Case Study Kentucky Fried Chicken Marketing Essay

The company also owns other popular restaurant chain such as Long John Silver’s, Taco Bell, Pizza Hut etc. With more than 500 units of KFC stores in the world and more than 50 percent market shares in the umbrella company, opportunities in KFC investment is ideally good for businessmen who are motivated in bringing good service to its customers. KFC Corp. has started making franchises available in the market in 1952. Since then, the company has established hundreds of store worldwide. Initially, you will need around $25-$30,000 for franchising a store.

On the company website there is a information about free training to development skills in handling such food and restaurant business.

Table Of Contents

Mission

Stated Objectives

Implied Objectives

Rank of KFC in sales

Type of retail format used by KFC

Swot analysis of the company

Opportunities

Threats

Strengths

Weaknesses

Problems

Organizational structure and its advantages and disadvantage

Recommendations………. 

Mission

To sell food in a fast, friendly environment that appeals to pride conscious, health minded consumers. This is the mission of KFC.

Stated Objectives

Product development

Increase variety on menu

Introduce desert menu

Introduce new furniture in all restaurants

2.Implementation on non-traditional units

Shopping mall food courts

Universities

Hospitals

Airports

Stadiums

Amusement Parks

Office Buildings

Mobile Units

3.Increase profitability of KFC through the following:

Reduced overhead costs

Increased efficiencies

Improved customer service

Cleaner restaurants

Faster service

Implied Objectives

Expansion of international operations to provide the following:

Increased percentage of overall sales growth

Increased percentage of profit growth

Increased expansion of franchises into Mexico

Expansion of franchise operation beyond Central America

Continued promotion of healthier image through removal of the word “fried” from the name

 Rank of KFC in sales

KFC Sales

As of 1995, KFC was ranked sixth in the U.S. sales in fast-food chains

Top 10 Leading U.S. Fast-Food Chains

U.S. Sales ($M)-(Exhibit 2)

1995

1994

McDonald’s

15,800

14,951

Burger King

7,830

7,250

Pizza Hut

5,400

5,000

Taco Bell

4,853

4,200

Wendy’s

4,152

3,821

KFC

3,720

3,500

Hardee’s

3,520

3,511

Subway

2,905

2,518

Little Caesar’s

2,050

2,000

1)Type of retail format used by the KFC

The retail format of KFC is concerned, Unnat Varma, Marketing Director of the company reveals, “We have so far launched two retail formats. Dine in restaurants are currently dominant, however, we have recently launched food court express outlets. Coming years will see us actively developing drive-thru formats as well. For these retail formats, space requirement varies from 500 sq.ft to 5,000 sq.ft.”

2)SWOT ANALYSIS OF THE COMPANY

Opportunities

Opportunities represent external environment which can improve a company’s performance. Opportunities that KFC can take advantage of are as follows:

The Mexican market, which offers a large customer base, lesser competition.

The Mexican company give a huge customer base to work with. The transportation cost to Mexico compared to other countries is very minimal. So the advantages, US companies in general have not expanded much in the Mexican market compared to European or Asian market. Therefore, the companies can expect lesser competition when expanding in Mexico.

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“Dual branding” helps to appeal to the wider customer base and also provide higher profit.

This strategy helps to “improve economies of scale within its restaurant operations.” For many companies that own more than one fast-food chain, “dual branding” is an ideal way to expand quickly and increase profit. The companies no longer need to wait for the store to be built or spend time and money looking for the location. By adding a brand to the existing fast-food store, the companies are able to expand quickly and for less money.

3.New franchise laws in Mexico give fast food chains the opportunity to expand their restaurant bases.

In January 1990, Mexico passed a law that favored franchise expansion. The law provided for the protection of technology transferred into Mexico. Before 1990, there was no protection for patents, information, and technology transferred to the Mexican franchise. This resulted in higher number of the company owned fast-food chains rather than the franchises in Mexico.

4. Australian opportunity

Growth in international profits were highest in Australia, which is now KFC’s largest international market.

6. New distribution channels offer a significant growth opportunity.

Especially in the last few years, consumers are demanding fast food in non-traditional locations, such as shopping malls, universities, hospitals, and other high-traffic areas. The locations listed above are some of the most popular non-traditional locations. The fast-food chains are recording high sales in those areas due to high-traffic. Consequently, the companies are constantly looking and testing for new high-traffic locations to expand.

Threats

Threats to a company are internal factors. The threats that KFC faced with include the following:

1. Saturation of the US market.

According to the National Restaurant Association (NRA), food-service sales in 1995 will hit $289.7 billion for the U.S. restaurant industry. The NRA estimates the sales in the fast-food segment of the food industry will grow 7.2% to approximately $93 billion in the United States in 1995, up from $87 million in 1994. Although the restaurant industry has outpaced the overall economy in recent years, there are indications that the U.S. market is slowly becoming saturated.

2. Increasing competition and rising sales of substitute products.

Faced by slowed sales growth in the fast-food industry, other segments of the industry have turned to new menu offerings. McDonald’s introduced its McChicken sandwich in the US market in 1989. Domino’s has introduced chicken wings to its menu. Pizza Hut has tried marinated, rotisserie-cooked chicken.

3. Changing preferences of consumers.

During the 1980s, consumers began to demand healthier foods and KFC was faced with a limited menu consisting mainly of fried foods. In order to reduce KFC’s image as a fried chicken chain, it changed its logo from Kentucky Fried Chicken to KFC in 1991. In 1992, KFC introduced Oriental Wings, Popcorn Chicken, and Honey BBQ Chicken as alternatives to its Original Recipe fried chicken.

4. Obstacles associated with expansion in Mexico.

One of KFC’s primary concerns is the stability of Mexico’s labor markets. Labor is relatively plentiful and cheap in Mexico, though much of the work force is still relatively unskilled. While KFC benefits from lower labor costs, labor unrest, low job retention, absenteeism, and punctuality continue to be significant problems.

Strengths

Strengths can be found internally in a company and can be used to the company’s advantage. The strengths identified are as follows:

1. KFC’s secret recipe.

The secret recipe has long been a source of advertising, and allowed KFC to set itself apart. Also, KFC was the first chain to enter the fast-food industry, just before McDonald’s

2. Name recognition and reputation.

KFC’s early entrance into the fast-food industry in 1954 allowed KFC to develop strong brand name recognitio in the industry. The Colonel is KFC’s original owner and a very recognizable figure, both in the U.S. and internationally, in their new logo.

3. Traditional employee loyalty.

“KFC’s culture was built largely on Colonel Sanders’ laid back approach to management”. Before the acquisition of KFC by PepsiCo, employees at KFC enjoyed good benefits, a pension, and could receive help with other non-income needs. This kind of “personal” human resources management makes for a loyal workforce.

Weaknesses

Weaknesses are also found internally like strengths. Weaknesses, however, can limit a company’s potential. The weaknesses for KFC are identified as follows:

1. KFC has a long time to market with new products.

Because of the nature of the chicken segment of the fast food industry, innovation was never a primary strategy for KFC. However, during the late 1980’s, other fast food chains, such as McDonald’s, began to offer chicken as a menu option. During this time, McDonald’s had already introduced the McChicken while KFC was still testing its own chicken sandwich. This delay significantly increased the cost of developing consumer awareness for the KFC sandwich.

2. Conflicting cultures of KFC and Pepsi Co.

While KFC’s culture was largely based on the Colonel’s laid back approach to management, while PepsiCo’s culture is more of a “fast track” attitude. Employees do not have the same level of job security that they enjoyed before the PepsiCo acquisition.

3. Turnover in top management.

PepsiCo bought KFC in 1986. By the summer of 1990 PepsiCo’s own management had replaced all of the top KFC managers. However, by 1995 most of this new PepsiCo management had either left the company or been moved to a different division.

4. Recent contractual disputes with franchisees in the United States.

This is also an example of the conflicting cultures of KFC and PepsiCo. KFC’s franchisees had been used to little interference from corporate offices. In 1989, the CEO announced new contract changes – the first in thirteen years. “The new contract gave PepsiCo management greater power to take over weak franchises, to relocate restaurants, and to make changes in existing restaurants”

Problems

Through an analysis of the strengths, weaknesses, opportunities, and threats of KFC, the following potential problem areas were identified:

1. No defined target market.

The advertising campaign of KFC does not specifically appeal to any segment. It does not appear to have a consistent long-term approach.

2. Saturation of the U.S. Market.

There has been an increase in the overall number of fast-food chains. Access to restaurants is now easier due to non-traditional locations, for example in airports and gas stations. Also, the age of Americans tends to change the frequency of eating out.

3. Health Conscious Consumers.

There has been a trend toward an increasingly healthy diet in America. This put KFC at an extreme disadvantage due to its fried product offering.

3)Organizational Structure and its advantages and disadvantages.

History

Since its inception, KFC has evolved through several different organizational changes. These changes were brought about due to the changes of ownership that followed since Colonel Sanders first sold KFC in 1964. In 1964, KFC was sold to a small group of investors that eventually took it public. Heublein, Inc, purchased KFC in 1971 and was highly involved in the day to day operations. Finally, in 1986, KFC was acquired by PepsiCo, which was trying to grow its quick serve restaurant segment. The PepsiCo management style and corporate culture was significantly different from that of KFC.

PepsiCo has a consumer product orientation. PepsiCo found that the marketing of fast food was very similar to the marketing of its soft drinks and snack foods. PepsiCo reorganized itself in 1985.

Due to market saturation in the United States, international expansion will be critical to increased profitability and growth.

Present Situation

The organization is currently structured with two divisions under PepsiCo. David Novak is president of KFC. John Hill is Chief Financial Officer and Colin Moore is the head of Marketing. Peter Waller is head of franchising while Olden Lee is head of Human Resources. KFC is part of the two PepsiCo divisions, which are PepsiCo Worldwide Restaurants and PepsiCo Restaurants International. Both of these divisions of PepsiCo are based in Dallas.

Strategic Alternatives

The strategic alternatives for KFC are as follows:

1. Re-franchise all company owned Mexican units into franchises

Advantages

Reduced risk-political and economical

Increased cash flow from sale of units

Less day to day involvement by KFC

Less Administrative Costs for KFC

Disadvantages

Foregoing potential greater profits

Losing control of day to day operation of the franchises

Expansion through franchise endangers brand equity

2. Leave Mexico as is and grow other foreign markets.

Advantages

Focus investment on strongest growing segment in Australia

Less political and financial risks in other foreign markets

Disadvantages

Still have not mitigated risk in Mexico

Forgoing potential growth at profitable market

Still have brand exposure

RECOMMENDATION

Based on our analysis of the salient problem and the strategic alternatives, we recommend that

-KFC re-franchise all of the 129 company units in Mexico. This most effectively mitigates the risk of doing business in Mexico by making a franchisee responsible for the profit and loss of each unit. KFC will still receive royalties based on the sales of each unit. However, franchises will protect the company from currency devaluation.

– KFC is able to reduce this risk while still maintaining a presence in one of the largest growing markets. Expansion is not recommended at this time due to the volatility of the economic and political situation in Mexico.