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KFC
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KFC Corporation, based in Louisville, Kentucky, is the world's most popular chicken restaurant chain, specializing in Original Recipe®, Extra Crispy™, Twister® and Colonel's Crispy Strips® chicken with home style sides. Every day, nearly eight million customers are served around the world. KFC's 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 300 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 Silver's, Taco Bell and Pizza Hut, selling products from the popular chains in one convenient location. KFC is part of Yum! Brands, Inc., which is the world's largest restaurant system with over 32,500 KFC, A&W All-American Food™, Taco Bell, Long John Silver's and Pizza Hut restaurants in more than 100 countries and territories. As Yum! A brand continues to grow the world over, so do the ranks of our key business partners who reflect the diversity of the markets we serve. As a KFC, Pizza Hut, or Taco Bell franchisee, you'll enjoy the satisfaction and rewards that come from owning your own business, yet with the assurance that your efforts are supported by a global restaurant leader. Our brands are committed to making sure that our franchisees represent our diverse customer base. Our partnerships with the International Franchise Association's (IFA), for example, assist our brands in educating and attracting prospective minority franchisees. Our franchisees are key to our overall business growth, and help us build thriving neighbourhoods and provide economic opportunities for everyone. Problem Identification • Poor relationship Between Pepsi Corporation and KFC franchises. • KFC loose their market share because of other chicken chain competitors (Popeyes, Chick-fill-A, Boston Market, and Church’s) increase sales at a faster rate. • Cultural factors influence when they going to expand their business overseas. • Other chicken chain competitor’s differentiate their products. (For example Boston Market introduce new restaurant chain that emphasized roasted chicken rather than fried chicken. • Conflicts between KFC and Pepsi Cola’s corporate cultures create a moral problem within KFC. • Low Research and Development funding from Hubelin, the division found it difficult to match the expansion plans of its main competitors. • Local franchisees often were more interested in maximizing profits in the short term rather than to adhere to corporate standards and strategic plans. 2. Assumption Strategic management is concerned with matching the organization’s internal capabilities with the external opportunities and threats and developing plans to achieve the medium to long-term goals. There are few Assumptions need to make in order to achieve those goals. • Foreign exchange rates dose not change significantly. • Political instability in Asia not last long. • Current tax system not going to change • Bank interest rate will be stable. • No new environmental laws introduce for the industry • KFC should ignore their competitors in the fast food restaurant chain, such as McDonald’s which is technically in the sandwich segment and go where it will be more profitable. • Fast food chains had already experimented with new forms of existence such as in shopping malls, airports, department stores, universities, etc • Socio-cultural trends in U.S. were favourable to the fast food industry, except for consumer demands for lower and lower prices. 3. Situation Analysis 3.1. S.W.O.T Analysis It is an easy-to-use tool for developing an overview of a company’s strategic situation. It forms a basis for matching your company’s strategy to its situation. Strengths It had expanded early in its corporate history and had experience Strong brand name Its affiliation with pizza hut and taco bell allowed it to create operational efficiencies abroad as well as domestically. It prior relationship with PepsiCo, which had extensive international efficiencies abroad as well. KFC had focused on countries in which McDonald’s did not have a strong presence. World largest chicken chain restaurant Third largest fast food industry KFC continued to dominate the chicken segment, with sales of $4.4 billion in 1999.(Source; Jeffrey A Krug, 2001) Weaknesses As a competitor in international market KFC mostly consider only about franchising market. This is not a very good idea as other imported fast food is catching the domestic market. • KFC was losing market share as other chicken chains increased sales at a faster rate. • KFC’s share of chicken segment sales fell from 71% in 1989 to less than 56% in 1999,a 10 year drop of 15%. • Tight Financial control • High Share price • Higher returns to the share holders Opportunities As the fast food market is rapidly growing KFC may expand it operation in to the domestic market by putting more efforts to it and grab the market share of the local fast food market. KFC’s 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% Threats Any company who operates in the international market has to face the fierce competition in the market place. Apart from that growing concern regarding fast food and takeaway related restrictions in the community is becoming a new threat to industry. • Competition –.chick – fill A and Boston market increased their combined market share by 17%. (Pleases see Appendix), in the early 1990s, many industry analysts predicted that Boston market would challenge KFC for market leadership. • Product development treats – Boston market was a new restaurant chain that emphasized roasted rather than fried chicken. It successfully created the image of an upscale deli offering healthy, “home style “ alternatives to fried chicken and other fast food. • New Entry to the Market place • Asian market of fast food industry growing Eg; china, Thailand • Increasing competitive product- • More new entries for end market place • Technological improvements 3.2 Industry and competition Analysis The five forces model of competition expands the arena for competitive analysis. Historically, when studying the competitive environment, firms concentrated on companies with which they competed directly. However, today competition is viewed as a grouping of alternative ways for customers to obtain the value they desire, rather than as a battle among direct competitors. This is particularly important, because in recent years industry boundaries have become blurred. Threat of new entrants Evidence suggests that KFC have always found it difficult to identify new competitors. This is unfortunate, in that new entrants often have the potential to be quite threatening to incumbents. One reason new entrants pose such a threat is that they bring additional production capacity. Unless the demand for a good or service is increasing, additional capacity holds consumers’ costs down, resulting in less revenue and lower returns for an industry’s firms. Often, new entrants have substantial resources and a keen interest in gaining a large market share. As a result, new competitors may force existing firms to be more effective and efficient and to learn how to compete on new dimensions Bargaining power of suppliers Increasing prices and reducing the quality of products sold are potential means through which suppliers can exert power over firms competing within an industry. If a firm is unable to recover cost increases through its pricing structure, its profitability is reduced by its suppliers’ actions. A supplier group is powerful when: • It is dominated by a few large companies and is more concentrated than the industry to which it sells; • Satisfactory substitute products are not available to industry firms; • Industry firms are not a significant customer for the supplier group; • Suppliers’ goods are critical to buyers’ marketplace success; • The effectiveness of suppliers’ products has created high switching costs for industry firms • Suppliers are a credible threat to integrate forward into the buyers’ industry. Credibility is enhanced when suppliers have substantial resources and provide the industry’s firms with a highly differentiated product. As a result of its success, initially in its US domestic market and now globally as well, Wal-Mart is an example of a company over which few suppliers have power. The sheer size of its purchases and the relatively low switching costs it faces when choosing among suppliers often combine to yield significant power for the firm. Bargaining power of buyers Firms seek to maximise the return on their invested capital. Buyers (KFC customers of an industry or firm) want to buy products at the lowest possible price, at which the industry earns the lowest acceptable rate of return on its invested capital. to reduce their costs, buyers/customer’s bargain for higher quality, greater levels of service and lower prices. These outcomes are achieved by encouraging competitive battles among the industry’s firms. Customers (buyer groups) are powerful when: • They purchase a large portion of an industry’s total output; • The product being purchased from an industry accounts for a significant portion of the buyers’ costs; • They could switch to another product at little, if any, cost; and • The industry’s products are undifferentiated or standardised, and the buyers pose a credible threat if they were to integrate backward into the sellers’ industry. Substitutes One of the main problems that face many companies today is the threat of substitute products. There main substitute products competitors are McDonalds, Burger King, Wendy’s, Domino’s, chi-fi -A and Boston market, popeyes, etc. Industry rivalry Beyond seeking to deter entry, firms also use strategies to reduce the level of industry rivalry because unrestricted competition over prices or output can reduce profits. Several strategies are available. 1. Price signalling is the process by which firms convey their intentions to rivals concerning pricing strategy, or how they will react to the competitive moves of their rivals. Firms can announce that they will respond vigorously to other firms’ hostile moves if attacked. Also it indirectly allows firms to coordinate their prices. 2. Price leadership, in which one firm takes the responsibility of setting industry prices, is another way of using price signalling to enhance industry profitability. The price-setter creates a model that other firms can follow. 3. Non-price competition usually occurs through product differentiation whereby firms compete for market share by offering products with different or superior features, or by applying different marketing techniques. There are four non-price competitive strategies. a. Market penetration involves expansion of market share in a firm’s existing product markets by advertising and other promotional means. Example: Toys R Us based its CA on being a low-price, low-service store but now competes on having more toys in stores than competitors. b. Product development is the creation of new or improved products to replace existing ones. It can help to maintain product differentiation and build market share. Example: KFC very recently they rolled out buffet that included some 30 dinner, salad, and dessert items. c. Market development involves finding new market segments for a firm’s existing products. It uses the firm’s brand name to get market share as it enters these segments. d. Product proliferation (a range of products for a range of niches) is also a strategy for managing rivalry. Firms compete over perceived quality and uniqueness. 4. Capacity control is aimed at controlling the level of industry output. Although firms prefer non-price competition, periodically price competition does break out. This occurs because industry over-capacity leads to reduction in prices for firms attempting to dispose of the product. If one firm reduces prices, the others follow to avoid being left with unwanted goods. Excess capacity can occur because of new low-cost technology or new entrants. Two strategies are available: a. A preemptive strategy is used when one firm, recognizing an opportunity, moves quickly to establish a first-mover advantage. It hopes that other firms will recognize that they are too far behind to catch up and thus not increase their capacity. b. A coordination strategy involves firms signalling their intentions concerning their future capacity to one another. By indirectly informing one another of their plans, they seek to ensure that capacity does not become so large that it promotes a price war.
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