1. Answer:

Founded in the year 1954, by Colonel Harland Sanders, Kentucky Fried Chicken (KFC) has

come a long way. KFC now remains the world’s largest chicken restaurant chain and the

third largest fast food chain. A multinational company, KFC, has over 9000 restaurant all

worldwide, of which over 5000 are based in the United States of America, giving KFC a

hold of almost 50% of the US market in terms of sales.

A rapidly growing company, KFC has a high product quality and consistency, giving it the

advantage in the fast food industry. Although a huge brand in itself, KFC faces critical issues

that challenge its position domestically and globally.

KFC’s major problems are attributed to their transition from the old Kentucky Fried Chicken

into the new KFC so as to appeal to the ever changing consumer demands for healthier food

items at lower prices, greater variety in food selection, higher levels of service and

cleanliness.

KFC’s obstacles also arise from their entire business strategy reflecting on its menu

offerings, pricing, advertising and promotion, points of distribution, restaurant growth and

franchise relationships.

Despite its success , KFC, has seen slow growth domestically as there has been an increased

competition coming from among the largest fast food competitors, along with the creating

obstacles for its expansion within the US market for KFC (where growth has been only of

13% in terms of domestic operations, whereas 87% from international operations).

Even though KFC previously faced competition from other fried chicken chains, today it

also faces competition from non-fried chicken chains as well, to whom it has lost business

and customers, due to menu differences in chicken products.KFC is also facing constant

competition from all other types of contenders in the food service industry, e.g. fast food

outlets, full service outlets, cafeterias, institutions, etc.

After PepsiCo acquired KFC RJR Nabisco, in the year 1986, KFC faced some difficult

parent-subsidiary relationship. PepsiCo follow different types of organizational culture than

KFC.KFC’s strategy was focused on longer relationship with employees and creating an

environment where all were treated like a family member, whereas PepsiCo depends more

on performance, where employees non-conformance in performance will result in instant fire

and hire decision and without any hesitation long-term employees are sacked. Employees are

always in a threatening position from where it is tough to provide better service, affecting

their overall service.

Another problem was decentralization. PepsiCo decision making process was decentralized

so that problem was created from different level and lack of coordination was occurred.

KFC’s offerings were relatively limited before PepsiCo purchased them, after PepsiCo

purchased them, they came up with wider variety of food variety, extending the existing

menu, although some of these new product offerings were some were not successful .That

means they had a problem with their offerings .They did not differentiate their offerings for

different targeted segments. They were not as fast as their competitors to build restaurants,

which creates problems in their delivery channels. They were only in fried chicken market

which is also a drawback as their competitor have the advantage in non fried chicken menu.

Health issue was another problem. Franchising problem was that they were not maintaining

distance that they maintained between franchiser and their own outlets .They did not able to

deal with franchiser uniformly.

Based on the case study, an industry analysis identifies the following issues which serve as a

driving force in the U.S. fast food industry. These factors shape the market environment for

each fast food outlet as it portrays current trends which are emerging and trends already in

place in this competitive environment:

Industry sales growth in the U.S. fast food industry is falling. This occurs as the

industry is maturing. As a result there is intensive competition among fast-food

chains. Market share gains are increasingly achieved by taking customers away from

existing competitors rather than by attracting new customers into the industry.

There is also a significant amount of industry consolidation. Significant merger and

acquisition activity during the last decade has consolidated many fast-food chains

within the same organization. Some of the most noticeable acquisitions are

Pillsbury’s acquisition of Burger Kings, General Food of Burger Chef, United brand

acquisition of Baskin Robbins Great Western acquisitions of Shaky Pizza and

PepsiCo acquired Pizza Hut and Taco Bell.

The globalization of the fast food industry has seen many of the top 20 fast-food

chains have expanded aggressively abroad as a means of growing sales outside of the

U.S. market.

Diversification of fast-food outlets (e.g., McDonald’s, Wendy’s, Arby’s, and

Hardee’s have aggressively marketed a variety of chicken sandwiches, and Hardee’s

has introduced fried chicken).

Customers are increasingly becoming health conscious in the United States. This has

increased pressure on fast-food chains to offer products with lower fat content and

cholesterol, with the healthy image.

There is also greater consumer demand for a wider variety of menu offerings and

food selection.

As most consumers are experienced, repeat buyers are familiar with their favorite

chains’ products. Therefore, competitors are increasingly turning to promotions, price

reductions and other techniques to attract repeat customers.

There is a huge consumer demand for fast-food in non-traditional outlets (e.g.,

shopping malls, airports, etc.).

Profit margins are also lower as operating costs increase along with pressure from

competitors lower pricing strategies.