Presentation on theme: "Case Study: Kentucky Fried Chicken and the Global Fast-Food Industry"— Presentation transcript:
1 Case Study: Kentucky Fried Chicken and the Global Fast-Food Industry Presented by:Wajiha KhanFouzia Arshad
2 KFC Presentation Roadmap Brief History About the Company.Merger and AcquisitionsPepsiCo TakeoverThe Industry Overview and Performance Highlights.Internal Analysis.Current Corporate StrategySWOT AnalysisElaborated Marketing StrategyElaborated Strategic Management and LeadershipFuture Strategy LayoutStrategic Vision and Mission StatementMarketing StrategyHR and Franchisees StrategyMonitoring and Evaluation of the Strategy
4 Origin of KFCThe restaurant in North Corbin, The first Kfc restaurant situated inKentucky where Colonel Sanders south salt lake, Utah and since itsdeveloped Kentucky Fried Chicken. replaced by a new Kfc.
5 History of KFCIn 1952, Harland Sanders began his travel around the United States to find prospects franchisees for its Unique Chicken Recipe.By 1960, Colonel Sanders had granted KFC franchises to more than 200 take home retail outlets and restaurants across United StatesIn the year 1963, KFC franchises touch the mark of 300 with the revenue of $500 million.On Sander’s 74 birthday he was eager to lessen down the load of his business, so he sold his business to two louisville businessman Jack Messey and John Young brown Jr. for $2 million.By the late 1960s KFC turned its attention to the Global Markets and joined hands with Mitsuoishi Shoji Kaisha, ltd that enabled them operation in England and Japan
6 R.J. Reynolds Industries, Inc. The takeovers of Heublein, Inc. and R.J. Reynolds Industries, Inc.In 1971, Heublein were in negotiations with the KFCHeublein was in the business of Producing vodka, mixed cocktails and other alcoholic beveragesConflicts started between the managementsBy 1977, new restaurant opening was lowered to 20, remodeling of restaurants started as the services standards fell drastically.This strategy enabled KFC to gain better control of the existing franchises and then expand.Heublein, Inc.In 1982, R.J Reynolds Industries acquired HeubleinThis acquisition for a part of their corporate strategy of diversification.R.J Reynolds believed the KFC management were well versed to manage this business hence they had no interferences, which avoided various operating problems of KFCIn 1985, RJR acquired Nabisco Corporation and sold KFC to Pepsi Co one year laterR.J. Reynolds Industries, Inc.
9 Continued…. Combos: Chicken Meals Sandwich Meals Family Meals Desserts & Beverages:Fruit SaladRegular & Large DrinkRegular & Large Mineral WaterTeaScoop of Walls Ice creamCoffee
10 Continued… Snacks & Side Orders: 5 & 20 Pieces Nuggets Arabian Rice 5 & 10 Pieces Hot wingsDinner RollRegular & Large FriesHot ShotsCorn on the CobHot & Crispy SoupCole Slaw
11 Pepsi Co ProfilePepsi Co, Inc was formed in 1965 with a merger of Pepsi Co. and Frito-lays, Inc.Business linesSoft drinksPepsi ColaDiet PepsiMountain DewSnacksLays Potato ChipsDoritos tortillaTostitos tortilla chipsRuffles Potato Chips
12 Corporate StrategyThe groups Acquired major businesses such as North American Van Lines, Wilson Sporting goods, and Lee Way Motor Freight. However it lacked management skills to operate these businesses.In 1984, Don Kendall the Chairman and CEO of PepsiCo restructured the business and got rid of the consumer product orientation and PepsiCo was divide into 3 divisions:Soft drinksSnack foods, andRestaurants
13 Restaurant Business and Acquisition of KFC Why did PepsiCo entered the Restaurant Industry?Because,Same Patterns of MarketingAdditional venue for the Sale of the Pepsi Co brands (Soft drinks)Management Skills could be transferred and will be compatible in these business.So the acquisition initiated,1977: Pizza Hut1978: Taco Bell1986: KFCThis acquisition gave them the leading market share in all the segments.
14 Human Resource Restructuring It was a collision between two different cultures.PepsiCo: Performance OrientedKFC: Laidback and LoyalistHarsh Comments were exchanged between the managements.Two massive downsizings.Immense Pressure on KFC management and employees
15 Poor Relations with the Franchisees In 1989, John Cranor was appointed the President and CEO of KFC.John Cranor in the same year addressed the Franchisees to explain the details of new franchising contract. These were:PepsiCo can takeover the weak franchisesRelocate RestaurantsExisting KFC outlets will not be protected against competition from new outlets.PepsiCo will have a right to increase royalty fees
16 Continued…This address of the Cranor backfired and resulted in the Protest of the franchisees.However in 1996, the most object able parts were removed by KFCs new president David Novak.A new contract was ratified by KFCs Franchisees in 1997.
17 PepsiCo DivestitureBetween 1990 and 1996, PepsiCo sale grew by 10% surpassing $31 billion.However troubles were faced in the fast food segment where the margin reduced from 8% to 4% in 1996.As a result, PepsiCo food division absorbed half of the company’s capital spending and generated one-third of the cash flows, declining its ROA and stock price as compared to competitor Coca Cola.In 1997 PepsiCo decided to forward its restaurant business to a new company called Tricon Global Restaurant.
18 Continued..PepsiCo’s objective was to reposition itself as a soft drink and snack brand.Later PepsiCo acquired Tropicana Products.By the divestiture of Pizza Hut, KFC and Taco Bell sales fell down by $11.3 billion and asset fell by $7 billion.However the operating margin rose from 11 to 14% in 1999 and ROA from 11 to 16 % in 1999
20 Fast Food IndustryAccording to National Restaurant Association, food service sales increased by 5.4% to $358 billion in 1999.More than 800,000 restaurants and 11 million people employed.The industry comprises of 8 major segments with Mc Donald being the top performer with sales of $19 billion in 1999.
21 Chicken IndustryKFC is the market leader in the Chicken Industry with the Market Share of 55.2% and sales of $ 4.4 billion in 1999.However it has witnessed a decline of 15% in the last 10 years.The competitors like Chick-Fil-A and Boston market increased combined market share by 17%.It was assumed that KFC will face competition from Boston Market but the company filed bankruptcy due to mounted debt problem.
22 KFC Future StrategiesDrive aggressive international expansion and build strong brands everywhereDramatically improve U.S. brand positions, consistency and returnsDrive industry-leading, long-term shareholder and franchisee value
23 Continued… Particulars Growth Rate Sales (in million) KFC 4% Popeyes 10%Boston Market16%Number of US Restaurant1%6%11%Sales Per unit3%5%
24 Kentucky Fried Chicken Corporation Current Strategies Marketing StrategyIn 1990, they focused on three types of Chicken: Fried, Extra Crispy, and Tender Roast.Launch of BuffetLaunch of Crispy Strips and Chicken SandwichDrive through and delivery points at nearby locationsIntroduction of “2 in 1” and “3 in 1” restaurants
25 International Operations By year 2000, more than 50% of the KFCs restaurants were located outside USA.These restaurants were mostly owned by the country’s local entrepreneur who possess better understanding of the market.Of 5,595 KFC restaurants 69% were franchised 21% were company owned and 10% joint ventures.In larger markets such as China, Mexico, UK, Thailand Australia and Canada more emphasis was laid on company owned restaurants.
26 Latin America MarketKFC operated 438 restaurants in Latin America in Its established subsidiaries in Mexico, Puerto Rico in 1960s and launched company owned franchises.Franchises were also allocated to local entrepreneurs and further subsidiaries were formed in Venezuela, Virgin Island and Brazil.However the operation from Brazil Shut down.But still KFC is the market leader in the Latin America Region and enjoys the first mover advantage.
27 Risk Assessment in Latin America NAFTA had eliminated tariffs on goods shipped between Canada, Mexico and US.Many countries such as Chile, Argentina, Paraguay, Uruguay and Brazil had also established free trade policies.That’s made Latin America an attractive place for investors.In 1992, researcher Kent D. Miller developed a framework for analyzing country’s risk and attractiveness of a country for future investment.He argued that firms must examine country, industry and firm factors in order to fully assess country risk.Many US companies believed that Mexico was an attractive country for investment . Its population was more than one-third as large as the US and represented a large market for us goods and services.
28 Continued…However, the volume of trade between the US and Mexico has increased significantly since the NAFTA went into effect in 1994.One year after NAFTA went into effect Mexico posted its first balance of trade surplus in six years
29 Risk and OpportunityKFC face variety of risk and opportunities in Mexico. It had eliminated all of its franchises in Mexico and operated only company owned restaurants that enable it to better control over quality, service and restaurants cleanliness.But company owned franchises required more capital than franchises did.MacDonald's was growing its restaurants base rapidly and was beating KFC in terms of sale.Even Wendy's had also announced plans to open 100 restaurants in Mexico by 2010.Habib’s , brazil 2nd largest fast food chain. Habib’s served traditional eastern dishes at prices below KFC and MacDonald's. It planned to open 400 units in Mexico by 2005
30 KFC Strategy in MexicoKFC wanted to sustain its leadership position in Mexico and the Caribbean.Second strategy was to invest more capital in these large markets to challenge existing competitors.Another strategy was to focus on building a franchise base through out the Latin America
31 SWOT Analysis Strengths Market leader in the Category Outreach in 85 countriesStable parent companyGood and Consistent tastePioneer Brand Image
32 SWOT Analysis Weakness Limited Product line. History of acquisition and transformations which limited their growth.Human Resource weaknessesPast Strategy FailureUnhealthy segment of Fried ChickenCannibalization of the Products
33 SWOT Analysis Opportunities Extend Product line. Acquire small chicken companies of the segment.Move towards developing and untapped countries.Grilled Chicken, Roasted Chicken, and Bar-b-q chicken segment
34 SWOT Analysis Threats Increasing Growth of the Competitor Sandwich market introducing me 2 products such as Mc Chicken and Crispy Chicken Burger.
36 New Strategy Formulation Vision Statement:“We believe in being the best in chicken category by extending our product range and increasing our outreach, we also believe in acquiring small chicken company and extend our company’s portfolio”
37 New Strategy Formulation Mission Statement:“Our mission is to improve and expand in the businesses maintaining excellent relationship with our suppliers, franchisees, customers and employees.”
38 New Strategy Formulation Objectives:Increase sales by 5-7% annually.Acquisition of small grilled, bar-b-q and roasted chicken franchises.Expansion of All in one unit restaurants providing all the brands under one roof.Maintaining better controls on the franchisesBetter Animal Rights Control System.
39 Future Marketing Strategy Induction of new products.Grilled Chicken.Developing acquired restaurant to compete against KFC.This Strategy will benefit the group and will also help KFC to stick to the original recipe and less Cannibalization will be seen amongst the products.Using Innovative mediums for Marketing such as Facebook , twitter and their websites.
40 Franchisees and Employee Development Training and Development of all franchisees on quarterly basis enabling them to enhance service standards.Employee rotation in the international countries so that they could better understand and formulate the operational and functional Strategies
41 Monitoring and Evaluation Third Party Audits.Performance evaluation and devising the future Short term Strategies to overcome quarterly highlights problems.