

Lack of Employee Training
Proper Training of Staff engaged in maintenance of service quality should be provided to
deal all such issues at local level. According to the manager, sometimes an issue
regarding the services happens. At present they are not focusing on the training in their
some outlets, so they should provide proper training to their employees because in fast
food: the service is within the minute.

Defensive Tactics
Like every company KFC is also vulnerable to competitors so it can adopt the three types
of defensive tactics:
✔ Raising structural Barrier
✔ Increasing expected retaliation
✔ Lowering the inducement to attack



✔ It can the raise the structural barriers by
1. Fill product or Positioning Gaps: They can fill these products gap by
introducing a variety in their menu. They should include healthy food as
consumers now a days are becoming health conscious. They can position their
products through advertisements by carefully selecting their target market and
using integrative marketing to fill the positioning gap.
2. Defensively increase the scale of economies: They can increase their scale of
economies so that they can charge fewer prices to increase their sales volume
and achieve higher margins. Economies of scale help to take cost advantage.
3. Defensively increase the Capital requirement: They can bring in more
investors and upgrade their outlets. Open outlets in markets which have yet
not been approached and take incumbency advantage there.
4. Foreclose alternative technologies: It’s a technological era and technology can
help you gain competitive advantage. They should find and implement
alternative technologies to get cost advantage and do differentiation
.
Increasing Expected Retaliation by Establish blocking positions. (e.g.
Price cuts) Price cuts can be done when you have cost advantage which can come from

economies of scale, Vertical linkages with the value chain of suppliers and channels ,
geographic location and discretionary policies keeping in mind KFC.



1. Exhibits
Exhibit 1

SWOT Analysis
Opportunities
Weaknesses
Strengths
Threats
Competition from other international
Cheap and easy Research of labor outlets
Lack of focus onavailability& Development
KFC's secret recipe
Entrance raw material
Increase of New competitors
Importedconsumption of fast food
Brand Equity
High political instability/uncertainty
Consumer prefer “All makes
Inflexibility of pricesunder oneitroof”
unaffordable to
Oldest and finest in Business
Increasing inflation
Expand their sweet products
middle class people.rates
High Goodwill
Health Trend the
Open more outlets from as compared
High rates onawayprices fried foods to the other
Does not have any Core competitor In chicken
Changing
Capture customer demands
brands more customers by decreasing the price of
serving
International
their productsevents badly affected
Ranks highest among all chicken restaurants
Diseases their restaurants, Balanced menu,
Updatinglike bird flu
Chains for its convenience and menu variety
customer focus and Increase delivery service
Loyal customers
Interactive relationship marketing
Advantages of being a Multinational Organization



Exhibit 2
Michael Porter’s five forces
Low economies
Highswitching of
concentration
Large
costs
concentration
scale to small size
Uniqueness
High price of
Moderate product
buyer
product high
inclination
sensitivity
differentiationto
low
Moderate
High capital
High switching
sensitivity
product
requirements
costs
towards price
differentiation
High access to
High threat
quality trade
Low switching
distribution of
forward integration
off
costs
Moderate
government
policies



Exhibit 3



1. References
http://www.planetfeedback.com/kentucky+fried+chicken/menu+choices/infuriated+by+c
ommunication+problems+at+kfc/316329

http://www.austrade.gov.au/Food-to-Pakistan/default.aspx

http://thefinancialdaily.com/NewsSearchResult/NewsSearchDetail.aspx?NewsId=92048

http://paknet.net/expending-in-pakistani-food-sector/

http://www.kfc.com/menu/salads.asp

http://www.kfcpakistan.com/

http://www.jang.com.pk/thenews/investors/feb2003/if.htm

http://www.psopk.com/media/news_detail.php?nid=96

http://www.onepakistan.com/news/local/karachi/33848-KFC-Teachers-Convention.html

Interview with the Marketing Manager: Muhammad Kaleem

www.kfc.com



Competing on the Edge, Strategy as the Structured Chaos by Shona L. Brown and
Kathleen M. Eisenhardt

*---------------------*


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