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KFC’s Radical Approach to China




           David E. Bell&Mary L. Shelman
               Presented by Melih Torlak
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?
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.
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.
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
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.
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.
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.
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.
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.
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
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.
KFC’s radical approach to china presentation - 21.3.2013

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KFC’s radical approach to china presentation - 21.3.2013

  • 1. KFC’s Radical Approach to China David E. Bell&Mary L. Shelman Presented by Melih Torlak
  • 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.