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Kfc Case Complete - Document Transcript

1. I. ISSUES In 1996, KFC remained the world’s largest chicken restaurant chain and third
largest fast food chain. It held over 50 percent of the U.S market in terms of sales and
ended 1995 with over 9000 restaurants worldwide. KFC opened 234 new restaurants in
1995 and operated in the 68 countries. One of the first fast food chains to international
during the late 1960’s, KFC had developed one of the world’s most recognizable brands.
Despite of the KFC’s past success in the U.S market, much of the KFC’s growth was
driven by its international operations, which accounted for 94 percent of all KFC
restaurants built in 1994 and for 100 percent of the increase in 1995. Domestically the
restaurant count dropped by seven restaurants because of unit closures, intense
competition among the largest fast food competitors resulted in a number of obstacles to
further expansion in the U.S market. Expansion of free standing restaurants was
particularly difficult. Fewer sites were available for new construction and those sites,
because of their increase cost, were driving profit margins down. However the most
critical or major issue of this case in the future will be their ability to handle changes.
Their system is older, in terms of facilities and product form, and their attitudes still don’t
reflect the realities of their changing business environment. One on the great challenges
at KFC is that there is a lot that needs fixing and the toughest challenge is that they have
to stay focused. They also have a significant service problem in a service driven industry.
And they have to figure out a way to meet their customer service expectations which they
don’t meet today. In 1996, the major problem was how to transition the old KFC into a
new KFC the appealed to consumer demands for more healthy food items ate lower price,
greater variety in food selection, and a higher level of service and cleanliness in a greater
variety of locations. In the effect, this entailed greater reflection over its entire business
strategy its new offerings, pricing, advertising and promotions, point of distribution.
Restaurant growth, and franchise relationship.
2. II- A. INDUSTRY ANALYSIS A. Demand for products and services of the industry 1.
Long Run Growth/ Decline Fast food franchising was still in its infancy in 1954 when
Harland Sandlers begun his travels across the United States to speak with prospective
franchises about his “colonel” sanders recipe Kentucky fried chicken”. By 1960
“colonel” Sandlers had granted KFC franchise to over 200 take home retail outlets and
restaurants across the unite states. They had also succeeded in establishing a number of
franchises in Canada by 1963, the number of KFC franchises had risen to over 300 and
revenues had reached $500,000 per unit, on average. By 1964, the colonel had tired of
running the day to day operations of the business and was eager to concentrate on public
relations issue. He sold the business to two Louisville business people Jack Massey and
John Young Brown, Jr. for $2 million. During the next five years, Massey and Brown
concentrated on growing KFC’s franchise system across the U.S. in 1966 they took KFC
public, and the company was listed on the New York Stock Exchange. By late1960’s a
strong foothold had been established in the United States, and Massey and Brown turned
their attention to international markets. In 1969, a joint venture was signed with
Initsubishi shoji kaisha, Ltd., in Japan, and the right to operate 14 existing KFC
franchises in England were acquired. Subsidiaries were also established in Hong Kong,
 South Africa, Australia, New Zealand, and Mexico. By 1971, KFC had 2,450 franchises
and 600 company owned restaurants worldwide, and was operating in 48 countries. 2.
Stability of Demand for Products Many KFC’s problems during the late 1980’s
surrounded its limited menu and its inability to quickly bring new products to market. As
KFC entered 1996, it
3. grappled with a number of important issues. During the 1980’s, 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 change its logo
from Kentucky Fried Chicken to KFC in 1991. It responded to consumer demands for
greater variety by introducing a variety of new products. The increased popularity of
healthier foods and consumers-increasing demand for better variety led to a number of
changes in KFC’s menu offerings. 3. Stage in Product Life Cycle KFC is on its Maturity
Stage; KFC’s products have survived the earlier stages. KFC’s early entry into the fast-
food industry in 1954 had allowed it to strong brand name recognition and a strong
foothold in the industry. During the 1990’s and 1970’s, KFC pursued an aggressive
strategy of restaurant expansion quickly establishing itself as one of the largest fast-food
restaurant chains in the United States. By 1990, restaurants located outside of the United
States were generating over 50 percent of KFC’s total profits. By 1995, KFC was one of
the three largest fast-food restaurant chains operating outside of the United States. A.
SUPPLY OF PRODUCTS AND SERVICES 1. Capacity of the Industry KFC, being the
world’s largest chicken restaurant chain and third largest fast- food chain, with over
9,000 in both franchise and company-owned restaurants worldwide and was operating in
68 countries, simply shows that KFC has the capacity to address the needs of its
customers no matter how old their facilities and product form was. However KFC’s
significant service problem will probably push their customers away from them, thus
KFC must have to imply ways on how to meet there customers expectations. KFC ought
to think that customer goes to their establishment not just because of their product but
also their service, because nothing bits a quality service.
4. The continuous opening of new restaurants in 1995, approximately two restaurants in
every three days is one way of proving their competence when it comes to business
expansion, thereby providing a wide market segment not just local but worldwide. 2.
Availability of Needed Resources KFC has several problems when it comes to its
resources, specially on the needed materials, because there system is older when it comes
to their facilities and product forms and it’s one thing that needs an attention, since this is
the key to success in terms of production and it would be there competitive edge in the
wide array of fast food chain industry. KFC Despite of the rivalries of employees and
managers, KFC had surpassed this incident. KFC’s culture was built largely as the
employees enjoyed relatively good employment stability and security. Over the years, a
strong loyalty had been created among KFC employees, because of the benefits and
pensions and other non-income needs. Thereby, KFC has the ability to retain and manage
its manpower. As to the company’s money, KFC has the enough profit on its recent
operations as of 1994, worldwide on both company-owned and franchised restaurants.
Whereby it reaches $1.7 million in this regard KFC has the capacity to innovate their old
system or how to transform the old KFC into new one. 3. Volatility of Technology
Basically KFC’s past technologies still existed at present, which means that their families
were durable enough because it works for years. However the main issue now is how
 they could transform the existing facilities for them to be more competitive. 4. Social
Constraints
5. KFC encountered several factors constraining KFC’s international expansion plans such
as the social unrest, increasing trade and current account deficits and the uncertainty
surrounding the economic policy. Some incidents were directly attack of nationalist
against KFC and closure of the first restaurant in India by local authorities are to protest
of local farmers group allied with a campaign across India against foreign investment
which was occurring as part of the countries four year old program of economic
liberalization. 5. Inflation Vulnerability As KFC entered business in Mexico. High tariff
and other trades barriers restricted imports in to Mexico, and foreign ownership of assets
in Mexico was largely prohibited or heavily restricted. After 1982, the Mexican
government battled high inflation, high interest rates, labor unrest, and lost consumers
power. When Carlos Salinas de Gortari seated as President, Mexico improved, top
marginal tax rates were lowered, and the new legislation eliminated many restriction for
foreign investment. President Salinas institutes a policy of allowing the peso to depreciate
against the dollar by one peso per day, it result a grossly overvalued peso, and this
lowered price of imports & led to an increase in imports of over 23 percent in 1989.
KFC’s primary concern was the stability of Mexico labor markets. Labor was really
cheap in Mexico. While KFC benefits from lower labor costs, labor unrest, low job
absenteeism, & punctuality continued to be significant problems. These problems with
worker retention and labor unrest were mainly the result of workers frustration over the
loss of their purchasing power. Due to inflation & to past government controls on wages
increases. A slowdown in business activity brought about by higher interest rates & lower
government spending, lead many businesses to lay-off workers. C. COMPETITIVE
CONDITIONS IN THE INDUSTRY 1. Structure of the Industry
6. KFC remained the largest chicken restaurant chain and third largest fast-food chain. It
held over 50 percent of U.S. market in terms in sales and ended 1995 with over 9,000
restaurants worldwide. In 1995 KFC opened 234 new restaurants and operated in 68
countries. One of the first fast-food chains to go international during the late 1960s, KFC
had developed one of the world’s most recognizable brands. 2. Government Support and
Regulation The food industry does not get much support from government. However
there are laws regarding its operation on food sanitation and hygiene. D.CONCLUSIONS
1. Prospects to Volume and Prospects 1960-1970 KFC pursued an aggressive strategy of
restaurant expansion, quickly establishing itself as one of the largest fast-food restaurant
chains in the world. 1990 Restaurants located outside of the United States were
generating 50 percent of KFC’s total profits. 1995 KFC was one of the three largest fast-
food restaurants chains operating outside of the United States. 1971 KFC was sold to
Hueblien, Inc was in the business of producing vodka, mixed cocktails, and other
alcoholic beverages. 1982 R. J. Reynolds Industries, INC. Merged Hueblein into
subsidiary. 1986 PepsiCo acquired Kentucky Fried Chicken from RJR-Nabisco. KFC
held 49 percent of the &7.7 billion U.S. chicken segment. 2. Key Factors for Success in
the Industry
7. -Quality -Service -Cleanliness -Satisfying the customers’ needs -choose new location that
will adopt the product of KFC II- B. POSITION OF THE COMPANY IN THE
INDUSTRY A. MARKET POSITION OF THE COMPANY 1. Relation of the company
Sales to total industry and to leading competitor KFC was the first fast-food chains to
 conquer international market they developed one of the world’s most recognizable
brands. When PepsiCo acquired KFC from RJR-Nabisco in 1986 for $841 million, KFC
gave the leading market share in the three of the four largest and fastest growing
segments within the U.S quick-service industry, and it held 49 percent of the $7.7 billion
U.S chicken segment. KFC continued to dominate the chicken segment, with 1995 sales
of $3.7 billion. It held market shares of 12.3 and 10.2 percent. Between the year 1990 and
1995, KFC sales grew at 13.1 percent. KFC facing the world of competition, it also
contributed a market share of 58 percent in the chicken segment while its competitor
Boston Market (formerly Boston Chicken) which KFC’s nearest competitors and
Popeye’s held market share of 12.3 and 10.2 percent respectively. Other competitors with
in the chicken segment included Bojangles, El Pollo, Grandy’s and Pudgies, also
Mcdonalds begun to introduce its chicken. 2. Relative Appeal of the Company Products
KFC’s early entry into the fast-food industry in 1954 and it allowed to developed strong
brand-name recognition in the industry. They begun to introduce chicken in the chicken
segment, and they were trying to come-up with the products
8. designed to the tastes of their customers. Because of the intense competition when it
comes in producing products, KFC introduced $14.99 “MEGA-MEAL” it is designed to
compete with the Boston Market as a home replacement alternatives. They also come-up
with the “COLONEL’s KITCHEN” in Dallas and was testing a full menu home-meal
replacement items. The company had introduced many products but Rotisserie Gold did
not maintain an initial high sales. KFC had the capacity to innovate new products to fight
other fast-food chains. As KFC entered 1980’s, they faced some issues especially on fried
foods because consumers begun to demand healthier foods so they limit on fried foods.
KFC responded to consumer demands for greater variety by introducing a variety of new
products. New products introduction were never an important part of KFC strategy.
However, the introduction of chicken sandwiches and fried chicken by hamburger chains
had changes the make-up of KFC’s competitors. In addition an increased popularity of
healthier foods and consumers increasing demand for better variety led to a number of
changes in KFC’s menu offering. 3. Strength of the Company in Major Markets KFC was
the world’s largest chicken restaurant chain and the third largest fast-food chain. It is one
of the first fast-food chains to go international. KFC come-up with the world’s most
recognizable brands. KFC’s growth was driven by its international operations, which
accounted for 94 percent of all KFC restaurants built in 1994 and for 100 percent of the
increase in 1995. KFC had long dominated the fast food industry outside of U.S. the
company remained the most internationalized of all fast-food chains, operating almost 47
percent of its total units outside of the states. In Latin-America, KFC was operating 205
company owned restaurants in Mexico, Puerto Rico, The Virgin Island and Trinidad as of
1996. Additionally KFC had 173 franchisees in 21 countries throughout Latin-America,
have the total number of 378 KFC restaurants in operation in Latin-America .
9. B. Supply Position of the Company 1. Comparative Access to Resources KFC is known
to its main product which is chicken; they offer varieties of chicken products to their
customer as we all know chicken is widely available at any time. Thereby the raw
materials needed by this company can easily be acquired. 2. Unique Productivity
Advantage KFC has been unique on marketing its product by means of combining
PepsiCo product which is the beverage and the products of KFC itself, with these they are
both generating profits and it is KFC’s advantage since they no longer purchase
 beverages from outside company, unlike other fast-food industry whereby they have this
kind of source. 3. R & D Strength KFC has been operating for several years now,
however the weakness of these company is that they didn’t give importance to the
research and development. KFC must invest forcefully in research and developments for
them to be at edge on technology know- how. This could help the company transform
technological advances into innovative new products, and to remain close on the heels of
whatever advances and features are established by rivals, specially that we are now in the
industry whereby technology is the prime driver of change. It is a necessity to have focus
on the research and development especially in the critical areas not only to avoid
stretching the company’s resources too thin but also to intensify the firm’s proficiency
and to master the technology for them to become the leader in a certain technology or
product category.
10. R & D is important in a company so whatever so whatever advances and features will be
pioneered by rivals you can come up with a better idea on how to defeat whatever
features or product they will make in case of KFC, KFC focused on expanding their
branches not studying first the culture of the country where they are going to build their
new branch. C. Special Competitive Considerations 1. Relative Financial Strength
Kentucky Fried Chicken was sold for $2 million to two Louisville business people – Jack
Massey and John Young Brown until PepsiCo acquired Kentucky Fried Chicken from
RJR- Nabisco in 1986 for $841 million. The sale of the company in 1987 is $4.1 billion
which reached up to $7.1 billion in a span of 8 years and that is in 1995. Together with
the fast-food industry, that sale exceeded on 289.7 billion for the approximately 500,000
restaurants and other food outlets in the year 1995. 2. Community and Government
Relationship Kentucky Fried Chicken was created for a family who dine-out and those
who are also fund of chickens. Old KFC was transcend to new KFC that appealed to the
body conscious costumers wants for food items at lower prices, greater variety in food
selection, and higher level of service and cleanliness in a greater variety of locations.
These new chains focused on higher-income customers by offering a healthy diet food
items without the presence of chicken. They also offer a unique opportunity because of
the size of its markets, its common language and culture, and its geographic proximity to
the United States. Costumers want more outlets of fast-food chains most likely the KFC.
11. KFC invests to Mexico by introducing to the Mexico people the new fast-food chain
which has the main product of chicken but the entry of KFC to Mexico made the country
increased the number of competing investors like the ones from Asia, Europe and United
States. When the North American Free Trade Agreement enters Mexico, the American
people had the broke down the gap and this made them the largest trading partner of
Mexico. 3. Ability and Values of Company Managers Harland Sanders sold the business
to two Louisville businesspeople – Jack Massey and John Young Brown. The Colonel
stayed on as a public relations man and goodwill ambassador for the company. Massey
and Brown concentrated on growing KFC’s franchise system across the United States.
Arguments promptly exploded between Colonel Sanders and Heublin’s management.
Sanders become increasingly troubled over quality control issues and restaurant
cleanliness. Joining with Heublin represented part of RJR’s overall corporate strategy of
diversifying into unrelated businesses to reduce its independence on the tobacco industry.
RJR had no more experience in the restaurant business than did Heublin. They have the
ability to compete into other restaurant by restaurant segment; PepsiCo acquired
 Kentucky Fried Chicken from RJR- Nabisco. The acquisition of KFC gave PepsiCo the
leading market share in three of the four largest and fastest growing segments within the
U.S. quick-service industry. The corporate culture at KFC in 1986 contrasted sharply
with that at PepsiCo. KFC’s culture was built largely on Colonel Sanders’s laid-back
approach to management. When PepsiCo acquired KFC, it began to restructure the KFC
organization, replacing most of KFC’s top managers with its own.
12. D. CONCLUSION S - Competent in key areas of operation - Company reinvest by
opening new branches - Well thought of loyal customers - They established a strong
brand-name - Most internationalized fast-food chain W - Lack of research and
development - Strategic direction is not clear - Plagued with internal operating problems -
Poor relationship with franchisees O - Earn big profits as the population grows - Big
demands for foods - Ability to increase the number of franchise to other countries T -
Entry of new competitors - On going changes in taste preferences and dietary needs - No
support from government agencies III.ACA’s (ALTERNATIVE COURSES OF
ACTIONS) One of the challenges of KFC Company was how they can handle changes.
When PepsiCo acquired Kentucky Fried Chicken, were how to join two distinct corporate
cultures and whether it had it had the management skills required to successful operate
KFC using PepsiCo managers. PepsiCo had already acquired an experience in managing
fast food business through its Pizza Hut and Taco Bell operations. However, replacing
KFC with PepsiCo’s managers could easily cause conflicts between managers in both
companies, who were accustomed to different operating procedures and working
conditions.
13. The old managers must remain in the business because they are the one who have the
knowledge to operate the business. Since they acquire (50%) of market sales in the
United States and they are ranked as the third largest fast-food chain worldwide. Other
challenges were on how they can transform to Old KFC to New KFC like transforming
the old strategy in term of service, facilities and the menu that they offer. They should
adopt today’s trends in the company operations by using modernized facilities in the
services. IV. RECOMENDATIONS We therefor, conclude that KFC should work on the
management issue to build good atmosphere for their employees to work in. They also
make sure that they offer quality food and excellent service. Today’s generations, most of
the people are becoming health conscious especially the people in the United States. They
are prone to hypertension, which is caused by bad cholesterol not only Americans but all
people around the world, most especially this 21st century. Nowadays, at early age,
younger people are prone to hypertension. According to the latest data, the youngest
person who died was at the age of 16. Due to the fact that most of the foods right now are
ready-to-eat, most are processed foods. What if KFC will offer and/or add fresh produced
products such as fruits and vegetables in their menu. In this case, they can increase their
sales. Even vegetarians can enter to their establishments. They must also provide training
to their employees and generate goods that are in a low price.