Case 6Case 6Kentucky Fried Chicken and Kentucky Fried Chicken and the Global Fastthe Global Fast--Food Food Industry in 1998Industry in 1998

Group 3Group 3

LindsieLindsie HillsmanHillsman, Jennifer , Jennifer HuHu, Heather Johnson, , Heather Johnson, Edgar JonesEdgar Jones

Corporate TeamCorporate Team

Mission StatementMission Statement

•• "The Association of Kentucky Fried "The Association of Kentucky Fried Chicken Franchisees, Inc. is united to Chicken Franchisees, Inc. is united to protect, promote and advance the protect, promote and advance the mutual interests of all member mutual interests of all member franchisees and the Kentucky Fried franchisees and the Kentucky Fried Chicken system"Chicken system"

Company History Company History

•• 1952 Harland Sanders traveled across the US to speak with 1952 Harland Sanders traveled across the US to speak with prospective franchiseesprospective franchisees

•• 19601960’’s KFC became the 1s KFC became the 1stst fast food chains to go internationalfast food chains to go international•• ““Colonel Sanders franchised and took over 200 restaurants and Colonel Sanders franchised and took over 200 restaurants and

home retail outlets across the UShome retail outlets across the US•• 1963 the number of franchisees raised from 200 to 300 which 1963 the number of franchisees raised from 200 to 300 which

reached a profit of $500 million reached a profit of $500 million •• 1964 The Colonel sold the business to Jack Massey and John 1964 The Colonel sold the business to Jack Massey and John

Brown Jr. for $2 million with a per year share of a $40,000 salaBrown Jr. for $2 million with a per year share of a $40,000 salary ry which later rose to $200,000, while the Colonel still had a say which later rose to $200,000, while the Colonel still had a say in in KFCKFC’’s PR side of the companys PR side of the company

Company HistoryCompany History

•• 1966 KFC was listed on the New York Stock Exchange1966 KFC was listed on the New York Stock Exchange•• 1969 KFC signed a joint venture with Japan1969 KFC signed a joint venture with Japan•• 1971 KFC had 2,450 franchises and 600 company 1971 KFC had 2,450 franchises and 600 company

owned that operates in 48 countriesowned that operates in 48 countries•• Negotiations were made to merge with HeubleinNegotiations were made to merge with Heublein•• 1977 New openings of KFC slowed down to 20 per 1977 New openings of KFC slowed down to 20 per

yearyear•• 1982 attempts to becoming successful and new 1982 attempts to becoming successful and new

buildings were being created. The new slogan buildings were being created. The new slogan ““We do We do Chicken RightChicken Right”” came aboutcame about

Company HistoryCompany History

•• 1982 RJ Reynold1982 RJ Reynold’’s merged with Heubleins merged with Heublein•• 1986 RJ Reynold1986 RJ Reynold’’s sold KFC to Pepsi Co for $841 s sold KFC to Pepsi Co for $841

million making them the leading market share in KFC, million making them the leading market share in KFC, Pizza Hut and Pizza Hut and TacoBellTacoBell

•• 1987 Pepsi Co managers took the place of KFC1987 Pepsi Co managers took the place of KFC’’s s managersmanagers

•• 1990 KFC expanded to Latin America1990 KFC expanded to Latin America•• 1993 KFC presented the Rotisserie Gold Chick but 1993 KFC presented the Rotisserie Gold Chick but

KFC customers did not like the new additionKFC customers did not like the new addition

Company HistoryCompany History

•• 1995 KFC established company owned 1995 KFC established company owned restaurants in Venezuela and Brazilrestaurants in Venezuela and Brazil

•• 1996 KFC and Pepsi Cola1996 KFC and Pepsi Cola’’s contract dispute was s contract dispute was still unsolved until 1997 when David Novakstill unsolved until 1997 when David Novak--CEO and KFC president ratified a new contractCEO and KFC president ratified a new contract

•• 1997 Chicken sales were $4 billion; Boston 1997 Chicken sales were $4 billion; Boston Market was the only close competitorMarket was the only close competitor

•• Pepsi Co is still the subsidiary with 60% of KFC Pepsi Co is still the subsidiary with 60% of KFC operations produced by franchiseesoperations produced by franchisees

Company HistoryCompany History

•• 1997 Tricon became 1997 Tricon became another subsidiary of another subsidiary of KFCKFC

•• Today KFC has 13,700 Today KFC has 13,700 franchises outlets in 100 franchises outlets in 100 countriescountries

•• The president of KFCThe president of KFC--Gregg Gregg DedrickDedrick

KFCKFC’’s SWOT: Strengths SWOT: Strength(Internal)(Internal)

•• A subsidiary of Pepsi Co A subsidiary of Pepsi Co •• 1 out of the top 4 growing segments in US fast1 out of the top 4 growing segments in US fast--

food industryfood industry•• Good stability and security with strong loyalty Good stability and security with strong loyalty

among KFC employees and franchises among KFC employees and franchises •• KFCKFC’’s customers liked KFC chicken regardless s customers liked KFC chicken regardless

of the fact that it was friedof the fact that it was fried

KFCKFC’’s SWOT: Weaknessess SWOT: Weaknesses(Internal)(Internal)

•• KFC managers were replaced by Pepsi Co KFC managers were replaced by Pepsi Co managersmanagers

•• Restructuring led to layoffs throughout KFC Restructuring led to layoffs throughout KFC organizationsorganizations

•• Pepsi Co placed a lot of pressure on KFC Pepsi Co placed a lot of pressure on KFC managers managers

•• Poor relationships between KFC franchisees Poor relationships between KFC franchisees and Pepsi Coand Pepsi Co

KFCKFC’’s SWOT: Weaknessess SWOT: Weaknesses(Internal)(Internal)

•• Long distances between headquarters and Long distances between headquarters and foreign franchises made it difficult for quality foreign franchises made it difficult for quality control control

•• Boston Market created the image of an upscale Boston Market created the image of an upscale deli offering healthy, homedeli offering healthy, home--style alternatives to style alternatives to fast foods. It has broadened its menufast foods. It has broadened its menu

•• Consumer began to demand healthier foods. Consumer began to demand healthier foods. Greater variety, and better service in a variety of Greater variety, and better service in a variety of nontraditional locationsnontraditional locations

KFCKFC’’s SWOT: Opportunitiess SWOT: Opportunities(External)(External)

•• One of the worldOne of the world’’s largest consumer products s largest consumer products companiescompanies

•• Fewer families had time to prepare food at Fewer families had time to prepare food at home home

•• KFCKFC’’s early expansion abroad, strong brand s early expansion abroad, strong brand name, and managerial experience in international name, and managerial experience in international markets gave it a strong competitive advantagemarkets gave it a strong competitive advantage

KFCKFC’’s SWOT: Threatss SWOT: Threats(External)(External)

•• The rise of dinner houses during the 1990The rise of dinner houses during the 1990’’ss•• Time cultural, and language differences Time cultural, and language differences

increased communication increased communication •• Increase of consumer demandIncrease of consumer demand•• KFCKFC’’s most significant problems in the U.S. s most significant problems in the U.S.

market were that overcapacity made expansion market were that overcapacity made expansion of freestanding restaurants difficultof freestanding restaurants difficult

Situation AnalysisSituation AnalysisSWOT (External)SWOT (External)

Unprecedented franchisee Unprecedented franchisee lawsuit settlement lawsuit settlement

Trying to maintain perfect status in Trying to maintain perfect status in Dept. of Health Inspection Dept. of Health Inspection

Legal/Regulatory Legal/Regulatory

PETA campaign Ky. Fried PETA campaign Ky. Fried CrueltyCruelty

Using school events to advertise & Using school events to advertise & market market

EconomicEconomic

No online orderingNo online orderingUsing the Internet for additionalUsing the Internet for additionaladvertising and information on the advertising and information on the company company

TechnologicalTechnological

Still not up to par with Still not up to par with McDonaldMcDonald’’s in the fast food s in the fast food

industry industry

KFC has its own secret recipe that put KFC has its own secret recipe that put itself apart from other competitors itself apart from other competitors

CompetitiveCompetitive

Another chicken restaurant Another chicken restaurant entering in the same social entering in the same social

scene scene

Always giving back to the community Always giving back to the community through charities, animal welfare through charities, animal welfare

program, and youth scholar programsprogram, and youth scholar programs

Consumer/SocialConsumer/Social

ThreatsThreatsOpportunities Opportunities External Factors External Factors

Situation AnalysisSituation AnalysisSWOT (Internal)SWOT (Internal)

Limited items offered on the Limited items offered on the menu menu

Famous Bowl, introduction of fish Famous Bowl, introduction of fish SnackersSnackers to increase varieties to increase varieties

R&DR&D

Needs to maintain a clean Needs to maintain a clean working environment working environment

Opening more franchisees in order to Opening more franchisees in order to increase revenue increase revenue

Manufacturing Manufacturing

Decrease costs and layoff Decrease costs and layoff employees cause by PepsiCoemployees cause by PepsiCo’’s s

take overtake over

Expanding both domestic and Expanding both domestic and international marketplaces international marketplaces

Finance Finance

Poor relationship between Poor relationship between KFC franchisees and Pepsi CoKFC franchisees and Pepsi Co

Provides jobs and encourage Provides jobs and encourage community diversity community diversity

PersonnelPersonnel

Customer limitation to attract Customer limitation to attract mainly chicken loversmainly chicken lovers

Offers a varieties of coupons both Offers a varieties of coupons both online and through mailonline and through mail

Marketing Marketing

Limited items offered and Limited items offered and provides no delivery service provides no delivery service

Famous Bowl and fish Famous Bowl and fish Snackers Snackers Offering Offering

KFC managers were replaced KFC managers were replaced by Pepsi Co managersby Pepsi Co managers

Mangers are extensively trainedMangers are extensively trainedManagement Management

WeaknessesWeaknessesStrength Strength Internal FactorsInternal Factors

Evaluate the SWOT Analysis Evaluate the SWOT Analysis

•• Working with Pepsi Co strengthens KFCWorking with Pepsi Co strengthens KFC’’s company s company while also giving it an advantage over itwhile also giving it an advantage over it’’s competitorss competitors

•• Keeping employees happy decreases the chances of Keeping employees happy decreases the chances of employees quitting, although Pepsi Co is trying to employees quitting, although Pepsi Co is trying to decrease costs by decreasing employeesdecrease costs by decreasing employees

•• KFCKFC’’s franchisees have the ability to continue to grow, s franchisees have the ability to continue to grow, and work on the language and communication barriers and work on the language and communication barriers to increase KFCto increase KFC’’s worldwide spreads worldwide spread

PETA vs. KFCPETA vs. KFC

•• PETA is an animal rights activist groupPETA is an animal rights activist group--states states ““Chickens are probably the most abused animals on the Chickens are probably the most abused animals on the planetplanet””

•• PETA is extremely upset with KFC due to the process in which PETA is extremely upset with KFC due to the process in which KFC kills there chickensKFC kills there chickens

•• PETA wants:PETA wants:-- To start a program called To start a program called ““Animal Care StandardsAnimal Care Standards”” which will which will create guidelines to protect the chickenscreate guidelines to protect the chickens-- A controlledA controlled--atmosphere killing instead of the electrical atmosphere killing instead of the electrical stunning and throat slittingstunning and throat slitting-- Healthier breeding instead of a rapid growth and to stop Healthier breeding instead of a rapid growth and to stop feeding drugs to the chickensfeeding drugs to the chickens

PETA vs. KFCPETA vs. KFC

•• KFC is strongly committed to food safety provided to KFC is strongly committed to food safety provided to their customerstheir customers

•• YUM! brands states that treating the chicken in a YUM! brands states that treating the chicken in a humanely manner is what assures the quality of KFChumanely manner is what assures the quality of KFC’’s s chickens. These chickens are free from cruelty, abuse chickens. These chickens are free from cruelty, abuse and neglectand neglect

•• YUM! brands works with Animal Welfare Advisory YUM! brands works with Animal Welfare Advisory Counsel in order to implement the humane death of the Counsel in order to implement the humane death of the chickenschickens

•• YUM! Brand continuously works towards specific YUM! Brand continuously works towards specific performance measures for humane animal treatmentperformance measures for humane animal treatment

Situation AnalysisSituation Analysis

•• Fast Food market size world wide: $325 billion Fast Food market size world wide: $325 billion industryindustry

•• http://www.http://www.nysenyse.com/about/listed/.com/about/listed/lcddatalcddata.ht.html?ticker=YUMml?ticker=YUM

Leading Fast Food Firms Leading Fast Food Firms Worldwide, 2004Worldwide, 2004

McDonaldMcDonald’’ss………………………………………………………………..15.4% ..15.4% KFCKFC……………………………………………………………………………………...3.7...3.7Burger KingBurger King……………………………………………………………………...3.5...3.5WendyWendy’’ss……………………………………………………………………………….2.5.2.5SubwaySubway………………………………………………………………………………..2.4..2.4OtherOther………………………………………………………………………………...72.5...72.5

Source: Market Share Reporter 2007

Top Chicken Restaurants, 2004Top Chicken Restaurants, 2004

KFCKFC………………………………………………………………………………36.8%36.8%ChickChick--filfil--AA…………………………………………………………………….13.0.13.0PopeyesPopeyes…………………………………………………………………………..10.2..10.2ChurchChurch’’s Chickens Chicken………………………………………………………….5.6.5.6Boston MarketBoston Market………………………………………………………………..4.9..4.9El El PolloPollo LocoLoco……………………………………………………........…………3.23.2BojanglesBojangles……………………………………………………………………..……..3.1..3.1OtherOther…………………………………………………………………………....……23.223.2

Source: USA TODAY, December 9, 2005 from Market Share Reporter 2007

Corporate Level StrategiesCorporate Level Strategies

•• Switched from franchise to Switched from franchise to company owned in their larger company owned in their larger markets markets

•• Interest in local community Interest in local community (Neighborhood) (Neighborhood)

•• Combing the two concepts in Combing the two concepts in the same unitthe same unit

•• Changed nameChanged name•• Introduced different menu Introduced different menu

items to keep up with local items to keep up with local competitors competitors

Corporate Level StrategiesCorporate Level Strategies

•• Switched to highly Switched to highly performance based performance based management strategiesmanagement strategies

•• More responsibility More responsibility assigned to franchisees assigned to franchisees and marketing and marketing managers managers

•• Pay closely aligned with Pay closely aligned with customer service and customer service and restaurant performancerestaurant performance

Business Level StrategyBusiness Level Strategy

•• Horizontal differential through different style options Horizontal differential through different style options •• Closed unprofitable restaurants Closed unprofitable restaurants •• Strive to fill the needs of local markets by hiring locally Strive to fill the needs of local markets by hiring locally

and offering menu items that reflect the culture and offering menu items that reflect the culture •• Reestablish and maintain an emphasis on clean and Reestablish and maintain an emphasis on clean and

updated restaurants paying close attention to service updated restaurants paying close attention to service while maintaining product consistency while maintaining product consistency

•• Cutting out marginal products Cutting out marginal products

Structure and Control SystemsStructure and Control Systems

•• Horizontal differential through different style options Horizontal differential through different style options •• Managers rotated based performance and experience Managers rotated based performance and experience •• Promoted quickly Promoted quickly •• ““You may have performed well last year, but if donYou may have performed well last year, but if don’’t t

perform well this year, you're gone and there are 100 perform well this year, you're gone and there are 100 ambitious guys with Ivy League MBAambitious guys with Ivy League MBA’’S at PepsiCo who S at PepsiCo who would love to take your positionwould love to take your position”” –– PepsiCo Manager PepsiCo Manager (pg63) (pg63)

•• Went from laid back culture to highly competitive Went from laid back culture to highly competitive performance based performance based

Future StudiesFuture Studies

•• Stock increases over the year: growth potential Stock increases over the year: growth potential •• ItIt’’s popularity increased: China & Japans popularity increased: China & Japan

RecommendationsRecommendations

•• In addition to offering new products, chains In addition to offering new products, chains lowered prices, improved customer service, colowered prices, improved customer service, co--branded with other fastbranded with other fast--food chains, and food chains, and established restaurants in nontraditional established restaurants in nontraditional locations. (i.e. locations. (i.e. WalWal--Mart)Mart)

•• Continue to expand globally Continue to expand globally

Lesson Learned Lesson Learned

•• ItIt’’s important to focus on global marketings important to focus on global marketing•• Change of an organizationChange of an organization’’s culture can be very s culture can be very

effective or harmful effective or harmful •• Emphasis on maintaining restaurant Emphasis on maintaining restaurant

environment environment •• Maintain a public imageMaintain a public image

Questions or Feedback?Questions or Feedback?

•• Clarifications needed? Clarifications needed? •• Questions?Questions?•• Comments?Comments?

Thank YouThis conclude the presentation…

Kentucky Fried Chicken’s Website: www.kfc.com