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Case Study:

Kentucky Fried Chicken

and the Global Fast-

Food Industry

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Relevant Case Facts - History

Early Life of Colonel Sanders

Sanders First Franchise in 1952

New Management/culture for Kentucky FriedChicken after KFC sale for $2M

Acquisition of KFC by Pepsico/Tricon Global

Heublein Makes Changes in 19701980s Profit and Expansion

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From $105 to 7.2 Billionin 50 years

1952, Col. Sanders started franchising his recipe door to door financed by his $105.00 SS Check

1964, Col Sanders had more than 600 franchised outlets in the US and Canada.

1964, Sold his interest in his company for$2 million to a group of investors.

1966, KFC went public

1969, Listed on the NYSE

1971, KFC was acquired by Heublein Inc. for$285 million.1982, Heublein & KFC Inc. was acquired by RJ Reynolds

1986, RJ Reynolds & KFC, was acquired by PepsiCo, Inc. $840 million.

1997, PepsiCo, Inc. spined-off of its qsrs into independent Tricon Global Restaurants.

2002, Tricon changed it's corporation name toYum! Brands, Inc. .

NOW:

Yum Brands, Inc. is the world's largest restaurant company in terms of system units with nearly 32,500 inmore than 100 countries and territories.

Yum! Brands, Inc., is a Fortune 300 company

Yum! Brands, Inc. global system sales totaled more than $22 billion in the year 2001.

Current Market Cap value on the NYSE is 7.2 Billion

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Problem/Issue

How would KFC maintain a market leadership inthe global fast-food industry

Issue:

A competitive marketing strategy in the international market focused on

the Latin American countries

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Internal AnalysisFunctional Areas

Finance/AccountingSince 2001, Yum Brands Inc. has outperformed the market

Computer Information Systems

Newly established Computer information system

MarketingPositioning among competitors is favorable

unconventional methods of distribution

multibranding

Management

Objectives and goals are measurable and achievable

Team empowerment

Productions/Operations

Constant improvement on quality of chicken

Producer and operators are strategically located

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SWOT ANALYSIS: Strengths

The Management style of Col. Sanders was to rely on the basicgoodness of the people around him and trust the franchisees to playfair.KFC is a Market leader : Worlds largest chicken restaurant chain andthird largest fast-food chain in 2000

Key Success Factor (KFC): Location Effective store management/cleanliness Key to continued growth was to find, motivate, and retain hard-working and

entrepreneurial managers and franchisees around the globe

In addition to short term profits, store managers were also responsiblefor building local public relations, maintaining employee morale,developing customer good-will, keeping tab on the competing chainsand creating a legacy of special chicken cooking recipe.Overall market image also became increasingly clear.

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Strength

KFC had a refocused international strategies to grow itscompany and franchise restaurant base all over the world.

Competitive marketing strategy: Developed three types ofchicken: Original recipe (pressure cooked) Extra crispy

(fried) Tender roast (roasted)Distribution strategy

- First, focused on building smaller restaurants in non-traditional outlets like airports

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Shopping malls, universities, and hospitals.

Second, KFC continued to experiment with homedelivery, which was already firmly established in

Louisville, Las Vegas and LA marketsThird, KFC established 2 in 1 units that sold both

KFC and Taco Bell or KFC and Pizza Hut

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Cont. Strength

KFC continued to dominate the chickensegment ($4.4B) past its nearest competitorPopeyes at a distant second ($1.0B)

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SWOT ANALYSIS:

Weaknesses

Year 1986

Management Shift- KFC was acquired by Pepsico from RJR Industries.Sweeping changes into the culture was initiated by the newmanagement- this brings about demoralization to old KFC employees

and even franchisees.

Several restructurings led to layoffs throughout KFC, replacement ofKFC managers with PepsiCo managers

Conflicts between KFC and PepsiCo cultures- this is manifested with

PepsiCos stronger emphasis on performance rather than loyaltyexpressed by Col. Sanders to KFC employees over the years.

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Cont. Weaknesses

Market Segment (1990s)

KFCs leadership in the US market was soextensive that it had fewer opportunities toexpand its US restaurant base, which wasgrowing at about 1% per year.

KFC chicken segment sales fell from 71% in 1989to less than 56% in 1999.

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SWOT ANALYSIS: Weaknesses

KFC finds difficulty in entering the Germanmarket (culture incompatibility)KFC sales stagnated. There was widespread

discontent among the franchisees, some ofwhom felt the new owners did not understandthe chicken business and were not providingleadership expected from a franchisor.Company stores floundered and become

underperforming the franchised operations,further convincing franchisees that the companydid not know its own business. (KFC HQacquired them to company-owned)

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SWOT ANALYSIS: Opportunities

Overseas expansion with the rapid economic growth andtrend toward two-income families that had fuelled thegrowth of fast-food industry in the 1950s and 1960swere appearing in the late 1960s in the other country.US market maturity- many restaurants expand to

international markets as strategy for growing sales.KFC is an American company and 35 largest restaurantchains in the world (2000) were American firmsExpansion program for the Mexican market/LatinAmerican markets

NAFTA advantageDemographic trends (demand for food eaten outside ofthe home)

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SWOT ANALYSIS: Threats

Consumer health food trend

Saturated fast food industry in the U.S. market

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Strategic Management

Market Development

KFC will introduce their present and new products and

services into new geographic/demographic areas.

Product Development

Bring back rotisserie chicken

Concentric Diversification

Add more to KFC product & service variety to the publicconsumers

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Implementations

Market Research

Determine areas demand to determineboundaries

Expand menu

Healthier choices

Meals will be sold at cost

Determine effects on budget

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Company Strategy

Primary objective is to take advantage of thepotential growth in other countries, to establish astrong position and to develop their image. KeySuccess Factors are ever continuing cost savingsthrough R&D, innovations and use of new technology

to work efficiently. These success techniques willlower costs and increase profits in the industry.

KFC uses an integrated low cost/differentiationleadership, since it can count on its brand name andoriginal taste and recipes to be unique while at thesame time compete on price using the benefits ofcost savings from economies of scale.

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Recommendations

Short-term:

Based on the analysis, we can conclude that they should start bysolving their internal issues such as management and restaurant menubefore thinking about expanding. They should work on the

management issues to create a good atmosphere where employeesare happy to work in. I certainly do not believe that by treatingemployees poorly, a company can be successful.

They also need to make sure that their restaurants offer a diversifiedmenu, provide their customers with quality food, excellent service and

restaurant cleanliness. KFC should always listen to their customers andtry to follow the new trends on the market in order to fully satisfy theircustomers. Otherwise, competitors will satisfy them and will eventuallyoutperform you as Boston did with its grilled chicken.

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Cont.

Even though, KFC seems to have an emotional attachmentto their original recipe that made their success, they

definitely need to move on and develop new products thatcustomers want in order to increase their financialperformance and value. We have seen that Boston andPopeyes are stealing customers away from KFC becausethey understood what customers wanted and startedoffering healthier items. KFC should certainly do the sameand enhance their menu.

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Concerning their expansion strategy, KFC should start by closing afew non-profitable stores in the US that are currently drowning moneyfrom KFC. This will allow KFC to get the cash necessary to invest innew markets, which offer more growth potential. We have seen that

the US market is not as attractive as it used to be, it has becomesaturated and certainly does not appear to have a bright future ahead.There is also the competition in the US that makes it really hard tocompete in, whereas in other foreign markets that are quasiuntouched as I will discuss more in detail later. KFC has to selectcountries based on their attractiveness and make sure that they can

provide above-average returns, which will be discussed more in detailin the intermediate term.

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But first, they need to have a clear vision, solve the internalissues and get some cash in order to make sure that they arestrong as a company and ready to compete internationallybefore going ahead with their expansion project.

Create a great working atmosphere

Develop a healthier menu

Get some cash from selling unprofitable restaurants

Evaluate countries based on attractiveness

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International Investments

Concerning investing internationally, extremely attractivecountries that can provide above-average returns areregions that have chicken as traditional dish such as

Asia and Latin America. Those regions should certainlybe prioritized while developing an internationalexpansion. While they start attacking those new markets,they should keep in mind to focus locally even thoughthey go international in order to overcome certain

barriers such as language, law and a goodunderstanding of needs. Targeting new countries usuallywork better if you adapt to the local market.

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Long Term

They need to stay close to their mission (provide customers with qualityfood, excellent service and restaurant cleanliness) and make sure toknow how to achieve their long-term objectives. They also have to keepinnovating and coming up with new items regularly. Remember thateven though, they come up with similar products, customers are most

likely going to try them. They also have to follow the trend and go handin hand with customers to satisfy their changing needs, as we havepreviously discussed with the current healthier food trend. They alsowant to keep an excellent image by treating employees fairly andkeeping a good control over franchises to make sure they follow the

companys procedures.

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Cont.

Concerning the American market, they should always keepan eye at competitors and see if possible mergers or

acquisitions could be made. McDonalds has been fasterthan KFC when they acquired Boston, which could havereally helped KFC regain its loss market share and reducecompetition. They also have to keep working on their low-cost/differentiation strategy by better taking advantage of

their competitive forces such as economies of scales,bargaining power, image/brand worldwide recognition.

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Cont.

They also need to keep an eye and be aware of new technology in order toimprove their productivity and be able to compete more efficiently because eventhough they may have a competitive advantage now, they can be sure that theywill eventually be challenged.

Stick to their mission; quality food-excellent service- restaurant cleanliness Keep control over franchises

Come up with new items regularly

Keep an eye on possible mergers & acquisitions

Be aware of new technology to stay efficient and competitive

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E N D

THANK YOU ! ! !