Introduction
Kentucky Fried Chicken (KFC), is a world renown fast food brand. The company is based in the United States but has expanded its operations in numerous countries world wide. The company operates through a franchise model, whereby it established the brand in the international markets and allots franchising license for the brand and the company to local businessmen. This enables the company to take advantage of increased market on a global scale while giving the management of the franchise opportunity to use their expertise and knowledge of the local markets to best cater to their needs.
The product line of the company includes roasted chicken products, side dishes of chicken, vegetables, and deserts. Recently the company has also started offering salads, kebabs and regional fare which is local of origin or the culture of its international regions of operations.
The company has a long history being acquiring other businesses and being acquired itself. Currently as of 2002, the company is an owned subsidiary of Yum Brands. The KFC Corporation has operated in the local and the international markets by promoting the brand of KFC and forming co-branding relationships with its suppliers and products like Pepsi. The company has recently as of 2007, started to re-brand itself again, for the US market only, by losing the abbreviation and branding itself Kentucky Fried Chicken.
External Analysis
Porters Five Forces
The Porterâs analysis has been performed specific to the KFC Corporation and the fast food industry in the United Kingdom.
The buyers in the market are the customers which buy the products and the services offered by the KFC Corporation. The power of the buyer in the fast food industry in the United Kingdom is weak as while not everyone in the UK likes to eat fried fast food, this kind of food is widely popular in the region. Moreover the extensive effort put by the KFC Corporation and its competitors for brand building activities also weakens or moderates the power of the buyers by making the product offering uniform for all buyers.
The power of the suppliers in the industry is also moderate. The reason for this is mostly because of the joint collaboration and partnership alliances which are formed between the suppliers of the fats food companies like the KFC Corporation and the uniform product that they require.
There exists intense rivalry between the players in the fast food competition in which the KFC Corporation operates. âPlayers of all sizes in this market tend to be highly focused on fast food, which means that their survival depends on maintaining profitability in this business. Furthermore, the UK is a large market, which means that revenues from this country may be important even for geographically diversified players. Overall, rivalry is assessed as strong.â (âIndustry Profile: Fast Food in the United Kingdomâ, 2007)
The threat of substitutes is for the KFC Corporation in the fast food industry is moderate to relatively high. This is because of the low costs of switching to the consumers and the high level of competition in the market. Moreover the substitute for fast food products are numerous taking the form of restaurant food, ready made meals as well as home cooked meals which are much preferred by the customers in the market.
The threat of new entrants into the industry is very high as it is relatively easy for a new fast food business to enter the market and establish itself. There is high demand for food in the fast food market and the intense rivalry creates low barriers for entry for new entrants. Moreover the franchise model which is popular in the fast food industry increases the threat of new entrants in the market.
Strategic Group Theories
The KFC Corporation tends to comply with the strategic group theories. The strategic group theories state that when the industry is taken as a group, the players in the industry tend operate in a similar manner, employing the same strategies. This is true for the KFC Corporation as well. The company which is now owned and operated by Yum Brands is tends to follow the same strategies that are employed by its competitors in the industry as well.
The company has been responding to the customers demand for healthier food. This promoted the company to come up with food which was prepared in trans fat free oil while also include salad, and green based vegetable side dishes in its menu.
The strategies for operations employed by the KFC Corporation are similar to the ones employed by Wendyâs Burger King, Pizza Hut and McDonalds. The company operates through a franchise business model in the local and the international markets. In this model the local businessmen open franchises for the KFC Corporation and operate them while using the equipment and facilities provided by the KFC Corporation. In return they share part of their profits through the royalty program.
The marketing strategies employed by the company are also similar to the ones employed by its competitors. The company leverages its bran on the combo meals offered, the convenience of the fast food and the happy environment which is depicted in its advertisements.
Internal Analysis
Competencies
The core competency of a company provides the consumers of its products with benefits while not being easy for the competitors of the company to imitate and providing leveragability for different products and markets. The core competencies of the KFC Corporation include its capability to deliver a unique recipe based chicken which has a distinctive taste. This recipe is shared with the franchises all over the world which results in a uniform product being disbursed amongst the global markets. Moreover the KFC Corporation also has significant expertise in managing and opening franchises and restaurants in the international markets.
The company also has bargaining power with its suppliers which enables the company to get supplies at lower costs increasing its profit margins on the products sold. The company also can realize economies of scale with its local, regional and international operations. This can be used to strengthen their cots advantage with suppliers, however currently the strategy has not been employed.
Management Analysis
The management of the KFC Corporation has changed many a times. After the Pepsi Co acquired the business of KFC, the company made significant change sin its management. They had little control on the KFC franchises (Krug) which they wanted to rectify. As a result the company employs strategies of staff reduction, replacement of KFC managers and changing the corporate culture to the one which was not mutually exclusive for the two organizations.
Strengths
The strengths of the company include the brand name of the KFC which is recognized by people all around the world and the desires it invokes in the consumers for food related to fried chicken. Aside from this the good quality of hygienic food provided and the product offering of the company is also strength for the company. The diverse and expansive market which is catered by the KFC Corporation and its franchises provides it with a large share of the consumers specific to the fast food market.
Weaknesses and Constrains
The weaknesses and the constraints that the company and the fast food brand is exposed to is its lack of innovation to come up with new products on a periodic or a regular basis to meet the needs to the customers. The research and development is not investment in by the company which enables other competitors for the company like McDonalds to take pioneering advantage for new products launched by them in the market.
Strategy in the Future
The strategies that can be implemented by the company for its operations in the future take the form of investing in the research and development projects and facilities. The company should invest in R&D to increase its capability to come up with new products, while also searching innovative methods to prepare the products according to the changing demands of the customers. The customers want a healthy product offering which has the same great taste. The company can invest in developing processes and procedures which are much healthier for the consumers while delivering the same great taste.
Aside from this the company should also provide the consumers in the different markets with a diverse range of products. This can be done by following the new trends which are preferred by the customers in the markets. The company should also closedown those operations which are unprofitable for the company and are creating problems for the company by taking away its profit margins and cash reserves. The US market is highly saturated when it comes to fried chicken based fast foods, and in this regard the company should expand to diverse and much profitable markets.
Comprehensively the aspects of the business which can be built upon pertain to the working atmosphere in its outlets and workplaces, development of menus which are more diverse and healthier, closing those restaurants and operations which are unprofitable or promoting a negative image of the company as well as performing an in detail evaluation and analysis of the new markets and countries before establishing operations through company owned business and franchises.
Reasons for KFCâs Strategy Change
The strategy change for the KFC operations was much required as mentioned in the case as a result of the strategies employed by the company in the 1980s. In the 80s, the company was highly dependent on its unique recipe for its popularity, bard image and the growth of its business. However as the fried chicken based fast food industry increased the company has been facing significant loss of market share as the consumers switch between different fast food brands.
The earlier strategy of the company ha also resulted in a restricted and limited menu offering by the KFC company which can become boring and unattractive in the long run. Aside from this the different franchises in the international and the local markets which are not operated directly by the company have been depicting degrees of neglect and falling standard which eliminates the uniformity of the product and service offering at the eating outlets as well as presented a bad image of the company and the KFC brand.
Market Situation
The fast food industry is a highly competitive market with dynamic change staking place. âThe global fast food market generated total revenues of $102.7 billion in 2006, this representing a compound annual growth rate (CAGR) of 3.5% for the period spanning 2002-2006. In comparison, the United States and European markets grew with CAGRs of 3.7% and 3.3% over the same period, to reach respective values of $55.2 billion and $19.5 billion in 2006. Market consumption volumes increased with a CAGR of 1.5% between 2002 and 2006 to reach a total of 80.3 billion transactions in 2006. The market’s volume is expected to rise to 86.4 billion transactions by the end of 2011, this representing a CAGR of 1.5% for the 2006-2011 period.â (âGlobal Industry Profile: Fast Foodâ, 2007)
Some of the significant changes taking place in the industry pertain to increased attention being paid to recyclable packaging, green operations and introducing healthier menus which are demanded by the consumers in the market. The future growth of the fats food industry is predicted to âhave a volume of 86.4 billion transactions, an increase of 7.6% since 2006. The compound annual growth rate of the market volume in the period 2006-2011 is predicted to be 1.5%.â (âGlobal Industry Profile: Fast Foodâ, 2007)
Advantages and Disadvantages of KFC Competitors
The main competitors that are present in the fast food market for KFC are Popeyes owned by AFC Enterprises, McDonalds and Burger King. The following depicts the various advantages that are experienced by the competitors of the KFC Corporation and the disadvantages or the weaknesses that the competitors have to face while operating in the fast food industry.
The advantages that are available to Popeyes is its unique fried chicken offering and the distinct favors in which its products are prepared. âAFCâs signature Cajun fried drives its Popeyes brand chicken. Popeyesâ specialty menu consists of hand-battered, bone-in fried chicken available in two flavors, New Orleans Spicy and Louisiana Mild, and a wide assortment of signature Cajun cuisine side dishes, including red beans and rice, Cajun rice, Cajun fries and buttermilk biscuits.â (âAFC Enterprise Incâ, 2008)
McDonalds has the advantage of diversified operations worldwide, itâs expansive and quick distributive network, the established high level of customer service and the wide range of packaging options that are available to it for its products. The advantages that are available to the Burger King Company pertain to the significantly strong market position of the company and its brand, the brand image of the company which it has as a perceived image and value in the minds f the consumers. The franchise mix, and global franchise network of the company is also one of the main advantages that the Burger King company has and has been exploiting for market diversification.
The weaknesses of the Popeye brand pertain to the limited scale of operations of the company.
The weaknesses for McDonalds include the high bargaining power of the customers for McDonalds, the limited diversification of its products, and the lacking scale to compete with larger competitors in the market. The weaknesses for Burger King include the market concentration of the company and the weak operating performance of the company in the recent past.
References
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