University of the Immaculate Conception JEAN O.

RUEDAS MARKETING MANAGEMENT

CASE: Kentucky Fried Chicken and the Global Fast-Food Industry in 1998 PROBLEM: BACKGROUND: KFC was one of the world s largest restaurant and fast food chain in the 1990 s. By 1998 , it was operating franchised restaurants in 32 Latin American countries. Much o f this growth was in Brazil, Chile, Colombia, Ecuador, and Peru. KEY ISSUE: The US market became saturated and the cost of finding prime locations was risin g. With the higher cost of the initial investment, the company owned restaurants were pressured to increase per-restaurant sales. KFC found it difficult to matc h the expansion plans of its competitors. OBJECTIVE: To increase revenue, KFC would have to move beyond its domestic markets and pursue foreign markets in Latin America (more particularly Mexico), European and Asian Markets. ALTERNATIVE COURSE OF ACTION: KFC s traditional franchising strategy is emphasizing standardization and re ducing financial risk. An alternative strategy was following the wholly owned su bsidiary approach which relies upon total control over competitive advantages an d ensures complete operational and strategic control. It also involves high inve stment expenses with no financial risk sharing. Another strategic alternative would be to refinance all company owned Me xican into franchises. This would reduce company s exposure to political and economi c risks, increase cash flows from sale of units, less day-to-day involvement by KFC, and less administrative costs for KFC. RECOMMENDATION: In foreign markets with high political risk and low cultural knowledge, a high degree of cultural sensitivity is crucial. Centralized control cannot be maintained since it is impossible to effectively manage overseas operations from the headquarters without information and knowledge needed to make sound strateg ic decisions. The first strategy is not recommended because of high levels of resource commitm ent and little regional flexibility and responsiveness. Refranchising units in M exico is rather appropriate. Expansion is not recommended at this time due to th e volatility of the economic and political saturation in Mexico.