2. Two Main Questions?
Global companies face a critical question when they
enter emerging markets:
How far should they go
to localize their offerings?
Should they adapt existing
products just enough to
appeal to consumers in
those markets?
3. Overview
In 1987, KFC China was opened in Tiananmen
Square. (China was still in the Mao era)
Western-style fast food restaurants were unknown in
China, KFC was a novelty, a taste of America.
Extremely controlled market.
Customers didn’t like the food much.
The all-American business model was not good
enough.
4. Overview
KFC China is opening almost one new outlet each day
(current base ~ 3300) and intends to reach 15000
outlets by 2015.
To determine how much of an existing business
model is worth keeping in emerging markets and
how much should be thrown away.
5. Five Radical Elements
1) Infusing a Western brand with Chinese
characteristics (Repositioning KFC in China)
2) Expanding rapidly
3) Developing a logistics network
4) Training employees in service
5) Focusing on ownership rather
than franchising
6. 1. Infusing a Western Brand with Chinese
Characteristics
Customer sees KFC China as part of the local
community.
It is offering the variety of foods and the traditional
Chinese dishes.
Redesigning the menu (typically include 50
items, compared with about 29 in the US) and 50
new products are added every year.
Enlargement of outlets. (about twice the size of
those in US)
Offering of regional recipes.
7. 2. Expanding Rapidly
One factor – Presence of McDonald’s in China’s four
largest cities. (KFC China has decided to embrace smaller
cities)
In 2008, Yum! Brands’ annual
opening rate in China surpassed
500 restaurants. (most of them
KFCs—compared with 103 new
KFCs in the United States)
With KFC as its flagship chain, Yum! has become China’s
largest restaurant company today, with more than
250,000 employees and about 40% of the market for
fast-food chains.
8. 3. Developing a Logistics Network
In 1997, KFC China established a distribution channel
in order to compete with its competitors. Also, it has
built warehouses and run its own fleet of trucks.
Implemented a supplier rating system for selecting
the suppliers that perform the best.
Put emphasis on food safety.
Buying locally is essential to keep costs low. It
strengthens the parent company’s relationship with
the Chinese government.
9. 4. Training Employees in Service
KFC China is one of the first companies to promote
excellent customer service.
New employees at KFC China
often have to learn basic
communicative skills to
interact with customers.
KFC China prides itself on being a “learning organization.”
Each team composed of new employees works closely
with experienced ones in outlets; after training they move
to a new location.
10. 5. Focusing on Ownership rather than Franchising
Main reason is to closely control every aspect of their
operation. (More than 90% of Yum!’s outlets in China
are company-owned, compared with 12% in the U.S.
and 11% in other international markets)
Franchising reduces investment costs and risks. Also
it enables rapid geographic expansion; however KFC
China’s model was more complex and evolving
rapidly.
Owning the outlets permit centralized
purchasing, which reduces costs, and gives the
company a larger share of outlet profits.
11. The Risk of a Backlash
Chinese adults were overweight up from 6% in 1982 to 22.8%
in 2002.
In 2005, KFC China developed the concept of a “New fast
food”:
Nutritious and balanced
Eliminated “supersize” items
Added new food such as roast chicken, sandwiches, fish,
shrimp, and more fruit and vegetable dishes to its menus
The information about nutrition is printed on every package
Hostesses teach kids about nutrition to promote healthy living
12. A Confident, Dynamic Company
In the first half of 2011, sales at Yum! China locations
that had been open a year or more rose
16%, compared with a decline of 2% at U.S.
locations.
The restaurant’s profit margin for those six months
was 22% well above the U.S.’s one of 11%. Yum!
China’s revenues and operating profits in 2010 were
$4.1 billion and $755 million, respectively;
comparable figures for the overall company were
$11.3 billion and $1.77 billion. KFC China’s revenue
(more than $1.1 billion) surpassed KFC US revenue in
Q3 2010.