Case Study

In
Current Trends in Food and Beverage Services

Presented by Jacquelyn Ann Cardinal of HRM01

Case Study: Kentucky Fried Chicken and the Global Fast Food Industry

I.

Background Description
Colonel Sanders first franchise in 1952. After KFC sale for $ 2 Million, new management or culture for KFC began.

From $105 to 7.2 Billion in 50 years. 1952, Col. Sanders started franchising his recipe door to door financed by his $ 105 billion 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 ( New York Stock Exchange ) 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 Pepsi Co, Inc. $ 840 million. 1997, Pepsi Co, Inc. spined-off of its qsrs (Quick Service Restaurant) into independent Tricon Global Restaurants. 2002, Tricon changed its corporation name to Yum! Brands, Inc. Now, Yum Brands, Inc. is the worlds 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, global system sales totaled more than $ 22 billion in the year 21. Current Market Cap value on the NYSE is 7.2 billion.

II.

Areas of Concern

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. In Finance or Accounting. Since 2001, Yum Brands Inc. has outperformed the market. In Computer Information Systems, newly established computer information system. In Marketing, positioning among competitors is favorable, unconventional methods of distribution, multibranding, management, objectives and goals are measurable and achievable and team empowerment. In Productions or Operations, constant improvement on quality of chicken, producer and operators are strategically located.

III.

SWOT Analysis

Strength The management style of Col. Sanders was to rely on the basic goodness of the people around him and trust the franchises to play fair. KFC is a Market Leader : Wolrds largest chicken restaurant chain and third largest fast-food chain in 2000. 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. 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 tender roast. 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 has 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. KFC continued to dominate the chicken segment ($4.4B) past its nearest competitor Popeyes at a distant second ($1B). Weaknesses In 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 restructuring led to layoffs throughout KFC, replacement of KFC managers with Pepsico mangers. Conflicts between KFC and PepsiCo cultures- this is manifested with PepsiCos stronger emphasis on performance rather than loyalty expressed by Col. Sanders to KFC employees over the years. 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. Opportunities

Overseas expansion with the rapid economic grown and trend 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. Threats Consumer health food trend. Saturated fast food industry in the US market.

IV.

Alternatives

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.

V.

Proposed Recommendation
Based on the analysis, I 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 where 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 offers 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. 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. I have seen that Boston and Popeyes 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.

VI.

Implementation
Market Research. Determine areas demand to determine boundaries. Expand Menu. Healthier choices. Meals will be sold at cost. Determine effects on budget.

VII.

Progress Report
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.