Case Study:

Kentucky Fried Chicken and the Global Fast-

Food Industry
Presented by:

Wajiha Khan
Fouzia Arshad

KFC Presentation Roadmap
Brief History About the Company.
Merger and Acquisitions
PepsiCo Takeover
The Industry Overview and Performance
Highlights.
Internal Analysis.
Current Corporate Strategy
SWOT Analysis
Elaborated Marketing Strategy
Elaborated Strategic Management and
Leadership
Future Strategy Layout
Strategic Vision and Mission Statement
Marketing Strategy
HR and Franchisees Strategy
Monitoring and Evaluation of the Strategy


KFC Evolution Video

Origin of KFC
The restaurant in North Corbin, The first Kfc restaurant situated in
Kentucky where Colonel Sanders south salt lake, Utah and since its
developed Kentucky Fried Chicken. replaced by a new Kfc.
History of KFC
In 1952, Harland Sanders began his travel around
the United States to find prospects franchisees for
its Unique Chicken Recipe.

By 1960, Colonel Sanders had granted KFC
franchises to more than 200 take home retail
outlets and restaurants across United States

In the year 1963, KFC franchises touch the mark of
300 with the revenue of $500 million.

On Sanders 74 birthday he was eager to lessen
down the load of his business, so he sold his
business to two louisville businessman Jack
Messey and John Young brown Jr. for $2 million.

By the late 1960s KFC turned its attention to the
Global Markets and joined hands with Mitsuoishi
Shoji Kaisha, ltd that enabled them operation in
England and Japan

The takeovers of Heublein, Inc. and
R.J. Reynolds Industries, Inc.
In 1971, Heublein were in negotiations with the KFC
Heublein was in the business of Producing vodka, mixed
cocktails and other alcoholic beverages
Conflicts started between the managements
By 1977, new restaurant opening was lowered to 20,
remodeling of restaurants started as the services standards fell
drastically.
This strategy enabled KFC to gain better control of the existing
franchises and then expand.
Heublein,
Inc.
In 1982, R.J Reynolds Industries acquired Heublein
This acquisition for a part of their corporate strategy of
diversification.
R.J Reynolds believed the KFC management were well versed
to manage this business hence they had no interferences,
which avoided various operating problems of KFC
In 1985, RJR acquired Nabisco Corporation and sold KFC to
Pepsi Co one year later
R.J.
Reynolds
Industries,
Inc.
KFC Commercial

KFC Product Line
Burgers:
Zinger Burger
Colonels Chicken Burger
Colonels Fillet Burger
SUB60
Zinger Jr.
Chicken:
1 piece
2 pieces
5 pieces
10 pieces

Continued.
Combos:
Chicken Meals
Sandwich Meals
Family Meals
Desserts & Beverages:
Fruit Salad
Regular & Large Drink
Regular & Large Mineral Water
Tea
Scoop of Walls Ice cream
Coffee

Continued
Snacks & Side Orders:
5 & 20 Pieces Nuggets
Arabian Rice
5 & 10 Pieces Hot wings
Dinner Roll
Regular & Large Fries
Hot Shots
Corn on the Cob
Hot & Crispy Soup
Cole Slaw

Pepsi Co Profile
Pepsi Co, Inc was formed in 1965 with a merger of Pepsi Co.
and Frito-lays, Inc.
Business lines
Soft drinks
Pepsi Cola
Diet Pepsi
Mountain Dew
Snacks
Lays Potato Chips
Doritos tortilla
Tostitos tortilla chips
Ruffles Potato Chips
Corporate Strategy
The groups Acquired major businesses such as North
American Van Lines, Wilson Sporting goods, and Lee Way
Motor Freight. However it lacked management skills to
operate these businesses.

In 1984, Don Kendall the Chairman and CEO of PepsiCo
restructured the business and got rid of the consumer
product orientation and PepsiCo was divide into 3 divisions:
Soft drinks
Snack foods, and
Restaurants
Restaurant Business and
Acquisition of KFC
Why did PepsiCo entered the Restaurant Industry?
Because,
Same Patterns of Marketing
Additional venue for the Sale of the Pepsi Co brands (Soft drinks)
Management Skills could be transferred and will be compatible in
these business.
So the acquisition initiated,
1977: Pizza Hut
1978: Taco Bell
1986: KFC
This acquisition gave them the leading market share in all
the segments.

Human Resource Restructuring
It was a collision between two
different cultures.
PepsiCo: Performance Oriented
KFC: Laidback and Loyalist

Harsh Comments were
exchanged between the
managements.

Two massive downsizings.

Immense Pressure on KFC
management and employees

Poor Relations with the
Franchisees
In 1989, John Cranor was
appointed the President and CEO
of KFC.
John Cranor in the same year
addressed the Franchisees to
explain the details of new
franchising contract. These were:
PepsiCo can takeover the weak
franchises
Relocate Restaurants
Existing KFC outlets will not be
protected against competition
from new outlets.
PepsiCo will have a right to
increase royalty fees

Continued
This address of the Cranor
backfired and resulted in the
Protest of the franchisees.

However in 1996, the most
object able parts were
removed by KFCs new
president David Novak.

A new contract was ratified
by KFCs Franchisees in 1997.
PepsiCo Divestiture
Between 1990 and 1996, PepsiCo sale grew by 10% surpassing $31
billion.

However troubles were faced in the fast food segment where the margin
reduced from 8% to 4% in 1996.

As a result, PepsiCo food division absorbed half of the companys capital
spending and generated one-third of the cash flows, declining its ROA
and stock price as compared to competitor Coca Cola.

In 1997 PepsiCo decided to forward its restaurant business to a new
company called Tricon Global Restaurant.
Continued..
PepsiCos objective was to reposition itself as a soft drink
and snack brand.

Later PepsiCo acquired Tropicana Products.

By the divestiture of Pizza Hut, KFC and Taco Bell sales fell
down by $11.3 billion and asset fell by $7 billion.

However the operating margin rose from 11 to 14% in 1999
and ROA from 11 to 16 % in 1999
Video on Fast Food
Industry

Fast Food Industry
According to National
Restaurant Association, food
service sales increased by
5.4% to $358 billion in 1999.

More than 800,000
restaurants and 11 million
people employed.

The industry comprises of 8
major segments with Mc
Donald being the top
performer with sales of $19
billion in 1999.
Chicken Industry
KFC is the market leader in the Chicken Industry with the
Market Share of 55.2% and sales of $ 4.4 billion in 1999.

However it has witnessed a decline of 15% in the last 10
years.

The competitors like Chick-Fil-A and Boston market increased
combined market share by 17%.

It was assumed that KFC will face competition from Boston
Market but the company filed bankruptcy due to mounted
debt problem.
KFC Future Strategies
Drive aggressive international expansion and build strong
brands everywhere

Dramatically improve U.S. brand positions, consistency and
returns

Drive industry-leading, long-term shareholder and franchisee
value

Continued
Particulars Growth Rate
Sales (in million)
KFC 4%
Popeyes 10%
Boston Market 16%
Number of US Restaurant
KFC 1%
Popeyes 6%
Boston Market 11%
Sales Per unit
KFC 3%
Popeyes 3%
Boston Market 5%
Kentucky Fried Chicken
Corporation Current Strategies
Marketing Strategy
In 1990, they focused on three types of Chicken: Fried,
Extra Crispy, and Tender Roast.
Launch of Buffet
Launch of Crispy Strips and Chicken Sandwich
Drive through and delivery points at nearby locations
Introduction of 2 in 1 and 3 in 1 restaurants

International Operations
By year 2000, more than 50% of the KFCs restaurants were
located outside USA.
These restaurants were mostly owned by the countrys local
entrepreneur who possess better understanding of the
market.
Of 5,595 KFC restaurants 69% were franchised 21% were
company owned and 10% joint ventures.
In larger markets such as China, Mexico, UK, Thailand
Australia and Canada more emphasis was laid on company
owned restaurants.
Latin America Market
KFC operated 438 restaurants in Latin America in 2000. Its
established subsidiaries in Mexico, Puerto Rico in 1960s and
launched company owned franchises.

Franchises were also allocated to local entrepreneurs and
further subsidiaries were formed in Venezuela, Virgin Island
and Brazil.

However the operation from Brazil Shut down.

But still KFC is the market leader in the Latin America Region
and enjoys the first mover advantage.
Risk Assessment in Latin
America
NAFTA had eliminated tariffs on goods shipped between
Canada, Mexico and US.
Many countries such as Chile, Argentina, Paraguay, Uruguay
and Brazil had also established free trade policies.
Thats made Latin America an attractive place for investors.
In 1992, researcher Kent D. Miller developed a framework
for analyzing countrys risk and attractiveness of a country
for future investment.
He argued that firms must examine country, industry and
firm factors in order to fully assess country risk.
Many US companies believed that Mexico was an attractive
country for investment . Its population was more than one-
third as large as the US and represented a large market for us
goods and services.
Continued
However, the volume of trade between the US and Mexico
has increased significantly since the NAFTA went into effect
in 1994.
One year after NAFTA went into effect Mexico posted its first
balance of trade surplus in six years
Risk and Opportunity
KFC face variety of risk and opportunities in Mexico. It had
eliminated all of its franchises in Mexico and operated only
company owned restaurants that enable it to better control
over quality, service and restaurants cleanliness.
But company owned franchises required more capital than
franchises did.
MacDonald's was growing its restaurants base rapidly and
was beating KFC in terms of sale.
Even Wendy's had also announced plans to open 100
restaurants in Mexico by 2010.
Habibs , brazil 2
nd
largest fast food chain. Habibs served
traditional eastern dishes at prices below KFC and
MacDonald's. It planned to open 400 units in Mexico by
2005
KFC Strategy in Mexico
KFC wanted to sustain its leadership position in Mexico and
the Caribbean.

Second strategy was to invest more capital in these large
markets to challenge existing competitors.

Another strategy was to focus on building a franchise base
through out the Latin America
SWOT Analysis
Strengths
Market leader in the
Category
Outreach in 85 countries
Stable parent company
Good and Consistent taste
Pioneer Brand Image

SWOT Analysis

Weakness
Limited Product line.
History of acquisition and
transformations which
limited their growth.
Human Resource
weaknesses
Past Strategy Failure
Unhealthy segment of
Fried Chicken
Cannibalization of the
Products

SWOT Analysis

Opportunities
Extend Product line.
Acquire small chicken
companies of the
segment.
Move towards developing
and untapped countries.
Grilled Chicken, Roasted
Chicken, and Bar-b-q
chicken segment
SWOT Analysis

Threats
Increasing Growth of the
Competitor
Sandwich market
introducing me 2 products
such as Mc Chicken and
Crispy Chicken Burger.

KFC Controversies
Kentucky Fried Cruelty
KFC supporting Racism
New Strategy Formulation
Vision Statement:
We believe in being the best in chicken
category by extending our product range
and increasing our outreach, we also
believe in acquiring small chicken
company and extend our companys
portfolio
New Strategy Formulation
Mission Statement:
Our mission is to improve and expand in
the businesses maintaining excellent
relationship with our suppliers,
franchisees, customers and employees.
New Strategy Formulation
Objectives:
Increase sales by 5-7% annually.
Acquisition of small grilled, bar-b-q and
roasted chicken franchises.
Expansion of All in one unit restaurants
providing all the brands under one roof.
Maintaining better controls on the franchises
Better Animal Rights Control System.
Future Marketing Strategy
Induction of new products.
Grilled Chicken.
Developing acquired restaurant
to compete against KFC.
This Strategy will benefit the
group and will also help KFC to
stick to the original recipe and
less Cannibalization will be seen
amongst the products.
Using Innovative mediums for
Marketing such as Facebook ,
twitter and their websites.


Franchisees and Employee
Development
Training and Development of
all franchisees on quarterly
basis enabling them to
enhance service standards.
Employee rotation in the
international countries so
that they could better
understand and formulate
the operational and
functional Strategies


Monitoring and Evaluation
Third Party Audits.

Performance evaluation and
devising the future Short
term Strategies to overcome
quarterly highlights
problems.





Questions?
Thank You