Case Study:

Kentucky Fried Chicken

and the Global Fast-
Food Industry
Relevant Case Facts - History

Early Life of Colonel Sanders

Sander’s First Franchise in 1952

New Management/culture for Kentucky Fried
Chicken after KFC sale for $2M
Acquisition of KFC by Pepsico/Tricon Global
Heublein Makes Changes in 1970
1980’s Profit and Expansion
From $105 to 7.2 Billion
in 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 qsr’s into independent Tricon Global Restaurants.
2002, Tricon changed it's corporation name to Yum! Brands, Inc. .
NOW:
Yum Brands, Inc. is the world's largest restaurant company in terms of system units with
nearly 32,500 in more 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
 Problem/Issue

How would KFC maintain a market

leadership in the global fast-food industry

Issue:
A competitive marketing strategy in the international market
focused on the Latin American countries
 Internal Analysis
Functional Areas
Finance/Accounting
Since 2001, Yum Brands Inc. has outperformed the market

Computer Information Systems

Newly established Computer information system

Marketing
Positioning 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
SWOT ANALYSIS: Strengths
The Management style of Col. Sanders was to rely on the basic
goodness of the people around him and trust the franchisees to play
fair.
KFC is a Market leader : World’s largest chicken restaurant chain and
third 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 responsible
for building local public relations, maintaining employee morale,
developing customer good-will, keeping tab on the competing chains
and creating a legacy of special chicken cooking recipe.
Overall market image also became increasingly clear.
 Strength
KFC had a refocused international strategies
to grow its company and franchise restaurant
base all over the world.
Competitive marketing strategy: Developed
three types of chicken: Original recipe
(pressure cooked) Extra crispy (fried) Tender
roast (roasted)
Distribution strategy
- First, focused on building smaller
restaurants in non-traditional outlets like
airports
Shopping malls, universities, and hospitals.
Second, KFC continued to experiment with
home delivery, which was already firmly
established in Louisville, Las Vegas and LA
markets
Third, KFC established “2 in 1” units that sold
both KFC and Taco Bell or KFC and Pizza
Hut
 Cont. Strength

KFC continued to dominate the chicken

segment ($4.4B) past its nearest competitor
Popeyes at a distant second ($1.0B)
 SWOT ANALYSIS:
Weaknesses
Year 1986

Management Shift- KFC was acquired by Pepsico from RJR Industries.

Sweeping changes into the culture was initiated by the new
management- this brings about demoralization to old KFC employees
and even franchisees.

Several restructurings led to layoffs throughout KFC, replacement of

KFC managers with PepsiCo managers

Conflicts between KFC and PepsiCo cultures- this is manifested with

PepsiCo’s stronger emphasis on performance rather than loyalty
expressed by Col. Sanders to KFC employees over the years.
 Cont. Weaknesses

Market Segment (1990’s)

KFC’s leadership in the US market was so
extensive that it had fewer opportunities to
expand its US restaurant base, which was
growing at about 1% per year.

KFC chicken segment sales fell from 71% in 1989

to less than 56% in 1999.
SWOT ANALYSIS: Weaknesses
KFC finds difficulty in entering the German
market (culture incompatibility)
KFC sales stagnated. There was widespread
discontent among the franchisees, some of
whom felt the new owners did not understand
the chicken business and were not providing
leadership expected from a franchisor.
Company stores floundered and become
underperforming the franchised operations,
further convincing franchisees that the company
did not know its own business. (KFC HQ
acquired them to company-owned)
SWOT ANALYSIS: Opportunities
Overseas expansion with the rapid economic growth
and trend toward two-income families that had
fuelled the growth of fast-food industry in the 1950s
and 1960s were 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
restaurant chains in the world (2000) were American
firms
Expansion program for the Mexican market/Latin
American markets
NAFTA advantage
Demographic trends (demand for food eaten outside
of the home)
 SWOT ANALYSIS: Threats

Consumer health food trend

Saturated fast food industry in the U.S. market

 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
public
consumers
 Implementations
Market Research
 Determine area’s demand to determine
boundaries
Expand menu
 Healthier choices

Meals will be sold at cost

 Determine effects on budget
 Company Strategy

Primary objective is to take advantage of the

potential growth in other countries, to establish a
strong position and to develop their image. Key
Success Factors are ever continuing cost
savings through R&D, innovations and use of
new technology to work efficiently. These
success techniques will lower costs and
increase profits in the industry.

KFC uses an integrated low cost/differentiation

leadership, since it can count on its brand name
and original taste and recipes to be unique while
at the same time compete on price using the
benefits of cost savings from economies of
scale.
 Recommendations

Short-term:
Based on the analysis, we can conclude that they should start by
solving their internal issues such as management and restaurant
menu before thinking about expanding. They should work on the
management issues to create a good atmosphere where employees
are happy to work in. I certainly do not believe that by treating
employees poorly, a company can be successful.
They also need to make sure that their restaurants offer a diversified
menu, provide their customers with quality food, excellent service
and restaurant cleanliness. KFC should always listen to their
customers and try to follow the new trends on the market in order to
fully satisfy their customers. Otherwise, competitors will satisfy them
and will eventually outperform you as Boston did with its grilled
chicken.
 Cont.

Even though, KFC seems to have an emotional attachment

to their original recipe that made their success, they
definitely need to move on and develop new products that
customers want in order to increase their financial
performance and value. We have seen that Boston and
Popeye’s are stealing customers away from KFC because
they understood what customers wanted and started
offering healthier items. KFC should certainly do the same
and enhance their menu.
Concerning their expansion strategy, KFC should start by closing a
few non-profitable stores in the US that are currently drowning
money from KFC. This will allow KFC to get the cash necessary to
invest in new markets, which offer more growth potential. We have
seen that the US market is not as attractive as it used to be, it has
become saturated and certainly does not appear to have a bright
future ahead. There is also the competition in the US that makes it
really hard to compete in, whereas in other foreign markets that are
quasi untouched as I will discuss more in detail later. KFC has to
select countries based on their attractiveness and make sure that
they can provide above-average returns, which will be discussed
more in detail in the intermediate term.
But first, they need to have a clear vision, solve the
internal issues and get some cash in order to make sure
that they are strong as a company and ready to compete
internationally before going ahead with their expansion
project.

ü Create a great working atmosphere

ü Develop a healthier menu
ü Get some cash from selling unprofitable restaurants
ü Evaluate countries based on attractiveness
 International Investments
Concerning investing internationally, extremely attractive
countries that can provide above-average returns are
regions that have chicken as traditional dish such as
Asia and Latin America. Those regions should certainly
be prioritized while developing an international
expansion. While they start attacking those new markets,
they should keep in mind to focus locally even though
they go international in order to overcome certain
barriers such as language, law and a good
understanding of needs. Targeting new countries usually
work better if you adapt to the local market.
 Long Term
They need to stay close to their mission (provide
customers with quality food, excellent service and
restaurant cleanliness) and make sure to know how to
achieve their long-term objectives. They also have to
keep innovating and coming up with new items regularly.
Remember that even though, they come up with similar
products, customers are most likely going to try them.
They also have to follow the trend and go hand in hand
with customers to satisfy their changing needs, as we
have previously discussed with the current healthier food
trend. They also want to keep an excellent image by
treating employees fairly and keeping a good control
over franchises to make sure they follow the company’s
procedures.
 Cont.

Concerning the American market, they should always

keep an eye at competitors and see if possible mergers
or acquisitions could be made. McDonald’s has been
faster than KFC when they acquired Boston, which could
have really helped KFC regain its loss market share and
reduce competition. 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.
 Cont.
They also need to keep an eye and be aware of new
technology in order to improve their productivity and be
able to compete more efficiently because even though
they may have a competitive advantage now, they can
be sure that they will eventually be challenged.

ü Stick to their mission; quality food-excellent service-

restaurant cleanliness
ü Keep control over franchises
ü Come up with new items regularly
ü Keep an eye on possible mergers & acquisitions
ü Be aware of new technology to stay efficient and
competitive
 E N D

THANK YOU ! ! !