Transcript Slide 1

Case Study:
Kentucky Fried Chicken and the Global FastFood Industry
Presented by:
Wajiha Khan
Fouzia Arshad
KFC Presentation Roadmap
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Brief History About the Company.
Merger and Acquisitions
PepsiCo Takeover
The Industry Overview and Performance
Highlights.
Internal Analysis.
– Current Corporate Strategy
SWOT Analysis
– Elaborated Marketing Strategy
– Elaborated Strategic Management and
Leadership
Future Strategy Layout
– Strategic Vision and Mission Statement
– Marketing Strategy
– HR and Franchisees Strategy
Monitoring and Evaluation of the Strategy
KFC Evolution Video
Origin of KFC
The restaurant in North Corbin,
The first Kfc restaurant situated in
Kentucky where Colonel Sanders south salt lake, Utah and since its
developed Kentucky Fried Chicken. replaced by a new Kfc.
History of KFC
•
In 1952, Harland Sanders began his travel around
the United States to find prospects franchisees for
its Unique Chicken Recipe.
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By 1960, Colonel Sanders had granted KFC
franchises to more than 200 take home retail
outlets and restaurants across United States
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In the year 1963, KFC franchises touch the mark of
300 with the revenue of $500 million.
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On Sander’s 74 birthday he was eager to lessen
down the load of his business, so he sold his
business to two louisville businessman Jack
Messey and John Young brown Jr. for $2 million.
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By the late 1960s KFC turned its attention to the
Global Markets and joined hands with Mitsuoishi
Shoji Kaisha, ltd that enabled them operation in
England and Japan
The takeovers of Heublein, Inc. and
R.J. Reynolds Industries, Inc.
Heublein,
Inc.
R.J.
Reynolds
Industries,
Inc.
• In 1971, Heublein were in negotiations with the KFC
• Heublein was in the business of Producing vodka, mixed
cocktails and other alcoholic beverages
• Conflicts started between the managements
• By 1977, new restaurant opening was lowered to 20,
remodeling of restaurants started as the services standards fell
drastically.
• This strategy enabled KFC to gain better control of the existing
franchises and then expand.
• In 1982, R.J Reynolds Industries acquired Heublein
• This acquisition for a part of their corporate strategy of
diversification.
• R.J Reynolds believed the KFC management were well versed
to manage this business hence they had no interferences,
which avoided various operating problems of KFC
• In 1985, RJR acquired Nabisco Corporation and sold KFC to
Pepsi Co one year later
KFC Commercial
KFC Product Line
Burgers:
• Zinger Burger
• Colonel’s Chicken Burger
• Colonel’s Fillet Burger
• SUB60
• Zinger Jr.
Chicken:
• 1 piece
• 2 pieces
• 5 pieces
• 10 pieces
Continued….
Combos:
• Chicken Meals
• Sandwich Meals
• Family Meals
Desserts & Beverages:
• Fruit Salad
• Regular & Large Drink
• Regular & Large Mineral Water
• Tea
• Scoop of Walls Ice cream
• Coffee
Continued…
Snacks & Side Orders:
• 5 & 20 Pieces Nuggets
• Arabian Rice
• 5 & 10 Pieces Hot wings
• Dinner Roll
• Regular & Large Fries
• Hot Shots
• Corn on the Cob
• Hot & Crispy Soup
• Cole Slaw
Pepsi Co Profile
• Pepsi Co, Inc was formed in 1965 with a merger of Pepsi Co.
and Frito-lays, Inc.
• Business lines
– Soft drinks
• Pepsi Cola
• Diet Pepsi
• Mountain Dew
– Snacks
• Lays Potato Chips
• Doritos tortilla
• Tostitos tortilla chips
• Ruffles Potato Chips
Corporate Strategy
• The groups Acquired major businesses such as North
American Van Lines, Wilson Sporting goods, and Lee Way
Motor Freight. However it lacked management skills to
operate these businesses.
• In 1984, Don Kendall the Chairman and CEO of PepsiCo
restructured the business and got rid of the consumer
product orientation and PepsiCo was divide into 3 divisions:
– Soft drinks
– Snack foods, and
– Restaurants
Restaurant Business and
Acquisition of KFC
• Why did PepsiCo entered the Restaurant Industry?
• Because,
– Same Patterns of Marketing
– Additional venue for the Sale of the Pepsi Co brands (Soft drinks)
– Management Skills could be transferred and will be compatible in
these business.
• So the acquisition initiated,
– 1977: Pizza Hut
– 1978: Taco Bell
– 1986: KFC
• This acquisition gave them the leading market share in all
the segments.
Human Resource Restructuring
• It was a collision between two
different cultures.
– PepsiCo: Performance Oriented
– KFC: Laidback and Loyalist
• Harsh Comments were
exchanged between the
managements.
• Two massive downsizings.
• Immense Pressure on KFC
management and employees
Poor Relations with the
Franchisees
• In 1989, John Cranor was
appointed the President and CEO
of KFC.
• John Cranor in the same year
addressed the Franchisees to
explain the details of new
franchising contract. These were:
– PepsiCo can takeover the weak
franchises
– Relocate Restaurants
– Existing KFC outlets will not be
protected against competition
from new outlets.
– PepsiCo will have a right to
increase royalty fees
Continued…
• This address of the Cranor
backfired and resulted in the
Protest of the franchisees.
• However in 1996, the most
object able parts were
removed by KFCs new
president David Novak.
• A new contract was ratified
by KFCs Franchisees in 1997.
PepsiCo Divestiture
• Between 1990 and 1996, PepsiCo sale grew by 10% surpassing $31
billion.
• However troubles were faced in the fast food segment where the margin
reduced from 8% to 4% in 1996.
• As a result, PepsiCo food division absorbed half of the company’s capital
spending and generated one-third of the cash flows, declining its ROA
and stock price as compared to competitor Coca Cola.
• In 1997 PepsiCo decided to forward its restaurant business to a new
company called Tricon Global Restaurant.
Continued..
• PepsiCo’s objective was to reposition itself as a soft drink
and snack brand.
• Later PepsiCo acquired Tropicana Products.
• By the divestiture of Pizza Hut, KFC and Taco Bell sales fell
down by $11.3 billion and asset fell by $7 billion.
• However the operating margin rose from 11 to 14% in 1999
and ROA from 11 to 16 % in 1999
Video on Fast Food
Industry
Fast Food Industry
• According to National
Restaurant Association, food
service sales increased by
5.4% to $358 billion in 1999.
• More than 800,000
restaurants and 11 million
people employed.
• The industry comprises of 8
major segments with Mc
Donald being the top
performer with sales of $19
billion in 1999.
Chicken Industry
• KFC is the market leader in the Chicken Industry with the
Market Share of 55.2% and sales of $ 4.4 billion in 1999.
• However it has witnessed a decline of 15% in the last 10
years.
• The competitors like Chick-Fil-A and Boston market increased
combined market share by 17%.
• It was assumed that KFC will face competition from Boston
Market but the company filed bankruptcy due to mounted
debt problem.
KFC Future Strategies
• Drive aggressive international expansion and build strong
brands everywhere
• Dramatically improve U.S. brand positions, consistency and
returns
• Drive industry-leading, long-term shareholder and franchisee
value
Continued…
Particulars
Growth Rate
Sales (in million)
KFC
4%
Popeyes
10%
Boston Market
16%
Number of US Restaurant
KFC
1%
Popeyes
6%
Boston Market
11%
Sales Per unit
KFC
3%
Popeyes
3%
Boston Market
5%
Kentucky Fried Chicken
Corporation Current Strategies
• Marketing Strategy
– In 1990, they focused on three types of Chicken: Fried,
Extra Crispy, and Tender Roast.
– Launch of Buffet
– Launch of Crispy Strips and Chicken Sandwich
– Drive through and delivery points at nearby locations
– Introduction of “2 in 1” and “3 in 1” restaurants
International Operations
• By year 2000, more than 50% of the KFCs restaurants were
located outside USA.
• These restaurants were mostly owned by the country’s local
entrepreneur who possess better understanding of the
market.
• Of 5,595 KFC restaurants 69% were franchised 21% were
company owned and 10% joint ventures.
• In larger markets such as China, Mexico, UK, Thailand
Australia and Canada more emphasis was laid on company
owned restaurants.
Latin America Market
• KFC operated 438 restaurants in Latin America in 2000. Its
established subsidiaries in Mexico, Puerto Rico in 1960s and
launched company owned franchises.
• Franchises were also allocated to local entrepreneurs and
further subsidiaries were formed in Venezuela, Virgin Island
and Brazil.
• However the operation from Brazil Shut down.
• But still KFC is the market leader in the Latin America Region
and enjoys the first mover advantage.
Risk Assessment in Latin
America
• NAFTA had eliminated tariffs on goods shipped between
Canada, Mexico and US.
• Many countries such as Chile, Argentina, Paraguay, Uruguay
and Brazil had also established free trade policies.
• That’s made Latin America an attractive place for investors.
• In 1992, researcher Kent D. Miller developed a framework
for analyzing country’s risk and attractiveness of a country
for future investment.
• He argued that firms must examine country, industry and
firm factors in order to fully assess country risk.
• Many US companies believed that Mexico was an attractive
country for investment . Its population was more than onethird as large as the US and represented a large market for us
goods and services.
Continued…
• However, the volume of trade between the US and Mexico
has increased significantly since the NAFTA went into effect
in 1994.
• One year after NAFTA went into effect Mexico posted its first
balance of trade surplus in six years
Risk and Opportunity
• KFC face variety of risk and opportunities in Mexico. It had
eliminated all of its franchises in Mexico and operated only
company owned restaurants that enable it to better control
over quality, service and restaurants cleanliness.
• But company owned franchises required more capital than
franchises did.
• MacDonald's was growing its restaurants base rapidly and
was beating KFC in terms of sale.
• Even Wendy's had also announced plans to open 100
restaurants in Mexico by 2010.
• Habib’s , brazil 2nd largest fast food chain. Habib’s served
traditional eastern dishes at prices below KFC and
MacDonald's. It planned to open 400 units in Mexico by
2005
KFC Strategy in Mexico
• KFC wanted to sustain its leadership position in Mexico and
the Caribbean.
• Second strategy was to invest more capital in these large
markets to challenge existing competitors.
• Another strategy was to focus on building a franchise base
through out the Latin America
SWOT Analysis
• Strengths
– Market leader in the
Category
– Outreach in 85 countries
– Stable parent company
– Good and Consistent taste
– Pioneer Brand Image
SWOT Analysis
• Weakness
– Limited Product line.
– History of acquisition and
transformations which
limited their growth.
– Human Resource
weaknesses
– Past Strategy Failure
– Unhealthy segment of
Fried Chicken
– Cannibalization of the
Products
SWOT Analysis
• Opportunities
– Extend Product line.
– Acquire small chicken
companies of the
segment.
– Move towards developing
and untapped countries.
– Grilled Chicken, Roasted
Chicken, and Bar-b-q
chicken segment
SWOT Analysis
• Threats
– Increasing Growth of the
Competitor
– Sandwich market
introducing me 2 products
such as Mc Chicken and
Crispy Chicken Burger.
KFC Controversies
• Kentucky Fried Cruelty
• KFC supporting Racism
New Strategy Formulation
• Vision Statement:
“We believe in being the best in chicken
category by extending our product range
and increasing our outreach, we also
believe in acquiring small chicken
company and extend our company’s
portfolio”
New Strategy Formulation
• Mission Statement:
“Our mission is to improve and expand in
the businesses maintaining excellent
relationship with our suppliers,
franchisees, customers and employees.”
New Strategy Formulation
• Objectives:
– Increase sales by 5-7% annually.
– Acquisition of small grilled, bar-b-q and
roasted chicken franchises.
– Expansion of All in one unit restaurants
providing all the brands under one roof.
– Maintaining better controls on the franchises
– Better Animal Rights Control System.
Future Marketing Strategy
• Induction of new products.
• Grilled Chicken.
• Developing acquired restaurant
to compete against KFC.
• This Strategy will benefit the
group and will also help KFC to
stick to the original recipe and
less Cannibalization will be seen
amongst the products.
• Using Innovative mediums for
Marketing such as Facebook ,
twitter and their websites.
Franchisees and Employee
Development
• Training and Development of
all franchisees on quarterly
basis enabling them to
enhance service standards.
• Employee rotation in the
international countries so
that they could better
understand and formulate
the operational and
functional Strategies
Monitoring and Evaluation
• Third Party Audits.
• Performance evaluation and
devising the future Short
term Strategies to overcome
quarterly highlights
problems.
Questions?
Thank You