KFC and the Global Fast Food Industry Case Study

Introduction

The case “KFC and the Global Fast Food Industry in 2003-2004” by Jeffrey A. Krug describes the development of the KFC company and its strategy. The case provides information on the external environment of the company – the global restaurant and fast food market.

KFC is one of the leading companies in fast food and restaurant market doing its business all across the world. The company is appealing to study for several reasons. First, it has a rich history, which contains several acquisitions of the KFC business by the well known transnational corporations, such as PepsiCo, Inc. Second, KFC study depicts national and global processes and trends in the fast food and restaurant industry of current importance. Third, the study addresses current managerial, marketing, and business operations problems and challenges.

This work will analyze the KFC Company, its structure, environment, and business activity. The paper will discuss issues related to the critical trends of the company’s situation, and in this regard, it will outline KFC’s opportunities and threats. Then, the main strengths and weaknesses of the company and its position on the market, as well as the main strategic issues, will be investigated. Finally, the author drives the conclusion by providing propositions, recommendations, and ideas on implementation of the proposed novelties.

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Opportunities and Threats

One of the main threats to the profitability of KFC’s business is the social trend towards the preference of healthy way of life, including increased consumption of healthy food, cooked in a home-made manner. It provides a shift of a particular group of customers towards excellent restaurants, or if the financial abilities do not allow the customer do so – towards buying food at a grocery store and eating at home. Anyway, KFC may lose a part of its customer segment if this trend progresses and if the company fails to challenge the shifting consumer preferences.

According to the research of the National Restaurant Association (2003), the restaurant customers can be segmented into four broad groups:

  1. “Adventurous diners”, people who are most enthusiastic about trying new types of foods and ingredients. Typically well educated, in good financial position, living in an urban area.
  2. “Traditional diners” – the older generation, the least experimental and tend to live in smaller cities. This group appraises comfort foods.
  3. “Health-conscious diners” – people who are concerned about the quality of food, making food choices based on health concerns as well as specialized diets (for example, vegetarian, high protein, low carbohydrate, etc.)
  4. “Carefree diners”, opposite to “health-conscious diners”. Those customers, typically males under the age of 50, do not care about eating healthy and prefer fast service. (National Restaurant Association, 2003)

The fourth group, “Carefree diners” diners, which is the main positioning goal of the fast food industry businesses, is experiencing a decline, while as the number of “Health-conscious diners” increases. (Richardson, Aguiar, 2003).

This trend presents a threat of sales decline for KFC and the reduction of the whole industry.

Moreover, as presented in the case (Krug, 2004), there is a threat that more customers will shift to the ethnic specialty restaurants since 13% of the American population are the immigrants, who tend already to search for their ethnic food (Chinese, Indian, Russian, etc.). The spread of “Traditional diners” having immigrated from Asia and Europe, besides creating a threat of demand decrease, presents another threat. “Adventurous diners,” may seek for gourmet Asian or European food and also shift to ethnic foods.

The second significant threat is in the increasing competition and the development of the new chicken food and sandwich chains.

Chick-fil-A, Popeyes, Boston Market, Bojangles, and other developing chicken fast food restaurants are expanding while taking a significant part of the market share away from KFC.

According to the case materials, KFC has lost over 20% of its market share, for the period between 1993 and 2002 (in 1993 the market share was 64,2%, and it fell to 50,8% in 2002, which is 20,6% decrease).

The threat of competition comes not only from chicken restaurants but also from sandwich chains, most of which have chicken sandwiches and other chicken products, such as McChicken and Chicken McNuggets at McDonald’s.

Addressing the first threat, shrinkage of the targeted segment due to social trends (health and diversity) and increased income of the former customers, the opportunity is to reposition (or, better say, adjust and optimize) the KFC image and products.

Opportunities for KFC are to follow the social trend of “healthy food preference” and adjust the image of its products, and, probably, also change the ingredients. For example, the company could add to its product line such products as “roasted chicken” (which is considered to be more domestic, and healthy, then the fried chicken).

However, making the food healthier and bringing in new products aimed at “Health-conscious diners” is not enough to prevent the market share from shrinking. Advertising and PR are probably even more critical. It is a well-known fact, which consumer merely buys an image, rather than the actual product. That is why it is necessary to optimize the image of the company and its food. The people should get to know the idea that KFC, although being a fast food, is more health-friendly, than, for example, McDonald’s, Chick-fil-A, and others.

Another opportunity is to create a more friendly and domestic atmosphere by training the employees in a particular way while emphasizing personnel motivation and the aspects of corporate culture. Better employee-relations will also decrease the employee turnover costs and reduce the related problems.

If the tendency of increasing competition and declining market share persists, KFC will have either to fight for the current marketing segment or search for new markets.

The first option means high costs for advertising. However, KFC has a good background in employing heavy advertising, as compared to other chicken fast food chains. KFC is still dominating the market and possesses significantly more significant resources than its competitors. The second option, intensified search for new markets will bring KFC into a more globalized business. The case shows that until now, the KFC has put a strong emphasis on the South American region, and especially Latin America. The case also mentions some Asian countries – China and Thailand. A perfect opportunity for KFC is to expand into the Eastern Europe region, and probably, even to the biggest cities of Russia. It is remarkable, that the fast food market, which is already mature and starts to decline in the US, is experiencing “growth” and “introduction” phases in the countries of Eastern Europe and Russia. The society also develops in these countries towards urban, fast style of life, while as the income of the consumer gradually increases (Murdoch, Miele, 2003).

Internal Analysis: Strength and Weaknesses

The previous paragraphs have already mentioned individual strength and weaknesses of the company. For example, it was already said that KFC, with its sales amounting 4800 million in 2003, is a dominant leader in the chicken fast food market controlling about 50% of the overall market. KFC, possessing bigger resources than its direct competitors (Chick-fil-A, Popeyes, Boston Market, Bojangles) can invest more in advertising, fight competitors on price-cost-basis, etc.

Another strength is that the PepsiCo, Inc., which controls the KFC, also possesses the whole portfolio of brands. This allows combining KFC with such brands, as AW or Taco Bell, which results in increased sales over the day fro the two stores summed.

The major weakness that appears to me, after the case analysis, is the internal environment of the company and the inappropriate Human Resource management. As mentioned in the case, when the KFC was purchased by PepsiCo, Inc., the original corporate culture of the company was almost lost, and the working climate became quite oppressing for the old KFC’s employees. According to the definition by Armstrong (1995), companies “achieve competitive advantage through the strategic deployment of a highly committed and capable workforce, using an integrated array of cultural, structural and personal techniques”. In the case of KFC and PepsiCo, this commitment of the workforce was lost due to the stressing and dehumanizing corporate culture, while as the capability of the employees was reduced due to the increased turnover (Royle, Towers, 2003).

Key Strategic Issues

From the material analyzed and discussed above, one can formulate several guidelines for the corporate strategy of KFC.

Until now, the strategy of the company was characterized by unification of the outlet of the restaurants; relying on highly-controlled franchisers; focus on single-concept menus, while, while diversifying the chicken line. If the issue were left unsold, the company would lose a great number of customers searching for non-chicken food. As a solution to this, recently, KFC started the practice combining with other PepsiCo brands to achieve greater differentiation.
In the international strategy, KFC predominately focused on the Latin America region, due to geographical proximity. Now, after the countries achieved better economic stability, the problem is that the markets are overfilled with other fast food brands, and the competition is getting more intense.

Solutions

Addressing the problems and threats discussed in the paragraphs above, we can offer the following potential solutions:

  • bringing in more product differentiation
  • continuing the practice of combining brands
  • expanding international strategy to the countries of Eastern Europe and Russia

These actions, in my opinion, would secure the sales level from falling.

Recommendations

To avoid the negative consequences, such as greater loss of the market share and decreased sales due to the social trends and the lowering effectiveness due to poor work of the employees, I would recommend the company to take the following actions:

  • bringing in more of the “healthy” images to the positioning and advertising strategy
  • improving employee relations; working on the corporate culture and motivation.

Implementation

Implementation of the recommended actions and potential solutions of the strategic challenges should be systematic and consequent. The employee turnover problem should be addressed by implementing employee benefits program, improving the corporate climate by shifting it away from the “performance culture.” New markets in the European and Russian regions should be penetrated through with the help of franchising. Optimization of the food image is achieved through the actual change in the product’s ingredients and preparation process, and also by outlining the new image of the company in advertising.

Conclusion

This paper discussed the central issues in the strategy of the KFC Company. The work provided analysis of the company’s position, its external environment, formulated opportunities and threats. The work has briefly analyzed the main issues of the company’s strategy and outlined the main challenges. Finally, proposed solutions, recommendations, and several notes on their implementation were given in the end.

References:
Krug, Jeffrey A., „KFC and the Global Fast Foood Industry in 2003-2004“, 2004
Armstrong, P., Accountancy and HRM, in Storey J. (Eds), HRM: A Critical Text, Routledge, London, 1995
National Restaurant Association, “Restaurant Industry 2003 Forecast,” “More Local Restaurants Struggle as Big Chains Eat Their Lunch,” Wall Street Journal, July 9, 2002
James Richardson, Luis Kluwe Aguiar, CONSUMER CHANGE IN FAST FOOD PREFERENCE, Royal Agricultural College, London, 2005
Tony Royle, Brian Towers, “Labour Relations in the Global Fast-Food Industry”, Routledge, 2004
Miele, M, Murdoch, J. “Fast food/slow food: differentiating and standardising cultures of food – Globalisation location and sustainable livelihoods”. Ashbridge 2003

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