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Kentucky Fried Chicken and the Global Fast-Food Industry
KFC Corporation is based in Louisville, Kentucky and is the most popular chicken restaurant chain. It specializing in Original Recipe®, Extra Crispy™, Twister® and Colonels Crispy Strips® chicken with home-style sides.
Every day, nearly eight million customers are served around the world. KFCs menu includes Original Recipe® chicken -- made with the same great taste Colonel Harland Sanders created more than a half-century ago. Customers around the globe also enjoy more than 00 other products -- from a Chunky Chicken Pot Pie in the United States to a salmon sandwich in Japan.
KFC has more than 11,000 restaurants in more than 80 countries and territories around the world. And in quite a few U.S. cities, KFC is teaming up with sister restaurants, A&W, All-American Food™, Long John Silvers, Taco Bell and Pizza Hut, selling products from the popular chains in one convenient location.
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Over fifty years ago, Colonel Sanders invented what is now called home meal replacement -- selling complete meals to busy, time-strapped families. He called it, Sunday Dinner, Seven Days a Week.
Today, the Colonels spirit and heritage are reflected in KFCs brand identity -- the logo features Colonel Harland Sanders, one of the most-recognized icons in the world.
KFC is part of Yum! Brands, Inc., which is the worlds largest restaurant system with over ,500 KFC, A&W All-American Food™,Taco Bell, Long John Silvers and Pizza Hut restaurants in more than 100 countries and territories.
By early 000 KFC has diversified to many locations worldwide, which include countries such as Canada, Australia, the United Kingdom, china Korea, ECT; these countries all come under the high growth countries.
The two ways in which KFC expands its operations are through company based restaurants and franchises. In the overseas market KFC primarily grows through franchises. Latin America poses to be the most lucrative area for expansion of KFC operations due to many factors such as common language and culture and close proximity to the US.
Mexico is the most important country since its inclusion in the NAFTA in the year 14.
INDUSTRY AND ENVIRONMENTAL ANALYSIS
Global Fast Food Industry
MORE THAN 800,OO0 resturants and food outlets make up the U.S. resturant industry which employees 11 million people. Fast food sales are growing at a very low rate which is approximately azround 5 %.
The global fast food industry consists of the following segments, which are listed below. They consists of eight major segment
• Sandwich chains
• Pizza chains
• Family restaurants
• Grill buffet chains
• Dinner houses
• Chicken chains
• No dinner concepts
• Other chains
The leader in family chain restaurants is Mc Donald's followed by Burger King restaurants. These statistics are from the year 1;sandwhich chain restaurants make up the largest segment of the fast food industry. MacDonald's gains accents for 5% of the market share followed by burger king.
There has been a lower growth rate in the global fast food industry mainly because all the segments are chasing the same customers.incresed growth in any of the segments would mean a decline in the other interrelated segments.
Critical problems and major issues
Despite the dominance of kfc in the chicken segment of the fast food industry KFC's share of the chicken segment sales fell from 71% to less than 56% in 1cfast food in
Demographic trends
A number of demographic trends and social trends influenced the demand of food eaten.
With rising income higher divorce rates and busy lifestyles have influenced the increase in the sale of fast food indurty. Baby boomers constituted the largest chunk
POLITICAL FACTORS
They play a very impotant role for tboth kfc and the global fast food industry as the changes made by the government effect both businesses and industries
Economic factors
These factors play a mjor role in the success of business
Industry analysis
Industry analaysis tells us the main sources oif competiton and also how strong each competitive force is .there are five forces of competiton which are as follows this can be analysed by the five forces model of competion
• The rivalry among competing sellers in the industry
• The potential entry of new competitors
• The market attempts of companies in other industries to win over custonmers to their substitute productscto win
• The competitive pressures stemming from suppliers
• The competitive pressures stemming form seller buyer collabaration.
In the chicken segment kfc is the most dominant player.it has sales of worth 4.4 billion dollars in the year of 10. in the early 10's the closet competitor to kfc was popoeys
With extensive market share in the us market it has a moajor problem of expansion and hence has to look at other countirs and cities all over the world.
The Five Forces Model
Rivalry Among Existing Firms is intensified by several factors
Balance Among Firms No matter how many firms are in the industry, if they are about the same size, rivalry is likely to be more intense as they try to gain an advantage over one another. This intense rivalry is easiest to see at the local level, such as the competition among supermarkets or fast-food outlets in one city.
You usually see the least intense rivalry in an industry in which one or a few large firms dominate. For example, the soft drink industry enjoyed gentlemanly competition for many years. Everyone understood that Coca-Cola was the industry leader, and the other players occupied their subordinate positions and made their profits. But when Pepsi decided to make a run at Cokes leadership position, the industry turned to intense and bitter competition. Every player became threatened as Coke and Pepsi expanded into every niche of the market by adding new products.
Slow-Growth Markets These make for intense rivalry because the only way to grow is to take market share away from competitors. We can see this in the fast food and food processing industries. Since the U.S. population is only growing 1 or percent a year, food consumption is growing at about the same rate. You can see the results intense price and menu competition among fast-food chains and mergers and acquisitions in the food processing industry, such as Phillip Morris acquisition of both Kraft and General Foods.
High Fixed Costs High fixed costs may result in price cutting to get the turnover to cover these costs.
When a firm adds extra capacity, it may create short-term overcapacity that results in intense price competition to build the volume needed to use the new capacity. The overbuilding of motels in Orlando, Florida, in the 170s resulted in low room rates until the number of tourists grew to parity with the number of available rooms. Overbuilding in Branson, Missouri, in 14 created a similar problem.
A Commodity Market exists when none of the competing firms has any sort of differentiation advantage. In these situations there is little to keep customers from switching to a competitor, so competition to hold customers can become brutal. We see this condition in the personal computer hardware market, where brand identity is hard to establish and competition is mostly based on price.
High Exit Barriers create chronic overcapacity and the intense rivalry that accompanies that condition. Exit barriers can be high for three key reasons
High investment in fixed assets that have no other practical use. This makes it hard for competitors to leave the steel industry What can you do with a Bessemer Converter besides make steel?
The cost of layoffs. When the auto industry lays off workers, they must pay 5 percent of wages for some time, according to the union contracts.
Continuing to produce a product that loses money but which may be necessary to sell another product. Gillette must produce razors to sell blades. But the money is in the repeat sale of blades. Gillette must sell enough blades to justify producing the razors, some of which they may give away.
New Competitors can be repelled by several means
Brand Loyalty is established by continually advertising the brand and company name, patent protection, high product quality, after-sales service, and other means. Strong brand loyalty makes it hard for customers to change to a new, competing product. Example Notice how hard it is for new computer software products to compete against older, entrenched ones, even if the new product is superior to the old one. In this case there also are high switching costs to adopt the new product, such as training and some temporary productivity loss during the learning period. To overcome these costs, new-product vendors are offering very low-priced copies of their program to users of competing programs.
Absolute Cost Advantages It is hard to compete against a firm with lower costs if their product is of appropriate quality. That is one major reason we see U.S. jobs going to Mexico. But remember that labor is only one cost, and it is becoming a less important cost for many products. Low-cost advantage can be achieved in any of a companys operations better management, lower transportation costs, better purchasingyou name it.
Economies of Scale Is the market big enough for the company in question to serve it profitably? Small businesses thrive by serving market niches that are too small for larger firms to serve profitably.
The Capital Requirement For Entry Can you imagine the startup of another U.S. automaker? The capital requirements to compete in todays world market would be enormous. Smaller businesses, however, have no such protection against new competitors. Their protection must come from special service, high quality, or a focus on serving a market segment extremely well.
Legislation Or Other Government Action This can lower entry barriers quickly and significantly. Deregulation of airlines, trucking, and long-distance telephone service are good examples during the past two decades.
Differentiation This is the ultimate barrier to entry. Like lower costs discussed above, differentiation can be achieved in virtually any phase of a companys operations.
Expected Retaliation You must consider how a competitor will react to any competitive action you take. This means that you must try to understand the motivations of your key competitors, although that is hard. These motivations can change over time. The more you know about possible competitor reactions, the more able you are to choose a strategy that will not result in an unexpected or unwanted reaction. Example In the late 170s, Folgers coffee mounted a strong attack against Maxwell House coffee for supermarket shelf space. You only need to look at the coffee section of any supermarket today to see the outcome both brands dominate all others on the shelves. What you cannot see, though, is that by continuing this pitched marketing battle, neither brand is earning much money. You must choose carefully the battles you want to win and what it will cost to win them. Also, this is a good example of why a firm should not try to grow just for the sake of growing bigger. What good is increased market share if it results in lowered profitability?
Threat of Substitutes You need to consider both direct and indirect substitutes. Some products are direct substitutes for one another for example, calculators for slide rules or sugar substitutes for sugar. It is harder to see indirect substitutes for a product. For example, TV sets, VCRs, DVD players, and other consumer electronic products compete with furniture and home furnishings.
When analyzing a case, determine the direct and indirect substitutes for the products or services offered by the subject firm. Is there a way you can lessen these threats, perhaps by some form of differentiation or by lowering costs? Is there a way that the firm can find new markets by making its products or services a substitute for those of a competitor?
Close substitutes are a very potent competitive threat. Newly created substitutes can even cancel advantages a firm may have gained by speeding down the learning curve. But the absence of close substitutes may give a firm the chance to raise prices and profit margins. Always find some way to take advantage of a lack of close substitutes. But always be on the lookout for ways competitors may gain such advantages, and plan your firms countermoves.
Supplier Power is likely to be high when
There is a concentration of suppliers rather than a fragmented source of supply.
The switching costs of changing from one supplier to another are high. For example, the cost and long learning curve associated with a corporation changing from one software application to another.
It is possible for a supplier to integrate forward if they do not obtain the prices and margins they want in their present business.
The suppliers customers are not very important to the supplier. Such a supplier may not be willing to offer very favorable terms and service to customers. Many small businesses face this problem as they buy from their suppliers.
Buyer Power Remember that the buyer is the next person downstream in the channel of distribution. Thus the buyer for the subject firm in your case may be a manufacturer, wholesaler, or the final consumer. Your first question, then, is Who is the buyer in the case or situation I am analyzing?
The factors that increase a buyers power are the mirror image of those that increase a suppliers power. Thus buyers have enhanced power
When they are concentrated and buy in volume. These conditions give buyers power over small, fragmented suppliers. This gives the Big Three U.S. auto manufacturers tremendous power over the thousands of small businesses that supply them with parts.
When there are alternative sources of supply and it costs little to switch among them. This lets buyers play suppliers among each other to get the lowest price or best service.
If the component or material cost is a high percentage of total cost. Under these conditions, buyers will shop for the best price and squeeze suppliers.
When the buyer can integrate backward if suppliers cannot offer satisfactory prices. Examples Holiday Inn used to manufacture the furniture for the new rooms it built each year. Soft-drink maker 7-Up owns its own lemon tree orchards to produce the lemon extract used to make 7-Up.
General Environment
The general environment is composed of five sectors
1. Economic The macroeconomic data, current statistics, trends, and changes that are occurring.
. Demographic Current statistical data and trends in population characteristics. This information helps you understand your current customers and target potential customers.
. sociocultural Societys traditions, values, attitudes, beliefs, tastes, and patterns of behavior, and how they are changing.
4. Political/Legal Laws, regulations, judicial decisions, and political forces in effect at the federal, state, and local government. Keep track of changes that could affect your organization positively or negatively. If you are operating in another country, know and abide by its laws and regulations, and be aware of changes in them. KFC has been really srtuggling in markets like India Pakistan and other counties where the attitude the people have is completely anit American compared to some of the other markets in which it operates.
5. Technological More or less important depending upon whether the subject organizations products or services are affected by rapidly changing technology. The source of this information is usually industry specific. For example KFC has incorporated the use of computer terminals in their restaurants which not only enables them for faster sservice of meals but also to keep a track of stock at any given point in time.
Recommendations and implementation plans
• Penetrate the market not currently being served by adding more restaurants to their list. Establish a leading market position in foreign countries ahead of competitors
• Grant franchises only to highly motivated and talented entrepreneurs
• The location of the store is of utmost importance. Store locations must be at such sites where it is convenient for customers and there is also a profitable growth potential.
• Recent research done by major fast food companies have reached the conclusion that the decisions made by customers to eat at fast food restaurants are made at the spur of the moment.
• Reduce site costs and building costs by using standardized cost efficient store designs
• Offer a limited menu
• Expand product offerings , especially for health consicious customers.
• Enforce strict standards regarding food quality
• Offer attractive wage rates
• Teach job skills
• Reward both individual and team performance
• Provide proper training on delivering customer satisfaction and running a fast food business to franchises, restaurant managers and assistant managers .
• Lastly promote a global mindset by aggressively transferring best practices and new ideas developed in outlets in the other parts of the world.
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