KFC

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KFC Corporation, based in Louisville, Kentucky, is the worlds most popular chicken restaurant chain, 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. 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.

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, youll 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 Associations (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.

. 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.

. Situation Analysis

.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 1.(Source; Jeffrey A Krug, 001)

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 18 to less than 56% in 1,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 10s, 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

. 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.

. 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.

. 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 0 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. As a result, the risks associated with increasing capacity (investments therein) are reduced.

Sources www.bus.okstate.edu/mgmt/labig/(15/08/0)

Is the Kentucky Fried Chicken is Profitable?

The company opened over 1,000 new international restaurants in 001 and expects to open another 1,000 in 00. The companys target for new restaurant growth is +5% to +6% per year in net new international restaurants.

In year “000 was a year of growth, growth, growth for our international business! We opened

traditional restaurants around the world, grew operating profit to $0 million, up 16% from1, and improved international system sales by 6%. And we did it while achieving solid reduction and margin improvement.”

“Our big international winners were Greater China, which increased profits a whopping 47%, and our KFC United Kingdom and Pizza Hut Korea businesses, which each increased profits by 5%.“We also boosted the global popularity of our food, scoring big wins with the debut of Pizza Hut’s Stuffed Crust pizza in Malaysia and the Philippines,

and the continuing success of KFC’s Twister in Australia and Korea. In Asia, we launched two delicious new product variants, Honey Mustard Twister and Spicy Twister, which are helping to drive strong sales growth in the region.” (http//www.yum.com/investors/annualreport.htm)

WHY

KFC Corporation, based in Louisville, Ky., is the worlds most popular chicken restaurant chain specializing in Original Recipe®, Extra Crispy™, Colonels Crispy Strips® chicken and Popcorn Chicken with home-style sides and freshly made chicken sandwiches. Since its founding by Colonel Harland Sanders in 15, KFC has been serving customers delicious, already-prepared complete family meals at affordable prices. There are over 11,000 KFC outlets in more than 80 countries and territories around the world serving some 8 million customers each day. KFC Corporation is a subsidiary of Yum! Brands, Inc., Louisville, Ky.

KFC leads the way as Chinas largest, oldest and most popular quick-service restaurant chain with locations in approximately 150 cities. KFC was the first QSR to enter China in 187 in Beijing. KFC had approximately 00 restaurants in 17 and has quickly grown to 700 today.

What trends exist?

The number of demographic and societal trends influenced the demand for food eaten outside of the home.

Consumer decision making trends

During the last two decades, rising incomes, greater affluence among a greater percentage of American households, higher divorce rate, and the fact that people married later in life contributed to the rising number of single households and the demand for fast food. More than 50% of woman worked out side of home, a dramatic increase since 170. They expect this percentage going up over 65% by 010. Less time to prepare meals inside the house added to this trend.

Labour cost made up 0% of a fast food chain’s total costs, second only to food and beverage costs. Intense competition. However, made it difficult for restaurants to increase prices sufficiently to cover the increased cost of labour. There are many fast food restaurants in the fast food market, and it has different food with different taste, price and quality. Consumers do not like eat same food with same taste every day. . Therefore consumers could change their decisions and move to purchase another product because there are lots of substituted products in the market. Consumers made decisions about where to eat partially based on price. There was another important fact is time duration. Consumers there’re always expect Fast and Quality service. most of the restaurant operation viewed computers as their number one tool for improving efficiency. New technology may help to increases customer attention to purchase the product. For a e.g. Mc Donald and Carl’s, converted to new food preparation systems that allow them to prepare food more accurately and to prepare a great verity of sandwiches using the same process.

Restaurant location also the very impotent facts to make Consumer decision consumer.Consumers always looking for convenable place to purchase there needs.

Demographic tends

Income

More than 50% of woman worked out side of home, a dramatic increase since 170. They expect this percentage going up over 65% by 010.doble- income households contributed to rising household incomes and increased the number of times families ate out.

Life style trends

Higher divorce rates and the fact that people married later in life contributed to the rising number of singles household and the demand for fast food. After 170 more than 50 percent increase of women worked outside of the home and this number was expected to raise 65 percent by 010. Household income also effect to change the consumers life style.

As consumers aged, they become less enamored with fast food and were more likely to patronize dinner houses and full- service restaurants. Sales of Mexican restaurant were very popular with American people in 180’s, began Indian, Japanese and Vietnamese restaurant are become a more fashionable.

Ethnic food in general was rising in popularity as U.S. immigrants, who constituted 10% of the U.S. population in 000, looked for establishments that sold their native foods.

Age

In the fast food industry baby boomers (age 5-50) are the largest consumer group, and Generation Xers (ages 5 to 4) and the “mature” category (ages51 to 64) made up the second and the third largest group in the market respectively.

The greatest concern for fast food operations was the shortage of employees in the 16 to 4 age category. Most American in this age category had never experienced a recession or an economic downturn.

Competitive behavior trends

 Competition with in fast food industry is particularly strong due to the large number of stores and their geographic proximity.

 Competition tends to be based on price, range of fast food products, quality, service, location and promotion.

The number of factors will lead to increase of competition. One of the most important will be continuing diffusion of the fast food industry. Even as competitive strength increases, leading fast food industries will become more adept at anticipating the responses of their competitors. Instead of using destructive competition, businesses will tacitly cooperate on price and promotion and seek competitive advantage based on superior understanding of customers need and effective management of the innovation process to meet those needs.



Who are the Key Competitors

There are was eight major segments made up the fast food sector of the restaurants industry sandwich chains, pizza chains family restaurants, grill buffet chains, dinner houses, chicken chains, nondinner concept, and other chains.

Other indirect fast food restaurant competitors are

Sandwich chain - McDonalds, Burger King, Wendy’s, Taco Bell, Subway and etc.

Dinner Houses-Applebee’s, Red Lobster, Outback Steakhouse, Olive Garden and etc. Pizza Chain - Pizza Hut, Domino’s, Papa John’s, Little Caesars, Sabarro and etc.

Family Restaurant Denny’s, Craker Barrel, IHOP, Shoney’s and etc.

Other dinner chain - long John Silver’s, Walt Disney Co, Old Country Buffet & etc.

Grill Buffet chain - Golden Corral, Ryan’s and etc.

Nondinner Concepts - Dunkin’s Donuts, 7-Eleven, Starbuks and etc.



McDonald’s with sales of more than $1 billion in 1, accounted for 15% of sales of the sales of the nation’s top 100 restaurant chain. According to the sales figure shown that second largest chain burger King had less than a 7% share of the market.

Sandwich chains (McDonald 5%, Burger king 16%, Wendy’s .7%, taco bell .6%, subway 5.%, etc.) made up the largest segment of the fast food market.

(Source; Jeffrey A Krug, 001, p08)

According to the above figure we can identified, McDonald’s is generated the greatest per store sales about $1.5 million per year. The average U.S. chain generated $800’000 in sales per store in 1.

Dinner house made up the second and fastest- growing fast-food segment in 1

On what basis do they compete?

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.

Dinner house came from new unit construction, a market contrast with other fast food chains, which had already slowed U.S construction because of markets and small towns.

How successful are they?

Sales of dinner houses increased by more than 1% during the year, surpassing the average increase of 6% among all fast- food chains.

The hardest-hit segment was grilled buffet chains, which generated the lowest increase in sales( less than 4%).dinner houses, because of their more upscale atmosphere and higher-ticket items, were better positioned to take advantage of the aging and wealthier U.S population, which increasingly demanded higher- quality food in more attractive settings.

Dinner houses, however, faced the prospect of market saturation and increased completion in the near future.

What are the key industry success factors?

• The Colonel perfected his secret blend of 11 herbs and spices for Kentucky Fried Chicken in 1 and signed up his first franchisee in 15. By the time KFC was acquired by PepsiCo in 186, it had grown to approximately 6,600 units in 55 countries and territories.

• KFC restaurants offer fried chicken products and some also offer non-fried chicken-on-the-bone products, with the principal entree items sold in pieces under the names Original Recipe, Extra Tasty Crispy and Tender Roast.

• KFC restaurants also offer a variety of side items, such as biscuits, mashed potatoes and gravy, Cole slaw and corn, as well as desserts and non-alcoholic beverages.

• In 16, KFCs worldwide system sales of over $8 billion grew faster than the industry average even though the number of restaurants in its global system did not materially increase.

• Quality, service and cleanliness represent the most critical success factors to KFCs global success.

• Adequate capitalization, to provide reserves against market downturns and to benefit from market upturns.

• There was another main factor is they conduct the business in an environmentally responsible way. There’re complying with all applicable laws and regulations and provide safe and healthy work environments. In the absence of specific laws and regulations we continue to operate responsibly.

• Using research and new technology, we work to improve our environmental performance through source reduction, recycling and innovative product packaging.

• There are known for great operations, marketing innovation, delivering the highest quality food and superior service by responding to the voice of the customers, not just listening to them.

• In Asia, we launched two delicious new product variants, Honey Mustard Twister and Spicy Twister, which are helping to drive strong sales growth in the region.

• Reliable supply of key raw materials at a competitive price.

.. Company Analysis

..1. Organisational Strategy (pleases see Appendix...)

Organisational strategic plan can be divided in to two parts such as corporate level strategies and Business, unit, product and market level strategies. ( Kotler P, Armstrong G, Meggs D, Bradbury E, Grech.J, 1, pp448)

Corporate level strategies

Defining the company mission KFC’s parent company Yum Brand Inc., mission is satisfying customers every time they eat their food and doing it better than any other restaurant company with their sister companies such as A&W, KFC, Long John Silvers, Pizza Hut, and Taco Bell. They offer customers to food they crave, comeback value, and customer-focused teams. The unique eating experience at each of their restaurants make their customers smile and inspire their loyalty for life. (www.yum.com)

• Setting company objectives and goals

KFC’s parent’s company mission needs to be turned into detailed supporting objectives for each level of management. Each manager in the industry should have objectives that they are responsible of archiving and that ‘flow down’ through the levels of the organisation. These mangers have a responsibility to increase or keep the market share stable. In the case study explain during 180s to 10s surrounded it limited menu and suddenly they introduce new products in the fast food market as a strategy.

• Designing the business portfolio

The business portfolio is the one that best fits the company’s strengthens and weakness to opportunities in the environment. KFC always try to expand their business as a strategy to increase global market share using franchise system and the company owned system. They always try to keep high growth and high share in the fast food industry, but the coemption always against them. To keep competitors down they need to use new strategies to grow their business and market share.

Business strategy

• Planning

KFC’s marketing plan is satisfying customers by designing strategies and delivering a marketing mix targeted at defined market segments and aimed at achieving a series of marketing objectives which combined to meet their company objectives.

• Marketing

Customer value and satisfaction are the most important ingredient that the KFC looking when they market the product. They always try to provide good quality products with low cost to the customers. They change the taste of the product when the customers do not like.

• Perceived competence � all businesses are public and diversified activities were high volume, low cost products with strong brand names.

• Market leadership � diversification moves typically started by capturing a significant domestic market share through the acquisition of companies with highly visible or quality brand names.

• Restructuring � considerable success in taking what had appeared to be relatively expensive acquisitions and reduced the cost through stripping out unproductive assets, and investing capital to improve productivity.

• Strong brands and customer focus � managing outstanding brands with high public awareness.

• Acquire or develop ‘world best’ technology.

• International expansion.

• Financial control and performance measurement.

• Organisation and management

• Management development.



Developing Growth Strategies

Market Penetration Strategies

• Attracting Competitor’s customers � Differentiation of products such as new menus design which shows clearer differentiation from competing fast food.

• Increasing Promotional Effort - Mass advertising within the domestic and globally

• Decreasing Prices. - Special offers price competition things such as student discount.

Product Development Strategies

• Product line extensions - Offer customers with varieties food.

• Developing quality variations - Developing food quality of the KFC.

• Developing new products aiming at the present market - Develop new products those related to the countries cultures.

Market Development Strategies

• New Geographical Markets

Setting up franchising and merger systems using the regional and national expansion.

Attracting Investors by consolidating the positioning and image of the business and be well known and trusted.

Advertising in other media such as on the internet where globally executed.

Lowering price to attract price sensitive buyers and increasing price on certain product and services in order to attract prestige and quality seekers segments

Diversification

 Into related businesses (concentric diversification)

Fabricating assortment of menus for breakfast, lunch and dinner.

Cheap quality foods for lower class

What Generic Strategy is it Pursuing

Generic strategy can be divided into three parts.

• Focus strategy

• Differentiate strategy

• Cost leadership strategy ( www.business.bond.edu.au)

KFC’s focused on their product differentiate to reduce substitutability with rivals -

KFC still experimented with the chicken sandwich concept when McDonald’s test marketed its “Mc’Chicken Burger” in the Louisville market. Shortly McDonald’s rolled out the Mc chicken sandwich nationally. By beating KFC to the market.

By the late 10s, KFC had refocused its strategy. The cornerstone of its new strategy was to increase sales in individual KFC restaurants by introducing a variety of new products and menu items that appealed to a greater number of customers. KFC settled in three types of chicken product original recipe, Extra Crispy and Tender Roast.

When consider the generic strategy KFC can be differentiating their products in many ways, such as quality, uniqueness, responsiveness and prestige of the product. For example when KFC try to expand their business to overseas they need to focus on the product differentiate because those countries should have different cultures, taste and values. KFC very recently they rolled out buffet that included some 0 dinner, salad, and dessert items. The buffet was particularly successful in rural locations and suburbs. It was less successful in urban locations because of space considerations. KFC then introduced its colonel’s Crispy Strips and five new chicken sandwiches to appeal to customers who preferred boneless chicken products.

If a firm can consolidate a fragmented industry, it can achieve high return on investment. It has occurred in retailing (for example, Wal-Mart) in fast foods, (McDonald’s and KFC), and in legal and accounting firms (Baker & McKenzie). Firms seeking to consolidate their industries and become leaders use strategies of chaining, franchising, and horizontal merger

With this strategy, based on cost-leadership, a firm establishes networks of linked stores or service-centres that are so closely interconnected as to simulate one large entity. The firm uses regional distribution centres to reduce transportation & inventory holding costs; it increases its buying power vis-a-vis suppliers; and it realizes economies of scale by sharing management costs and advertising across stores.

... Operations

Plant Locations

KFC had expanded early in their corporate history and their experience operating abroad put it in a strong position to take advantage of the growing trend toward international expansion. In year 000, more than 50percent (5,55 restaurant) of the KFC’s restaurants were located outside the United States and the rest of the restaurant located inside the United States. Their major overseas markets are located in Mexico, China, Canada, Australia, Puerto Rico, Korea, Thailand, and United Kingdom.

Equipment (Technology, Use Age, Flexibility, Capacity utilization)

Technology use cost could also be lowered and operation made more efficient by increasing the use of technology. Most restaurant operators viewed computers as their number one tool for improving efficiency. For an e.g. improve labour scheduling, accounting, payroll, sales analysis etc..

Most restaurant chains were also using point of sales systems that recorded the selected menu items and gave the casher a breakdown of food items and the ticket price. Currently the company looking forward to develop their production cycle by the use of modern technology. The best example would be the use of new recycling papers

Age the age category between 16 -4 are widely used staff which the company tend to employ. It creates good job opportunities as well as a good experience.

Capacity utilization higher cost and poor availability of prime real estate was another trend that negatively affected profitability.

A plot of land suitable for a normal sized freestanding restaurant cost between $1.5 and $.5 million. Leasing was a less costly alternative to buying. Nevertheless, market saturation decreased per store sales as newer unit’s cannibalised sales for existing units.

since there are variety of retail outlets the company tend to move into non traditional methods such as opening outlets as, hospitals, shopping molls, air ports, gas station, food court and in highly crowded public areas.

Flexibility- To make meal planning easier and more convenient, KFC has partnered with cybermeals, Inc., the Internet’s largest online ordering system, to give San Diego residents the option of ordering KFC for delivery or takeout via the Internet. Customers will be able to place online orders only when they are within a KFC delivery area and during business hours. (http//www.kfc.com/about/pr/00.htm)

Operating cycle

The company’s operating cycle mainly based in to two types which are company owned and franchise by the company. The main purpose of the operating cycle is to dominate the international and domestic market. KFC’s early international strategy was to grow its company and franchise restaurant base throughout the world. By early 000, KFC had refocused its international strategy on several high growth markets such as Canada, Australia, UK, china, Korea and etc. KFC hope planned to expand their company owned business into other international market in Europe and lain America in future.

Cost structure, cost drivers

The topical emphasis is on productivity growth and its dependence on the cost structure. The methodological focus is on application of the tools of economic analysis � the `thinking structure provided by microeconomic theory � to measure technological or cost structure, and link it with market and regulatory structure. This provides a rich basis for evaluation of economic performance and its determinants.

(Sources http//kapis.www.wkap.nl/prod/b/0-7-840-)

Break Even Analysis

When consider the companies break even analysis can be used to evaluate the relationship between fixed cost, variable cost, selling price, and profit using the basic formula break- even analysis setting price to break even on the cost of making and marketing a product or setting price to make a target profit.

... Human Resources

Organisation Structure

KFC has seen 4 different management structures in the last 50 years. The management philosophy employed by each one of these companies has been different, creating a constantly changing environment for company employees and franchisees. PepsiCo (now YUM brands), the parent company of KFC, places an added emphasis on performance and is closely looking at ways to increase return on equity by buying out under-performing restaurants and investing in company-owned restaurants. This has created a strained relationship between corporate management and KFC franchisees. (www.google.com, access- 15-08-0)

TRICON GLOBAL RESTAURANT INC Organization chart, 000

(Sources Jeffrey A Krug, 001)

Reward Systems

KFC® knows a thing or two about food-and it knows about parents and kids. Now, with the introduction of its new Kids Laptop Pack kid’s meal, it brings together all of these honest-to-goodness truths

• kids are picky;

• kids dont like their food touching other food;

• kids want to eat at their own pace; and

• Kids want to feel in control of their mealtimes as they push the limits of both their own independence and their parents patience. (Louisville, KY, Nov. 1, 00 http//www.kfc.com/about/pr/1110.htm)

To gain a customer reputation and customer satisfaction the company tend to offer verity of rewards schemes as strategy to attract customers. The reason rewards system was to draw coupons and prize draw.

As part of KFCs ongoing commitment to diversity and the development of its associates, KFC will provide one scholarship per year over the next four years to eligible students attending UNCF schools. (http//www.kfc.com/community/uncf.htm)

Age and experience profile

Tricon Global Restaurants, Inc. is already the largest restaurant company in the world. Together, we serve more than 150 million people each week in nearly 0,000 restaurants in over 100 countries! And, were growing every day through the success of dynamic professionals...like you! (http//www.kfc.com/careers/ )

Tricon provides a flexible benefits program designed with our employees individual needs in mind. All part-time and full-time domestic permanent salaried employees are eligible after 60 days of continuous service.

Tricon and its brands are a fun, flexible place to work. KFC, Taco Bell and Pizza Hut all support a work/home/life balance. Whether company has begin as an hourly employee, work your way up through the ranks or come to us with management experience, the opportunities for success are a promise from us to you. We embrace a promote from within philosophy and enjoy continued growth in an otherwise rapidly changing market. Were an equal opportunity employer committed to creating a diverse workforce.

KFC has developed a support structure that celebrates the Restaurant General Manager. Among the best-rewarded Restaurant Managers in the industry, each is equipped to train and motivate with generous reward programs that assist them in creating unprecedented team environments. KFC has mastered the art of motivating teams - which can be fun for everyone and contribute to strong sales growth and great customer service.

Dominate attitudes and values (culture)

With the on going progress of the Tricon Global Restaurants Company, Kentucky Fried Chicken will continue to grow and expand in order to fulfill the wants and needs of an ever changing society. As they expand into different countries they adapt to fit the local tastes and trends in accordance with local customs and beliefs. The use of local management in the franchises has benefited KFC because of there knowledge of the local market. Their flexibility and determination to provide quality, service, and cleanliness while focusing on the specific demographics of each specific region.

Number of locations, physical and reporting relationships between related areas

KFC is part of Tricon Global Restaurants, Inc., which is the worlds largest restaurant system with nearly 0,000 KFC, Taco Bell and Pizza Hut restaurants in more than 100 countries and territories. KFC has more than 11,000 restaurants in more than 85 countries and territories around the world. Kentucky Fried chicken corporation use franchise for expand their business around the world. The mother company of the KFC located in United States and they franchised their business to other countries to make more profits.

Key personalities

 Good relationship with consumers, suppliers and the workers.

 Outstanding employees within the organisation. .

 Qualified employers are fitted to the right job.

 KFC listen and respond to the voice of the customer

 They believe in people, trust in positive intentions, encourage ideas from everyone and actively develop a workforce that is diverse in style and background.

 We do what we say, we are accountable, we act like owners.

 Good management skills.

 We execute with positive energy and intensity...we hate bureaucracy and all the nonsense that comes with it.

..4 Marketing

Since a company have in a good reputation over the product its marketing strategy would be clearly defined as a major part of the company. By use of 4P’s the KFC had developed their marketing strategies.

Products Innovate new products with new tastes. Team of leading technologists that do research for develop new tastes of fast food for KFC in many years to attract customers.

Place Expand the yum brand products to other countries with the suitable menus. When reopen the new restaurant they need to consider the competitors behaviour in the particular area. KFC have good distribution chancel for supply their products to the franchisees.

Price Create attractive price that can afford all social classes. Marketing manager will be doing with the help of financial department. To have very attractive and profitable price for both us and the consumers

Promotion Start advertising in TV radio and internet, also billboards bus shelters and public transports. The promotions manager will take the responsibility. It has to be inform consumers in around the world when the new menus introduce to the local and international markets.

..5. Research and development

KFC should emphasize on growing the KFC franchises abroad. This will allow KFC to expand into different countries with less capital investing. By allowing franchisees larger flexibility as they expand abroad, they will have a better chance to appeal the local markets. It will be important to make an investment in Research & Development in order to better determine what countries will provide the best growth opportunities for the organization. In addition, KFC should build ties with local organizations in these foreign in order to achieve brand recognition in these new markets.

According to 000 annual report Research and development expenses were $4 million in both 000 and 1 and $1 million in 18.

..6. Performance

KFC is delivering quality products and good customer service by millions of consumers around the world. The main advantage the company facing is their working environment. By creating better working environment it creates a better service towards the consumers. The performance of the organization is highly recognised by many consumers due to highly publicity activities they undertake

.4 Stakeholders Analysis

Who are the key stakeholders?

Stakeholders Responsibilities

shareholders  Higher dividens, share price, assist and profits.

 Sound, well planned and implemented growth strategy.

 Accurate and prompt financial reporting.

 Prompt annual general meeting.

Joint Ventures & Franchise partners  Fair dealing with parent company.

 Profit maximizing

Consumers

 Value for money KFC products

 Product or brand choice.

 Range of products, good customer service and distribution channel.

 KFC foods that will balance their health awareness.

 Reliable KFC products.

Employees

 Job satisfaction.

 High wagers.

 Long term holidays.

Suppliers  Management and knowledge transfer.

 Fair trading reasonable price, business reliability.

 Prompt payment and order processing time.

 Long term growth rate.

 Price strategies.

 Sustained growth rate of company.

Competitors  High competition

 No misleading advertising or promotion

Government

 Prompt and accurate financial reporting and tax paying.

 Contribution to nation’s economic indicates. (Eg. GDP).

 Good corporate citizens.

 Loyalty to legislation.

 Job creation and security to country labour force.

Local society

 Minimize environmental pollution.

 No excessive or cultural �insensitive advertising.

 Avoid wastage of products and raw materials.

 Good corporate citizen.

Banking and other financial resources

 Company profitability

 Financial resource.

What are their values?

 Shareholders - high profit margin.

 Customers - high expectation of the product such as quality, price and brand loyalty.

 Employees - friendly environment, flexible time schedule, reasonable salary, challenging career.

 Suppliers- Good reliable service

 Competitors - value of challenging higher rank competitors.

 Government- government income (tax)

Their outside interests

The main outside interest are that the KFC seeking for is to create a better friendly environment within the employees. This could be a great advantage to the consumers to increase much awareness of the existence of the company. The other factor would be to create environment friendly company which tend to minimize the environment pollution by using recycling products.

.5 Portfolio analysis

This analysis generating of strategic alternatives through the use of matrix techniques, sustainable competitive advantage and the experience curve. Portfolio matrix is actual concept of a portfolio (of brand, of product, of personal investments etc.) (John, 00, study Guide)

Related Market Share

High Low

Product Sales Growth Rate High (Stars)

(Question Mark)

Low (Cash Cows)





 KFC (USA) (Dogs)

 KFC (Mexico)

 KFC(Brazil)

star Question Mark Cash Cows Dogs

KFC’s located in star category have high market growth and a large share of the market. Significant amounts of cash are required to maintain their growth rate. Special promotions, high sales costs, lack of economy, and high competition (new market entries) force the firm to spend a great deal of cash to enhance or maintain its market position.

KFC’s located in question mark category may be the stars that lost their market share position to competition or cash cows whose position was eroded by superior competitive products KFC’s located in cash cow category moves out of the growth stage of the product life cycle, it no longer needs large amounts of cash to support its growth and defend its market position. At this point the product has reach maturity (high experience) and generates cash that can be used to support new product development (stars) and enhance the position of a problem child.

KFC’s located in dogs categories are faced with no growth potential and low market share. Since future opportunities for these products are unlikely, management may give serious consideration to eliminating them, depending on the impact on sales of other product in the line.

Beginning in 15, we have been strategically reducing our share of total system units by selling Company restaurants to existing and new franchisees where their expertise can generally be leveraged to improve our overall operating performance, while retaining Company ownership of key U.S. and International markets. This portfolio-balancing activity has reduced, and will continue to reduce, our reported revenues and restaurant profits and has increased the importance of system sales as a key performance measure. We expect to substantially complete our enfranchising program in 001.Estimated reduction in Company sales, restaurant margin and general and administrative expenses (“G&A”), (b) the estimated increase in franchise fees and (c) the equity income (loss) from investments in unconsolidated affiliates (“equity income”). The amounts presented below reflect the estimated impact from stores that were operated by us for all or some portion of the comparable period in the respective previous year and were no longer operated by us as of the last day of the respective year.

The following table summarizes the estimated revenue impact of the Portfolio Effect

000

U.S. International Worldwide

Reduced sales $(88) $(46) $(1,084)

Increased franchise fees 1 5

Reduction in total revenues $(7) $() $(1,0)

The following table summarizes the estimated impact on ongoing operating profit of the Portfolio Effect

000

U.S. International Worldwide

Decreased restaurant margin $(0) $(5) $(115)

Increased franchise fees 1 5

Decreased G&A 11 6 17

Equity income (loss) � (1) (1)

(Decrease) in ongoing operating $(40) $(7) $(47)

Profit



.6 Macro- Environmental Analysis



Economic

The health of a nation’s economy affects the performance of individual firms and

industries. Because of this, companies study the economic environment to identify changes, trends and their strategic implications.

The economic environment refers to the nature and direction of the economy in which a firm competes or may compete.

Economic environment, that potentially positively or negatively affects the KFC’s ability to conduct the business in local and the overseas market. .

 When consider the Mexican economy by year 000 had stabilized and the GDP was increased at an average annual rate of 4% and unemployment had decreased to slightly more than percent. This economic condition better grow in KFC and other fast food industries in the Mexico.

 Mexican Peso is depreciated against US dollar because of inflation and higher interest rates.

Social- Cultural

The socio-cultural segment is concerned with a society’s attitudes and cultural values. Because attitudes and values form cornerstone of a society, they often drive demographic, economic, political/legal and technological conditions and changes.

This case study, historically franchises made up a large share of KFC’s international restaurant base, because franchises were owned and operated by local entrepreneurs who had grassroots understanding of local language and culture.

Attitude towards customer service due to large number of foods, services and considerable number of competitors in the fast food industry, customers are faced with high variety of options; therefore they demand a quality standard of customer service driving to satisfy their expectations. That causes changes in attitudes, beliefs, norms, customs and lifestyles and culture. These forces strongly affect the way people live and help determine what, where, how and when customers buy a firm’s products. Customers are increasingly demanding that marketers behave socially-culturally responsible.

Political

This involves assessing the political environment of the country/countries of destination. It includes such factors as the type of government (e.g. democratic, authoritarian), the actions of the host country government (e.g. limits on the amount of foreign ownership, subsidies), the type of economic system (e.g. capitalist, socialist), and the stability of the government (e.g. how long it has been in power).

• Political situation in Asia is not stable because of that industry has to take risk to invest money in Asian countries.

• With the setting up with World Trade Organization (previously named GATT), countries are increasingly lowering down trade barriers. This will open up potential new market. For example Mexico, one of the markets for KFC had been lowering its tariffs since it had become a member of GATT.

• Government rules and regulations effect to fast food industry. Changes government policies, changes in tax related laws on the industry.

• North American Free Trade Agreement (NAFTA) had eliminated tariffs on goods shipped between Canada, Mexico, and the United State.

• Argentina, Paraguay, Uruguay, and Brazil signed a custom union agreement (Mercour) in 11 to eliminate tariffs on trade among those four countries.

• Investors do not like to invest when countries have war, revolution and changers government rapidly.

Technological

Pervasive and diversified in scope, technological changes affect many parts of societies. Their effects occur primarily through new products, processes and materials. The technological segment includes the institutions and activities involved with creating new knowledge and translating that knowledge into new outputs, products, processes and materials.

Demographic

The demographic segment is concerned with a population’s size, age structure,

Geographic distribution, ethnic mix and income distribution.5 As previously noted, the firm analyses demographic segments on a global basis rather than a domestic-only basis.

As a USA and global market of the KFC has to be very concern with those demographic factors because slight change of one factor could affect the whole market at once.

For example aging population of most countries are increasing these days and new younger generation is taking the world therefore market is changing due to their needs and taste if we think that we do the same thing that we did during the post war period or baby boomers time it is not going to work now. But the fast food industry still mainly based on the baby boomers.

According to theCase study indicates that the fast food industry mainly based on these age categories such as baby boomers aged 5 to 50 constituted the larger consumer group for fast food restaurants. Generation Xers (ages 5 to 4) and the “mature” category (aged 51 to 64) made up the second and third large groups who use fast food in the country.

4. Statement of alternative options

• The Company is fulfilling its promises by delivering

• Increase the number of stores over the next two years

• Advertising and promote KFC’s products in targeted countries

• Joint ventures. KFC should continue its joint ventures operation with local and international.

• An important measure against which the board must and should be judged is the growth in the price of the Companys stock. At this time their performance in this regard is deficient.

• Generating shareholder value.

• Focusing on the customers.

• Capitalize on their technological advantage in fast food improvement.

• Satisfying a global demand for the next generation of fast food.

• Try to produce more innovative new tastes and menus and bring them to market.

• The demand for a healthier life-style among consumers would create defection from fast food to healthier food types.

• Concentrating on positioning KFC as an international brand name.

• Emphasize innovation in production to increase quality and reduce costs.

5. Reasons for rejecting the other options

• KFC doesnt have ability to concern any options with price considerations.

• Tricon International Restaurant must show the profits and new investments. This is depending on gain the trust from investors. Bit hard to increase the price of the shares.

6. Recommendations

• Extend the use of local suppliers in the form raw food supplies and distribution services.

• Create and add local food items on the menu that cater to global market taste.

• Create a management hub in the Latin American region to oversee operations of franchises in those countries.

• The non-tariff and free-trade agreements would only ease the management of these franchises.



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