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INTRODUCTION
The case study, which we are about to analyse, addresses a number of issues mostly related to cultural differences within organisations and their respective markets. ... It also explains the various approaches undertaken by KFC under its various owners and by competitors towards product positioning, and distribution methods together with other demographic issues including the social and economic environment over a period of 30 years.
KFC AND ITS HISTORY
Kentucky Fried Chicken Corporation was the world’s largest chicken restaurant chain and the third largest fast-food chain in the year 2000. ... By 1960, Sanders had granted KFC franchises to more than 200 take-home retail outlets and restaurants in the United States and Canada. ... For the next five years, the new owners concentrated on extending further KFC’s franchise system until in March 17th 1966 they took the company public and was listed on the New York Stock Exchange in January 16th, 1969. By the late 1960s, having established a strong foothold in the United States, the owners turned their attention to international markets and in 1969 KFC entered into a joint venture that involved the rights to operate franchises in Japan and England. By 1971, KFC had established 2,450 franchised restaurants and 600 company owned restaurants in 48 different countries
OWNERSHIP OF KFC
In 1971, KFC entered into negotiations with Heublein, Inc. ... acquired KFC Corporation on the 8th July 1971 for $285 million. ... Having realised this downward trend, through the introduction of a new management team, Heublein redirected KFC onto its former foundations established by Col. ... ) who merged the company, including KFC, into a wholly owned subsidiary. ... This time, RJR, who had little more experience in the restaurant business than Heublein, allowed KFC to operate autonomously with little interference, since they believed that KFC’s executives and top management were better qualified to operate the business than their own managers were. By so doing, RJR avoided many of the operating problems that plagued Heublein during its ownership of KFC.
Also like Heublein, it can be said that RJR had little to offer to KFC since it operated a totally different line of business. Its main concern was also in the retail industry and this is confirmed with its later acquisition of Nabisco Corporation and the subsequent divestment of KFC shortly afterwards. On a positive note however, due to its autonomous operation, KFC managed to retain its competitive strength.
PepsiCo acquired KFC in 1986 for $ 840 million and this acquisition gave PepsiCo the leading market share in the chicken (KFC), the pizza (Pizza Hut) and the Mexican food (Taco Bell) segments of the fast food industry. ...
CONTRASTING CULTURES
The acquisition of KFC prompted PepsiCo to initialise drastic changes and announced that the franchise agreement would be changed to give PepsiCo greater control over KFC and facilitate the closing of poorly performing outlets. A number of KFC managers were replaced with PepsiCo executives who were brought over from its headquarters in New York. A feeling of insecurity reigned throughout KFC and rumours questioning the employees’ remote opportunities of advancement within KFC and PepsiCo spread quickly.
The conflicting corporate culture between the two companies created a morale problem within KFC. Whilst KFC’s culture was built largely on Sander’s laid back approach to Management wherein the employees enjoyed good job security and stability in lieu of strong loyalty and commitment, PepsiCo’s culture was characterised by a much stronger emphasis on performance and used KFC as training grounds for its executives. ... The major reasons can be attributed to a maturity stage in the product’s life cycle, intense competition and aging KFC and Pizza Hut restaurant. ... PepsiCo introduced KFC to real competition and tried to introduce a change in management’s attitudes to believe that their prime obligation is towards the entire organization.
LOCAL AND INTERNATIONAL MARKETS
As we said before, as early as the 1950s, KFC together with Pizza Hut, Taco Bell and McDonald’s were already expanding into international markets as a strategy for growing sales. ... Whereas up to that time the trade name ‘Kentucky Fried Chicken’ has always been considered as a high value resource, it suddenly turned into a liability and the name had to change to the next best option ‘KFC’. ...
COMPETITIVE PRESSURES
Michael Porter’s model of competitive forces argues that creating and sustaining a competitive advantage implies managing five forms of competition namely:
q Rivalry amongst the direct competition
q Competitive pressures from substitute products
q Competitive pressures stemming from suppliers’ bargaining power
q Potential entry of new entrants on the markets
q Competitive pressures stemming from buyers’ bargaining power
RIVALRY
The direct competition that KFC faces emanates mainly from other chicken chains. Rivalry between sellers is the greatest of the five forces since it impacts directly on the market in which KFC operates. Competition in the case of KFC varies in strategy amongst other chicken chains but ranges from price and product features to advertising. There are several issues, which KFC considers when measuring direct competition. ...
In this regard KFC is the heavy weight when compared to the direct competition. When one considers the total sales of KFC in the United States and compare it to the nearest rival – Popeye’s, it is seen that KFC generates nearly six times the turnover of its competitor. In fact KFC alone holds 65% of the market share with regards to chicken chains. ... However an interesting point is that KFC does not have the highest average sales per outlet. This position is held by Chicken fil-A, which operates its 534 units with sales per unit amounting to 4% more than that achieved by KFC. ... Whereas the benchmark growth rate for the sector in sales turnover between 1994 and 1999 stood at 7%, the growth rate recorded by KFC was only 4%. This trend was also evident in the sales per unit as well as the number of outlets, whereby KFC registered a growth rate of 3% and 1% against benchmark rates of 4% and 3% respectively. ... This was in fact the reason why KFC’s parent company PepsiCo had originally invested in the purchase of KFC as well as Pizza Hut and Taco Bell. ... KFC experienced this when Mc Donald’s introduced the Mc Chicken sandwich thus going into direct competition with KFC. In fact test marketing of this new product was done in Louisville, Kentucky which happens to be the hometown of KFC. By beating KFC in this market, the hamburger chains managed to capture and retain the chicken sandwich market irrespective of how hard KFC tried to offer a similar product.
In the late 1990s, KFC consolidated its position in the chicken chain segment by introducing a variety of new products and menu items that appealed to a greater number of customers. Whereas in the past KFC (Kentucky Fried Chicken) had concentrated its cooking based on the original recipe by Colonel Sanders, now the company introduced pressure cooked and roasted chicken variations in addition to the traditional fried version, offering higher appeal to health conscious customers. ...
Other potential substitute, which KFC may be facing, is the increasing demand for frozen prepared food which customers can buy from food stores and cook at home to basically achieve the same result as KFC products. In order to combat this new form of competition, KFC, and other food chains, tried to be innovative and to attract customers to their outlets by offering a pleasant environment. ... One of the major concerns of KFC together with other operators during the late 1990s and early 2000 was manpower shortage in the sixteen to twenty four year old age bracket. ...
Whereas KFC and PepsiCo, at their own home base, expect their suppliers to provide a high level of service, this element of supplier risk especially in foreign markets is a high rating factor. ...
In the case of KFC, its main supplier of beverages is an integral part of KFC itself since PepsiCo actually owns KFC. PepsiCo is also one of the suppliers of KFC’s direct competitors as well as for potential substitute products and possibly also for potential entrants. ...
GLOBALISATION AND THE US MARKET
Another issue that has to be addressed by KFC in its globalization quest is to ensure that it caters for the demands of the particular market wherein it operates.
Approximate Word count = 6878
Approximate Pages = 27.5
(250 words per page double spaced)
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