KFC & FAST FOOD

INDUSTRY

Strategic Management

PRESENTED BY

SHAHRYAR HASSAN 4517

KHALID YOUSUF 3724
SAQIB RAHIM 5286
TOUSEEF ALI 7363
RAFIQUE AHMED 5445
 EXECUTIVE SUMMARY

The case is about KFC, which is the third largest fast food chain with over 12,200 outlets
in 99 countries. The outlets comprise of franchises, company owned and affiliated.

One of the issues faced by KFC was that it offered only chicken related products and they
were facing stiff competition globally where they suffer great losses but they continued
there business even where they were facing losses to maintain there presence in the
region due to which its customers were related to a certain segment. This issue can be
resolved by diversifying its menu.

Other issues like customer’s taste and preferences changes could be resolved by
introducing new menu items that cater to their preference and innovating the product line.
Complaints of bad customer service can be reduced by training the employees for proper
customer dealing.
Industry’s Dominant Characteristics

Market Size and Projected Growth

The total sales for the top US Fast Food industry were $422 billions in the year
2003. The top 7 chicken chains sales were 9861 million. Growth was around 3.3% in
2003.

Scope of Competitive Rivalry

Companies having presence globally by offering franchises and company owned outlets
but now companies prefer to have joint venture with local entrepreneur because they
understand the local culture and customs of the domestic market.

Number of Rivals

Competition is very intense in this industry. There were tens of thousands of fast-food outlets
in United States including all of the regional and local outlets, the 10 largest chains in 2003
accounted for about 88.88% of total Sales.

Pace of Technological Change

Pace of change in the technology was minute as franchises were renovating outlets and
also locating outlets on more prominent locations and upgrading the facilities of kitchens
 Structural Analysis of industry (Porter’s five forces model)

Threat of New Entrants / Entry Barriers

Factor HUF MUF Neutral MFA HFA Comments

(1) (2) (3) (4) (5)
Economi Low 3 High Giants are able to
es of achieve
Scale economies of
scale by high
volume of
production and
many outlets but
smaller chains
are unable to
achieve it due to
low volume
production.
Capital Low 1 High Requirement of
Require capital is not that
d much
Differen Low 4 High Differentiating
tiation by offering
unique value
menu item.
Brand Low 4 High Brand loyalty is
Loyalty high
Experie Low 5 High High experience
nce with older chains
Curve which helps them
dominate the
scenario
TOTAL 1 2 3 8 5
 Exit Barriers
Factor HUF MUF Neutral MFA HFA Comments
(1) (2) (3) (4) (5)

Specialized Assets High 1 Low There are specialized assets

which cannot be used after
existing the industry

Fixed Cost on Exit High 4 Low Fixed cost on exit as property

and equipments and tools.

Strategic High 2 Low Strategic interrelationships

Interrelationship exist as some have given and
taken franchises.

Govt. Barriers High 5 Low Government does not

intervene at the time of exit.

TOTAL 1 2 0 4 5
 Competitive Rivalry
Factor HUF MUF Neutral MFA HFA Comments
(1) (2) (3) (4) (5)

Composition of Equal 4 Unequal Sizes of competitors

Competitors Size Size different as there are
some big and some
small ones with
limited services.

Market Growth Slow 2 High Slow growth rate

Rate 3.3%

Scope of Global 2 Domestic Competitors are

Competition mostly global

Degree of Low 3 High Differences do exist as

differentiation companies were
in Commodity offering different
special Food for
different customers.

Strategic Stake High 2 Low Stake is involved due

to franchises

TOTAL 0 6 3 4 0
 Power of Buyers
Factor HUF MUF Neutral MFA HFA Comments
(1) (2) (3) (4) (5)

Number of Few 5 Many Customers are many

important
buyers

% of buyer’s High 5 Low Not expensive

cost

Switching Cost low 1 High No cost on switching

Importance to High 1 Low Customers want high

final quality of quality food
buyers Pr.

Product Commodity 1 Specialty Common product which

supplied can be supplied by any
one

TOTAL 3 0 0 0 10
 Power of Suppliers
Factor HUF MUF Neutral MFA HFA Comments
(1) (2) (3) (4) (5)

# of Few 5 Many Suppliers for

important different
supplier ingredients

Availability Difficult 4 Many Many vendors

of and ingredients
substitutes suppliers but
some deliver
quality and
reliability

Threat of Low 4 Suppliers can

forward High open their own
integration food outlets.

TOTAL 0 0 0 8 5
 Threat of Substitute Products
Factor HUF MUF Neutral MFA HFA Comments
(1) (2) (3) (4) (5)

Threats of High 5 Low New menu items

obsolescence of do come up but
industry products. the older ones
still are sold

Aggressiveness of High 1 Low Promotion of

substitute products substitutes is
in promotion very high

Switching Cost Low 1 High low switching

cost

TOTAL 2 0 0 0 5
 OVERALL INDUSTRY
ATTRACTIVENESS
Factors Unfavorable Neutral Favorable

Entry Barriers 2 3 13

Exit Barriers 4 0 14

Competitive Rivalry 4 3 4

Power of buyers 3 0 10

Power of Suppliers 0 0 13

Threat of substitutes 2 0 10

TOTAL 15 6 64
 Strategic Groups

High

KFC
Chick-fil-A
Market Popeyes
Share

Church’s
Boston Market
El Pollo Loco

Low

Few Many

Number of outlets
 Key Driving forces of Change

 Globalization
Where one or more globally franchise ambitious companies are pushing hard to gain
significant competitive position in many attractive markets by expanding globally in
more than 99 countries

Impact: increasing competition and major competitors were expanding their operations
in order to increase market share. Provide more market to serve the customers to increase
the revenue.

 Product Innovation
The companies tend to distinguish by providing its customers with a unique fast food
experience and offering value menu items in their foods. Most recently product
innovation includes Pop cone chicken, Chick Chicken Pot pie (A flour tortilla filled with
chunks of chicken.

Impact: With the introduction of new menus and product which is designed to gain
competitive advantage on its competitors, Continuous innovation is important in order to
maintain sustainable competitive advantage.

 Growing preferences for differentiated products

As the fast food industry has mature which change the consumer preference and
consumers are going for new menu and differentiated products. Consumer’s preferences
began to change due to technological advances such as microwave oven and increasing
health consciousness that led to decreased consumption of fried food.

Impact: Companies has to differentiate in order to survive and to retain its customers as
market is becoming saturated and matured but mean time provide new opportunities
target new customers who are health conscious.
  Changing Societal concerns, attitudes, and lifestyles

As consumers are becoming health conscious demanding healthier menu and the
lifestyles of people changing and they started visiting fast food shops, Income higher
level enables customers to dine out more often.Items ranging chicken sandwiches and
core fired chicken products. People like to eat the food which can be prepared instantly

Impact: People like to eat the food which is healthy and quick served as income level
increases more and more people are becoming customers of fast food industry.

 Marketing Innovation
Markets play important role for any fast food chains as consumer preferences
were changing rapidly. They want new taste and value added items at lowest possible
prices so it is important to promote their new products using innovative advertisement
campaign featuring a cartoon creature of Colonel Sanders stating” I’m chicken genius”.
And also featured Jason Alexander from TV sitcom” Seinfeld” promoting Popcorn
chicken using the slogan “There’s fast food, then there’s KFC”.
KFC opened launched multi brand strategy to open 2 in 1 unit that can sold both KFC
and Taco bell or KFC and Pizza hut in the same location.

Impact: It would create brand endorsements thus attracting a large customer base
through marketing and can target the customers more attractive way. Multi branding will
make sure that new restaurants could be opened in more expensive location and lower
population areas then were profitable with stand alone restaurants.
 Key Success Factors

Technology:
Technology is increased used to lower cost and improves efficiencies KFC viewed
computers as number one tool for improving efficiencies. Computers were used to
improve labor scheduling, payrolls, sales analysis and inventory control. KFC used point
of sale system that recorded selected menu items and give the cashier break down of food
items and ticket prices.

Marketing:

• Regionally and globally recognized brand name

• Courtesies, personalized customer service.
• Specially designed advertisement campaign “I’m Chicken Genius” for its target market.
• Multi-Brand 2 in 1 units that can both sold KFC and Taco bell or Pizza hut in the same
location.
• Marketing strategy to locate franchise in convenient location.

Distribution:

• Strong relationship with franchises which are owned by local entrepreneur who are
familiarized in localized in culture ,customs, laws, financial market and marketing
characteristics.
• Effective supply chain management international with company owned outlets as well
as with franchises.

Skills and Capabilities:

• National and global distribution capabilities.
• Product innovation Strategy.
• Talented work force.
• Just in time delivery.
Production:
• Quality controls know how.
• Access to attractive supplies of material.
• Overall low cost.
• Ability to make product that is customized to buy specification.