Assignment 9-Strategic Management

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PROGRAMME : DIPLOMA EKSEKUTIF PENGURUSAN

PERNIAGAAN & KEUSAHAWANAN

STUDENT INTAKE : JULY 2010

MODULE : STRATEGIC MANAGEMENT

DUE DATE : 30 JUNE 2011

DATE CLASSED : 28 & 29 MAY 2011

DATE SUBMITTED :

FACILITATORS NAME : MRS YUDIYANTI BT MOHAMMAD YUSOF

STUDENT NAME : NORAZEAH BINTI MOHD ALI

STUDENT NUMBER :

IC/NO : 790808-06-5050

WARISAN AKADEMI PENDIDIKAN

CENTRE : UNIVERSITY MALAYSIA PAHANG (UMP)

GAMBANG

STRATEGIC MANAGEMENT 1

Mission

To sell food in a fast, friendly environment that appeals to pride conscious, health

minded consumers (www.KFC.com).

Objectives

1. Product development

Increase variety on menu

Introduce desert menu

Introduce buffet to restaurants

2. Introduction on the Neighborhood Program with following:

Menu items target African Americans in major cities with the following

items:

o Greens

o Macaroni and cheese

o Peach cobbler

o Red beans & rice

Menu items targeting Hispanics in major cities with the following items:

Fried plantains

Flan


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Tres Leches

1. Implementation on non-traditional units including the following:

Shopping mall food courts

Universities

Hospitals

Airports

Stadiums

Amusement Parks

Office Buildings

Mobile Units

1. Increase profitability of KFC through the following:

Reduced overhead costs

Increased efficiencies

Improved customer service

Cleaner restaurants

Faster and friendlier service

Continued high quality products

1. Resolve franchise problems in the United States.

Implied Objectives

1. Expansion of international operations to provide the following:

Increased percentage of overall sales growth

Increased percentage of profit growth

1. Increased expansion of franchises into Mexico


2. Expansion of franchise operation beyond Central America

3. Continued promotion of healthier image through removal of the word

"fried" from the name

4. Improve menu selection of rotisserie

Organizational Structure

History

Since its inception, KFC has evolved through several different organizational

changes. These changes were brought about due to the changes of ownership

that followed since Colonel Sanders first sold KFC in 1964. In 1964, KFC was

sold to a small group of investors that eventually took it public. Heublein, Inc,

purchased KFC in 1971 and was highly involved in the day to day operations.

R.J. Reynolds then acquired Heublein in 1982. R.J. took a more laid back

approach and allowed business as usual at KFC. Finally, in 1986, KFC was

acquired by PepsiCo, which was trying to grow its quick serve restaurant

segment. PepsiCo presently runs Taco Bell, Pizza Hut, and KFC. The PepsiCo

management style and corporate culture was significantly different from that of

KFC.

PepsiCo has a consumer product orientation. PepsiCo found that the marketing

of fast food was very similar to the marketing of its soft drinks and snack foods.

PepsiCo reorganized itself in 1985. It divested non-compatible units and

organized along three lines: soft drinks, snack foods and restaurants. PepsiCo

Worldwide Restaurants was created to create synergism between its restaurant

companies.

By the end of 1994, KFC was operating 4,258 restaurants in 68 foreign countries.

KFC is the largest chicken restaurant and the third largest quick service chain in

the world. Due to market saturation in the United States, international expansion

will be critical to increased profitability and growth.


Present Situation

The organization is currently structured with two divisions under PepsiCo. David

Novak is president of KFC. John Hill is Chief Financial Officer and Colin Moore is

the head of Marketing. Peter Waller is head of franchising while Olden Lee is

head of Human Resources. KFC is part of the two PepsiCo divisions, which are

PepsiCo Worldwide Restaurants and PepsiCo Restaurants International. Both of

these divisions of PepsiCo are based in Dallas.

Structuring

Another strategy of KFC is currently working with is to improve operating

efficiencies. This in turn can directly impact the operating profit of the firm. In

1989, KFC centered on elimination of overhead costs and increased efficiency.

This reorganization was in the U.S. operations and included a revision of KFC’s

crew training programs and operating standards. They emphasized customer

service, cleaner restaurants, faster and friendlier service, and continued high-

quality products.

In 1992, KFC continued with another reorganization in its middle management

ranks. They eliminated 250 of the 1500 management positions at corporate and

gave the responsibilities to restaurant franchises and marketing managers.


Financial Analysis

Introduction

PepsiCo acquired KFC in 1986 to add to their diversified restaurant segment,

which included Pizza Hut and Taco Bell. PepsiCo produces yearly-consolidated

financial statements, which includes this restaurant segment, but does not

separately identify KFC, Pizza Hut, or Taco Bell. Therefore, the amount of

financial information is very limited.

Market Share

In 1986, after the KFC acquisition, PepsiCo now had three of the four largest and

fastest growing segments within the U.S. quick service industry. In 1994,

PepsiCo had some of their largest market share’s in the U.S. Market.

KFC Sales

As of 1995, KFC was ranked sixth in the U.S. sales in fast-food chains. See also

U.S.

Top 10 Leading U.S. Fast-Food Chains

U.S. Sales ($M)

1995 1994


McDonald's 15,800 14,951

Burger King 7,830 7,250

Pizza Hut 5,400 5,000

Taco Bell 4,853 4,200

Wendy's 4,152 3,821

KFC 3,720 3,500

Hardee's 3,520 3,511

Subway 2,905 2,518

Little Caesar's 2,050 2,000

Over the past seven years from 1987 to 1994, KFC worldwide sales have grown

at an average rate of 8.2% . A big part of the increased sales is due to new

restaurants and higher volume.

Worldwide Sales ($ millions) $4,100

1. 5,000

2. 5,400

3. 5,800

4. 6,200

5. 6,700

6. 7,100

7. 7,100


KFC has also met the changing demands of society. As the world has gone to a

more healthy living, KFC has come out with many changes on its menu, including

Honey BBQ Chicken, Popcorn Chicken, Rotisserie Chicken and has begun to

promote its lunch and dinner buffets. Dinner is also very important to KFC.

The buffets now offered at KFC during lunch and dinner are also very important.

KFC is typically a fast-food service however with these buffets, this may

persuade customers to dine-in instead of take out.

KFC has also tried to meet the demands of consumers wanting fast-food in other

"non-traditional" locations. They are currently testing airports, shopping malls,

universities, and other high-traffic areas.

Financial Ratio Analysis and Capital Outlook

Financial ratio analysis is the calculation and comparison of ratios, which are

derived from the information in a company's financial statements. The level and

historical trends of these ratios can be used to make inferences about a

company's financial condition, its operations and attractiveness as an investment.

In isolation, a financial ratio is a useless piece of information. In context,

however, a financial ratio can give a financial analyst an excellent picture of a

company's situation and the trends that are developing.

Opportunities

Opportunities represent external finding which can enhance a company’s

performance. Opportunities that KFC can take advantage of are as follows:

1. The Mexican market, which offers a large customer base, lesser

competition, and close proximity to the US.


The growth in the fast-food industry is limited due to the aggressive pace

of the growth in the 70’s and 80’s. As a result, the market is saturated and

"the cost of finding prime locations is rising." With the higher cost of the

initial investment, the new restaurants are pressured to increase per-

restaurant sales. Many companies are realizing that in order for them to

grow they need to pursue foreign market. One of the potentially profitable

markets is Mexico. Mexico has over 91 million people and growing. This

give companies a huge customer base to work with. Also, the companies

are able to take advantage of the close proximity to the US. The

transportation cost to Mexico compared to other countries is very minimal.

Despite the advantages, US companies in general have not expanded

much in the Mexican market compared to European or Asian market.

Therefore, the companies can expect lesser competition when expanding

in Mexico.

2. Peso devaluation has made it less expensive for US to buy assets in

Mexico.

US companies are able to invest less money in buying assets in Mexico

due to favorable exchange rate. This opportunity gives the companies a

reduced risk in investing in Mexico. Also, the companies that are already

in Mexico are able to import raw materials at a favorable rate by

converting dollars into peso.

3. "Dual branding" helps to appeal to the wider customer base and also

provide higher profit.

This strategy helps to "improve economies of scale within its restaurant

operations." For many companies that own more than one fast-food chain,

"dual branding" is an ideal way to expand quickly and increase profit. The

companies no longer need to wait for the store to be built or spend time

and money looking for the location. By adding a brand to the existing fast-


food store, the companies are able to expand quickly and for less money.

The companies are also capitalizing on the increased customer base due

to the increased menu offering. Increased profit is another benefit of "dual

branding." The companies are enjoying higher profit due to the low cost in

expanding and the reduced advertising dollar spent by advertising the two

chains together.

4. New franchise laws in Mexico give fast food chains the opportunity

to expand their restaurant bases.

In January 1990, Mexico passed a law that favored franchise expansion.

The law provided for the protection of technology transferred into Mexico.

The law also allowed royalties. Before 1990, there was no protection for

patents, information, and technology transferred to the Mexican franchise.

Also, before the new law royalties were not allowed. This resulted in

higher number of the company owned fast-food chains rather than the

franchises in Mexico. However, with the new law, the companies are given

an opportunity to benefit from selling franchises. The fast-food chains are

now able to expand to other regions of Mexico by selling franchises to

individuals rather than keep building company owned stores in centralized

locations to keep the operation simple and effective.

5. Australian opportunity

Growth in international profits were highest in Australia, which is now

KFC’s largest international market.

6. New distribution channels offer a significant growth opportunity.

Especially in the last few years, consumers are demanding fast food in

non-traditional locations, such as shopping malls, universities, hospitals,

and other high-traffic areas. Consumers are demanding greater

convenience when purchasing. The locations listed above are some of the


most popular non-traditional locations that could be exploited by a fast-

food chain. The fast-food chains are recording high sales in those areas

due to high-traffic. Consequently, the companies are constantly looking

and testing for new high-traffic locations to expand.

Threats

Threats to a company are those business characteristics that endanger the

company’s position within its industry as well as jeopardize its profits. The threats

that KFC faced with include the following:

1. Saturation of the US market.

According to the National Restaurant Association (NRA), food-service sales in

1995 will hit $289.7 billion for the U.S. restaurant industry. The NRA estimates

the sales in the fast-food segment of the food industry will grow 7.2% to

approximately $93 billion in the United States in 1995, up from $87 million in

1994. Although the restaurant industry has outpaced the overall economy in

recent years, there are indications that the U.S. market is slowly becoming

saturated.

2. Increasing competition and rising sales of substitute products.

Faced by slowed sales growth in the fast-food industry, other segments of the

industry have turned to new menu offerings. McDonald’s introduced its

McChicken sandwich in the US market in 1989. Jack in the Box has introduced

chicken and teriyaki with rice. Domino’s has introduced chicken wings to its

menu. Pizza Hut has tried marinated, rotisserie-cooked chicken.

3. Changing preferences of consumers.

During the 1980s, consumers began to demand healthier foods and KFC was

faced with a limited menu consisting mainly of fried foods. In order to reduce

KFC’s image as a fried chicken chain, it changed its logo from Kentucky Fried


Chicken to KFC in 1991. In 1992, KFC introduced Oriental Wings, Popcorn

Chicken, and Honey BBQ Chicken as alternatives to its Original Recipe fried

chicken. In 1993, KFC rolled out its Rotisserie Chicken and began to promote its

lunch and dinner buffet.

4. Obstacles associated with expansion in Mexico.

One of KFC’s primary concerns is the stability of Mexico’s labor markets. Labor is

relatively plentiful and cheap in Mexico, though much of the work force is still

relatively unskilled. While KFC benefits from lower labor costs, labor unrest, low

job retention, absenteeism, and punctuality continue to be significant problems.

Though absenteeism is on the decline due to job security fears, it is still high, at

approximately eight to fourteen percent of the labor force. Turnover also

continues to be a problem. Turnover of production line personnel is currently

running at five percent per month. Therefore, employee screening and internal

training continue to be important issues for foreign firms investing in Mexico.

Another area of concern for KFC has been the increased political turmoil in

Mexico during the last several years. For example, on January 1, 1994, the day

NAFTA went into effect, rebels (descendants of the Mayans) rebelled in the

southern Mexican province of Chiapas on the Guatemalan border. Around 150

people were killed. The peso crisis of 1995 and resulting recession in Mexico left

KFC managers with a great deal of uncertainty regarding Mexico’s economic and

political future. KFC’s approach to investment in Mexico is to approach it

conservatively, until greater economic and political stability is achieved.

Strengths

Strengths can be found internally in a company and can be used to the

company’s advantage. The strengths identified are as follows:

1. KFC's secret recipe.


The secret recipe has long been a source of advertising, and allowed KFC to set

itself apart. Also, KFC was the first chain to enter the fast-food industry, just

before McDonald's, which opened its first store a year later, and the "secret

recipe" was the initial home replacement strategy.

2. Name recognition and reputation.

KFC's early entrance into the fast-food industry in 1954 allowed KFC to develop

strong brand name recognition and a strong foothold in the industry. The Colonel

is KFC's original owner and a very recognizable figure, both in the U.S. and

internationally, in their new logo. In fact, in the fourth annual LogoValue Survey,

done by The Schecter Group, the KFC logo was the only one which significantly

enhance the brand's image (Logos add…1).

3. PepsiCo's success with the management of fast food chains. PepsiCo

acquired Pizza Hut in 1977, and Taco Bell in 1978. PepsiCo used many of the

same promotional strategies that it has used to market soft drinks and snack

food. By the time PepsiCo bought KFC in 1986, the company already dominated

two of the four largest and fastest-growing segments of the fast food industry

(Wright, p.424-426).

4. Traditional employee loyalty.

"KFC's culture was built largely on Colonel Sanders' laid back approach to

management" (Wright, p.433). Before the acquisition of KFC by PepsiCo,

employees at KFC enjoyed good benefits, a pension, and could receive help with

other non-income needs. This kind of "personal" human resources management

makes for a loyal workforce (Wright, p.434).

5. Improving operating efficiencies by reducing overhead and other

operating costs can directly affect operating profit.


Due to the strong competition in the US, the fast-food chains are reluctant to

raise prices to increase profit. Many of the chains are turning to operating

efficiencies to increase profit. For many companies, operating efficiencies are

achieved through improvements in customer service, cleaner restaurants, faster

and friendlier service, and continued high-quality products.

Weaknesses

Weaknesses are also found internally like strengths. Weaknesses, however, can

limit a company’s potential. The weaknesses for KFC are identified as follows:

1. The many sales of KFC lead to a confusing corporate direction.

Between 1971 and 1986, KFC was sold three times. The first two sales, to

Heublein, Inc and to R.J. Reynolds, left the company largely autonomous. It

wasn't until the sale to PepsiCo in 1986 that changes in top management started

to take place. These changes happened almost immediately after the sale

(Wright, p.421-426).

2. KFC has a long time to market with new products.

Because of the nature of the chicken segment of the fast food industry,

innovation was never a primary strategy for KFC. However, during the late

1980's, other fast food chains, such as McDonald's, began to offer chicken as a

menu option. During this time, McDonald's had already introduced the

McChicken while KFC was still testing its own chicken sandwich. This delay

significantly increased the cost of developing consumer awareness for the KFC

sandwich.

3. Conflicting cultures of KFC and Pepsi Co.

While KFC's culture was largely based on the Colonel's laid back approach to

management, while PepsiCo's culture is more of a "fast track" attitude.


Employees do not have the same level of job security that they enjoyed before

the PepsiCo acquisition (Wright, p. 433-434).

4. Turnover in top management.

PepsiCo bought KFC in 1986. By the summer of 1990 PepsiCo's own

management had replaced all of the top KFC managers. However, by 1995 most

of this new PepsiCo management had either left the company or been moved to

a different division. In addition, Kyle Craig, who was named president of KFC's

US operations in 1990, left in 1994 to join Boston Market (Wright, p.434).

5. Recent contractual disputes with franchisees in the United States.

This is also an example of the conflicting cultures of KFC and PepsiCo. KFC's

franchisees had been used to little interference from corporate offices. In 1989,

the CEO announced new contract changes - the first in thirteen years. "The new

contract gave PepsiCo management greater power to take over weak franchises,

to relocate restaurants, and to make changes in existing restaurants" (Wright,

p.434). The franchisees protested these changes and the relationship between

the corporate KFC and the franchisees in the United States have been strained

ever since this announcement (Wright, p.434).

Problems

Through an analysis of the strengths, weaknesses, opportunities, and threats of

KFC, the following potential problem areas were identified:

1. No defined target market.

The advertising campaign of KFC does not specifically appeal to any segment. It

does not appear to have a consistent long-term approach. The U.S. has

enormous changes in its demographics. Single-person households have

increased from 12% in 1970 to 25% in 1995. With this kind of dramatic change,

KFC does not have a proper approach to its target market.


2. Saturation of the U.S. Market.

There has been an increase in the overall number of fast-food chains. Access to

restaurants is now easier due to non-traditional locations, for example in airports

and gas stations. Also, the age of Americans tends to change the frequency of

eating out.

3. Health Conscious Consumers.

There has been a trend toward an increasingly healthy diet in America. This put

KFC at an extreme disadvantage due to its fried product offering.

4. Increased Start Up Costs.

Prime locations have increased in cost due to limited room for expansion. New

technology has increased efficiencies, but resulted in greater increased start up

costs. Restaurant and equipment packages range from $500,000 to $1,000,000.

Salient Problem

Low profitability and high risk of doing business in Mexico.

Due to the current devaluation, profits are greatly reduced. This reduction in

earning power has brought about much political unrest. Mexico has a largely

unskilled labor pool that provides little stability. Cultural attitudes toward

punctuality, absenteeism and job retention tend to make managing employees

difficult under present circumstances. High turnover rates lead to high training

costs and can threaten the brand integrity. In the past, the Mexican economy has

triggered violence toward American firms by frustrated nationalists. The

culmination of all these problems led to low profitability due to a low profit product

margin.

Strategic Alternatives


The strategic alternatives for KFC are as follows:

1. Re-franchise all company owned Mexican units into franchises

Advantages

Reduced risk—political and economical

New legislation promoting franchises and protecting patents and

technology in Mexico

Increased cash flow from sale of units

Less day to day involvement by KFC

Less Administrative Costs for KFC

Steady royalties even after the sale of the units

Disadvantages

Foregoing potential greater profits

Losing control of day to day operation of the franchises

Expansion through franchise endangers brand equity

2. Completely divest KFC of Mexican operations

This alternative includes canceling all franchises and selling off all company units

in Mexico.

Advantages

Eliminate risk in foreign markets--Mexico

Reduced currency rate exposure in Mexico

Protects brand integrity

Increased cash flow/capital for other investments

Would not have to oversee Mexico and would save operational and

administrative expenses


Disadvantages

Forgoing potential profits from the 2nd largest international market (Mexico

is second behind Australia)

Ill will from franchises and Mexico consumers

Eliminate brand visibility in Mexico

3. Leave Mexico as is and grow other foreign markets.

Advantages

o Focus investment on strongest growing segment in Australia

o Less political and financial risks in other foreign markets

o Still maintain a minimal presence in Mexico for further growth in the

future when stability is greater

Disadvantages

o Still have not mitigated risk in Mexico

o Forgoing potential growth at profitable market

o Still have brand exposure

o Still have to service Mexico units with no increased economy of

scale.

RECOMMENDATION

Based on our analysis of the salient problem and the strategic alternatives, we

recommend that KFC re-franchise all of the 129 company units in Mexico. This

most effectively mitigates the risk of doing business in Mexico by making a

franchisee responsible for the profit and loss of each unit. KFC will still receive


royalties based on the sales of each unit. However, franchises will protect the

company from currency devaluation. KFC is able to reduce this risk while still

maintaining a presence in one of the largest growing markets. Expansion is not

recommended at this time due to the volatility of the economic and political

situation in Mexico.

IMPLEMENTATION PLAN

The Re-franchising Program

This program will involve the selling of all company owned KFC units, in the

country of Mexico, to individual franchisees. This should mitigate risk while still

maintaining a steady cash flow from the region. The sale of the 129 company

units will take place during a three year time period.

TASK ONE:

o A price must be set for the sale of all Mexican KFC units, which will

be an average of $500,000.

o The Franchise Operating Manager will assist in accessing these

prices.

o Future revenue from royalties of these new franchises will be set at

6%.

o KFC must determine a set of criteria on which to identify future

potential buyers.

o Prior restaurant business experience in Mexico

o At least $500,000.00 in liquid assets

o Net worth of at least $1,000,000.00

o A completed application

o Potential buyers must be determined using the predetermined

criteria

o The entire plan must be presented to the board for final approval


o The selected buyers must be contacted.

TASK TWO:

o Negotiate the packages of restaurants and agree on price and time

for acquisition.

o This price will be set and will include building and equipment only.

The individual price is $500,000 per unit.

o Conclude the sale of units based on a regional basis.

o Use a three-year time line to meet the dead line.

o July 96 through January 97 will focus on the sale of the first nine

units in the Mexico City region.

o January 97 through December 97 will focus on the sale of 40 units.

o January 98 through December 98 will focus on an additional 40

units sale.

o January 99 through December 99 will focus on the sale of the final

40 units.

TASK THREE:

o Notify all general managers of intended sale by letter.

o Schedule regional general managers meeting in each of the three

major cities.

o Send Peter Walker (VP franchising) and Laurence Zwain (C.O.O.

PepsiCo Restaurants Worldwide) or representatives to a regional

meeting in each of the three major regions, which were previously

identified.

The Severance Program


This is a program designed to aid general managers that will be displaced due to

the sale of the franchise units. It is likely that the new franchisees will bring in

their own people and many general managers will be replaced. It is important to

avoid any bad will from former KFC corporate managers and the severance

package should help to defray some of the negative feelings of present general

managers. Every General Manager will qualify when their respective unit is sold.

TASK:

o Determine an average compensation package of the general

managers in the 129 stores.

o General Managers will receive one month’s severance, average of

$5,000 with pay and benefits per month at the end of their

employment.

o Prepare formal package for distribution at the regional meetings.

o Olden Lee, from the Human Resource Department, will be

assigned the responsibility of providing a bilingual Human

Resource specialist to deal with questions from General Managers.

o The bilingual human relation's specialist will notify the payroll

department of the last effective pay date for each of the units as

they are sold off, and of the General Managers who will receive the

severance package.

o Only General Managers who are on the payroll at date of sale will

be eligible for severance.

The Evaluation and Control Program

This program will be used for evaluation of the two previous programs. It is

important to determine the effectiveness of the programs. In addition, this

program will include a plan to ensure continued brand integrity for Kentucky Fried

Chicken.


TASK:

o Assign new responsibility to the regional Franchise Operating

Manager for Mexico.

o Hire two new people to work under the F.O.M. in quality and control

audits.

o PepsiCo already has a quality control program in place, and this

program will only add to the staff of that existing program.

o This implementation plan will be deemed a success if 90% of new

franchises are still viable after two years.

INCOME GENERATED

Sales price per unit: This price will be based on the price, which

includes the building and equipment packages. Land price will not

be included because it is leased and the new owners will assume

this payment.

TOTAL CASH GENERATED

Restaurant and equipment package: $500,000.00

Total number of restaurants: 129 units

Total expected cash from sale: $64,500,000.00

REGIONAL BREAKDOWN



Total units in Mexico City 60 percent of units

Total cash from sale: $39,018,518.52


Total units in Guadalajara 17 percent of units



Total units in Monterey 22 percent of units


ROYALTIES

This will give a summary of expected royalties that will be received

from the sale of the units to franchises. The royalties will be

reported as they are expected to be generated, during the sale of

the respective units, which corresponds to the time line. Royalties

after the re-franchising is complete will not be included in the

budget due to the completion of the proposed program. It is only

necessary to look at the specific time frame during the

implementation of the program. The expected royalty fee is 6%.

Royalties generated July 1996 to December 1996: Projected

number of units sold: 9 units

Projected royalty fees: 6%


New Royalties generated 1996: $418,500.00

Royalties generated 1997:

Projected number of units sold: 40 units


New Royalties generated 1997: $1,860,000.00

Year to date $2,278,500




New royalties generated 1998: $1,860,000.00

Year to date: $4,138,500.00




New royalties generated 1999: $1,860,000.00

Year to date: $5,998,500.00

Total royalty fees generated by the re-franchising program:

$13,252,500.00

PROJECTED COSTS:


TRIP BUDGET:

This budget is used to calculate the proposed cost for the trip of our

corporate executives to Mexico. Following is a brief description of

the estimated costs.

Meals $120.00 per person

Taxis $50.00 per day

Air fare $404.00 per person

Tips $75.00 per person

Hotel $300.00 per person

Local air fare $400.00 per person

Total projected cost: $3296.00 per person

Meeting room expense $300.00

Total cost of trip: $10,188.00

MISCELLANEOUS EXPENSES:

The following is an account of the expected miscellaneous

expenses that will be included in this program.

Professional services ($250 per hour) $37,500.00

Two quality auditors salary $360,000.00

Packet ($2.00 x 129) $258.00

Human Resource specialist salary: $122,500.00


Consulting fees ($200 per hour) $60,000.00

Severance max liability $635,000.00

Total package cost for 4 years: $1,215,258.00

TOTAL PROJECTED COSTS: $1,255,446.00

Kfc SWOT Presentation - Presentation Transcript

1. Kentucky Fried Chicken and its SWOT Analysis

2. INTRODUCTION OF KFC

o Kentucky Fried Chicken is one of the largest fast food

o Franchise concepts of today; it is present in various countries

o around the world and it has been able to establish a renowned

o International reputation in multiple continents. Starting in the

o United States in the 1930s, it has grown to become a true

o multi-domestic company.

o KFC has focused on foreign markets since the 1960s and

o has found a new challenge today in conquering Asia.

3. HISTORY

o The Kentucky Fried Chicken® was founded by Colonel Harland

Sanders (born on September 9, 1890) at the age of sixty-five. KFC® is

currently one of the largest businesses of the global food service industry

and is widely known around the world as the face of Colonel Sanders.

o Every year, over a billion KFC® chicken dinners are served

featuring the Colonel’s “finger licking’ good” special recipe. The Colonel had

spread his industry to more than 80 countries and territories globally.

4. KFC’s Journey From $105 to 9.7 Billion $ in 58 years

o 1952, Col. Sanders started franchising his recipe door to door

financed by $105.00


o 1964, Col Sanders had more than 600 franchised outlets in the

US and Canada.

o 1964, Sold his interest to Massey & Brown for $2 million .

o 1966, KFC went public

o 1969, Listed on the NYSE

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

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

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

million .

o 1997, PepsiCo, Inc . spined-off it to Tricon Global Restaurants .

o 2002, Tricon changed it's corporation name to Yum!

Brands, Inc . .

o 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.

Current Market value of the Yum Brands on the NYSE is

9.7 Billion $.

5. SWOT ANALYSIS

o STRENGTHS

o KFC continued to dominate the Chicken Segment, with sales of

4.4 billion in 1999.

o Despite gain by Boston Market and Chick-fill A, KFC customer

base remained loyal to the KFC brand because of its unique taste.

o KFC has continued to dominate the dinner and take out segment

of the Industry.

o Strong trademarks recipes.

o Ranks highest among all chicken restaurant chains for its

convenience and menu variety.

o Generate $1B each year

6. MARKET SHARE


7. WEAKNESSES

o KFC was loosing market share as other Chicken chain increased

sales at a faster rate.

o KFC share of Chicken Segment sales fell from 71 percent 1989 ,

to less than 56 percent in 1999 , a 10 -years drop of 15 percent.

o KFC leadership in U.S market was so extensive that it had fewer

opportunities to expand its U.S restaurant base, which was only growing at

about 1 percent per year.

o Failed to rank in top 20 in growth in 2000.

o Lack of knowledge about their customers.

o Question of over franchising leads to loss of control and quality.

o Lack of focus on R&D.

8. OPPORTUNITIES

o McDonald’s accounted for 35 percent of the Sandwich Segment

while Burger King ran a distant Second, with a 16 percent market share.

o Per store sale at Burger King remained flat and Hardee’s per

store sale declined by 10 percent.

o In family Segment, Friend’s and Shoney’s were forced to shut

down restaurants because of declining profits.

o Within the Pizza Segment, Pizza Hat and Little Caesars Closed

underperforming restaurants.

o Boston Market was a new restaurant chain that emphasized

roasted rather than fried chicken.

o In 1999, Boston Market soon entered Bankruptcy proceedings.

o Church’s broadened its menu to include buffalo chicken wings,

macaroni and cheese, beans and rice and collard greens.

o Baby boomers aged 35 to 50 constituted the largest customer

group for fast-food restaurants.

9. THREATS

o McDonald’s with sales of more than 19 billion in 1999, accounted

for 15 percent of the sales of the nation’s top 100 restaurant chains.


o McDonald’s generated per store sale 1.5 million per year.

o Much of the growth in dinner houses came from new unit

construction in suburban market and small town.

o In Family Segment, Steak n Shake and Cracker Barrel expend its

restaurant by more than 10 percent.

o KFC nearest competitor Popeye, ran a distant second with sales

of 1.0 billion.

o In early 1990s ’ many industry analysts predict that Boston

Market would challenge KFC for market leadership.

o Boston market and Chick-fil-A market share gains were achieved

primarily by taking customer away from KFC.

o Popeye’s replaced Boston market as the second largest chicken

chain in 1999.

10. FINDINGS AND RECOMMENDATIONS

o FINDINGS

o KFC was trying to increase market share in other regions of

South America beside Maxico & Carabian. But financial constraints

restricted KFC from doing so.

o KFC focus on strengthening its position in Maxico & Carabian

Only.

o New Competitors like Habib’s and Wendy’s were establishing

new restaurants in Maxico.

o KFC had largest market share of fast food chains in Maxico.

o Devaluation of Peso does not effected KFC, because their

production plants in Maxico were utilizing local resources.

11. RECOMMENDATIONS

o If KFC could increase company own restaurants, which enables it

to control quality, services and restaurant cleanliness. Therefore more

capital is needed.


o On the other hand if company operated franchise based

restaurants throughout Latin America, its brand image could be build and its

competitors will be loosing first more advantage.

o Latin American markets is developing markets, so its growth is

high and entry barriers are low.

o KFC could make strategic alliances with key suppliers to gain

advantage over competitors in the market.

o An a peeling business model and good strategy has golden

opportunity to shape the rules and establish itself as the recognize market

leader.

12. CONCLUSION

o FOCUS OF THEIR STRATEGY SHOULD BE ON THE

o COUNTRIES LIKE CHINA, AND INDIA ETC BECAUSE THEY

o PROVIDE MARKETS WHICH HAVE HIGH GROWTH RATE

o ON THE OTHER HAND…..

13. KENTUCKY FRIED CHICKEN

o QUESTIONS

o &

o ANSWERS

o SESSION

14.

o SPECIAL

o THANKS

o TO

o SIR AMJID ALI SHAH

KENTUCKY FRIED CHICKEN


Documents

Assignment 9-Strategic Management