7400209 KFC Case Study2

8/8/2019 7400209 KFC Case Study2

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Case Study:

Kentucky Fried Chicken

and the Global Fast-

Food Industry

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Relevant Case Facts - History

Early Life of Colonel Sanders

Sander’s First Franchise in 1952New Management/culture for Kentucky FriedChicken after KFC sale for $2M

Acquisition of KFC by Pepsico/Tricon GlobalHeublein Makes Changes in 1970

1980’s Profit and Expansion

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From $105 to 7.2 Billionin 50 years

1952, Col. Sanders started franchising his recipe door to door financed by his $105.00 SS Check

1964, Col Sanders had more than 600 franchised outlets in the US and Canada.

1964, Sold his interest in his company for $2 million to a group of investors.

1966, KFC went public

1969, Listed on the NYSE

1971, KFC was acquired by Heublein Inc. for $285 million.

1982, Heublein & KFC Inc. was acquired by RJ Reynolds

1986, RJ Reynolds & KFC, was acquired by PepsiCo, Inc. $840 million.

1997, PepsiCo, Inc. spined-off of its qsr’s into independent Tricon Global Restaurants.

2002, Tricon changed it's corporation name to Yum! Brands, Inc. .

NOW:

Yum Brands, Inc. is the world's largest restaurant company in terms of system units with

nearly 32,500 in more than 100 countries and territories.

Yum! Brands, Inc., is a Fortune 300 company

Yum! Brands, Inc. global system sales totaled more than $22 billion in the year 2001.

Current Market Cap value on the NYSE is 7.2 Billion

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Problem/Issue

How would KFC maintain a marketleadership in the global fast-food industry

Issue:

A competitive marketing strategy in the international market focused on the Latin American countries

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Internal AnalysisFunctional Areas

Finance/AccountingSince 2001, Yum Brands Inc. has outperformed the market

Computer Information Systems

Newly established Computer information system

Marketing

Positioning among competitors is favorable

unconventional methods of distribution

multibranding

ManagementObjectives and goals are measurable and achievable

Team empowerment

Productions/Operations

Constant improvement on quality of chicken

Producer and operators are strategically located

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SWOT ANALYSIS: Strengths

The Management style of Col. Sanders was to rely on the basicgoodness of the people around him and trust the franchisees to playfair.KFC is a Market leader : World’s largest chicken restaurant chain andthird largest fast-food chain in 2000

Key Success Factor (KFC):LocationEffective store management/cleanlinessKey to continued growth was to find, motivate, and retain hard-working andentrepreneurial managers and franchisees around the globe

In addition to short term profits, store managers were also responsiblefor building local public relations, maintaining employee morale,developing customer good-will, keeping tab on the competing chainsand creating a legacy of special chicken cooking recipe.Overall market image also became increasingly clear.

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Strength

KFC had a refocused international strategiesto grow its company and franchise restaurantbase all over the world.

Competitive marketing strategy: Developedthree types of chicken: Original recipe(pressure cooked) Extra crispy (fried) Tender

roast (roasted)Distribution strategy

- First, focused on building smaller restaurants in non-traditional outlets likeair orts

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Shopping malls, universities, and hospitals.

Second, KFC continued to experiment with

home delivery, which was already firmlyestablished in Louisville, Las Vegas and LAmarkets

Third, KFC established “2 in 1” units that sold

both KFC and Taco Bell or KFC and PizzaHut

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Cont. Strength

KFC continued to dominate the chickensegment ($4.4B) past its nearest competitor Popeyes at a distant second ($1.0B)

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SWOT ANALYSIS:

Weaknesses

Year 1986

Management Shift- KFC was acquired by Pepsico from RJR Industries.Sweeping changes into the culture was initiated by the newmanagement- this brings about demoralization to old KFC employees

and even franchisees.

Several restructurings led to layoffs throughout KFC, replacement of KFC managers with PepsiCo managers

Conflicts between KFC and PepsiCo cultures- this is manifested with

PepsiCo’s stronger emphasis on performance rather than loyaltyexpressed by Col. Sanders to KFC employees over the years.

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Cont. Weaknesses

Market Segment (1990’s)

KFC’s leadership in the US market was soextensive that it had fewer opportunities toexpand its US restaurant base, which wasgrowing at about 1% per year.

KFC chicken segment sales fell from 71% in 1989to less than 56% in 1999.

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SWOT ANALYSIS: Weaknesses

KFC finds difficulty in entering the Germanmarket (culture incompatibility)KFC sales stagnated. There was widespread

discontent among the franchisees, some of whom felt the new owners did not understandthe chicken business and were not providingleadership expected from a franchisor.Company stores floundered and become

underperforming the franchised operations,further convincing franchisees that the companydid not know its own business. (KFC HQacquired them to company-owned)

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SWOT ANALYSIS: Opportunities

Overseas expansion with the rapid economic growthand trend toward two-income families that hadfuelled the growth of fast-food industry in the 1950sand 1960s were appearing in the late 1960s in theother country.

US market maturity- many restaurants expand tointernational markets as strategy for growing sales.KFC is an American company and 35 largestrestaurant chains in the world (2000) were AmericanfirmsExpansion program for the Mexican market/LatinAmerican marketsNAFTA advantageDemographic trends (demand for food eaten outside

of the home)

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SWOT ANALYSIS: Threats

Consumer health food trend

Saturated fast food industry in the U.S. market

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Strategic Management

Market Development

KFC will introduce their present and new products and

services into new geographic/demographic areas.

Product Development

Bring back rotisserie chicken

Concentric Diversification

Add more to KFC product & service variety to the

public

consumers

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Implementations

Market Research

Determine area’s demand to determineboundaries

Expand menu

Healthier choices

Meals will be sold at cost

Determine effects on budget

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Company Strategy

Primary objective is to take advantage of thepotential growth in other countries, to establish astrong position and to develop their image. KeySuccess Factors are ever continuing costsavings through R&D, innovations and use of new technology to work efficiently. Thesesuccess techniques will lower costs andincrease profits in the industry.

KFC uses an integrated low cost/differentiationleadership, since it can count on its brand nameand original taste and recipes to be unique whileat the same time compete on price using thebenefits of cost savings from economies of scale.

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Recommendations

Short-term:

Based on the analysis, we can conclude that they should start bysolving their internal issues such as management and restaurantmenu before thinking about expanding. They should work on the

management issues to create a good atmosphere where employeesare happy to work in. I certainly do not believe that by treatingemployees poorly, a company can be successful.

They also need to make sure that their restaurants offer a diversifiedmenu, provide their customers with quality food, excellent service

and restaurant cleanliness. KFC should always listen to their customers and try to follow the new trends on the market in order tofully satisfy their customers. Otherwise, competitors will satisfy themand will eventually outperform you as Boston did with its grilledchicken.

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Cont.

Even though, KFC seems to have an emotional attachmentto their original recipe that made their success, they

definitely need to move on and develop new products thatcustomers want in order to increase their financialperformance and value. We have seen that Boston andPopeye’s are stealing customers away from KFC becausethey understood what customers wanted and startedoffering healthier items. KFC should certainly do the sameand enhance their menu.

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Concerning their expansion strategy, KFC should start by closing afew non-profitable stores in the US that are currently drowningmoney from KFC. This will allow KFC to get the cash necessary toinvest in new markets, which offer more growth potential. We have

seen that the US market is not as attractive as it used to be, it hasbecome saturated and certainly does not appear to have a brightfuture ahead. There is also the competition in the US that makes itreally hard to compete in, whereas in other foreign markets that arequasi untouched as I will discuss more in detail later. KFC has toselect countries based on their attractiveness and make sure thatthey can provide above-average returns, which will be discussedmore in detail in the intermediate term.

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But first, they need to have a clear vision, solve theinternal issues and get some cash in order to make surethat they are strong as a company and ready to compete

internationally before going ahead with their expansionproject.

ü Create a great working atmosphere

ü Develop a healthier menuü Get some cash from selling unprofitable restaurants

ü Evaluate countries based on attractiveness

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International Investments

Concerning investing internationally, extremely attractivecountries that can provide above-average returns areregions that have chicken as traditional dish such as

Asia and Latin America. Those regions should certainlybe prioritized while developing an internationalexpansion. While they start attacking those new markets,they should keep in mind to focus locally even thoughthey go international in order to overcome certain

barriers such as language, law and a goodunderstanding of needs. Targeting new countries usuallywork better if you adapt to the local market.

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Long Term

They need to stay close to their mission (providecustomers with quality food, excellent service andrestaurant cleanliness) and make sure to know how toachieve their long-term objectives. They also have to

keep innovating and coming up with new items regularly.Remember that even though, they come up with similar products, customers are most likely going to try them.They also have to follow the trend and go hand in hand

with customers to satisfy their changing needs, as wehave previously discussed with the current healthier foodtrend. They also want to keep an excellent image bytreating employees fairly and keeping a good controlover franchises to make sure they follow the company’sprocedures.

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Cont.

Concerning the American market, they should alwayskeep an eye at competitors and see if possible mergers

or acquisitions could be made. McDonald’s has beenfaster than KFC when they acquired Boston, which couldhave really helped KFC regain its loss market share andreduce competition. They also have to keep working ontheir low-cost/differentiation strategy by better takingadvantage of their competitive forces such as economiesof scales, bargaining power, image/brand worldwiderecognition.

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Cont.

They also need to keep an eye and be aware of newtechnology in order to improve their productivity and beable to compete more efficiently because even thoughthey may have a competitive advantage now, they can

be sure that they will eventually be challenged.

ü Stick to their mission; quality food-excellent service-restaurant cleanliness

ü Keep control over franchises

ü Come up with new items regularly

ü Keep an eye on possible mergers & acquisitions

ü Be aware of new technology to stay efficient andcompetitive

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THANK YOU ! ! !

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7400209 KFC Case Study2