KFC CORPORATION IN THE FAST FOOD INDUSTRY: AN ANALYSIS OF GLOBAL ISSUES FACED AND HOW THEY MANAGE THEM

TABLE OF CONTENTS

1.0Introduction........................................................................................................... 1 1.1Overview....................................................................................................... 1 1.2Objectives of This Assignment......................................................................2 2.0Global Issues in the Fast Food Industry.................................................................3 3.0Timing of Entry...................................................................................................... 4 4.0Response to the Huge Operation Scale in India.....................................................5 5.0Global Localization (Glocalization) by PepsiCo and Coca Cola India...................6 6.0Coca Cola India Return to India............................................................................. 7 7.0Management of the Issues of Water......................................................................8 8.0Comparison of the Prospects of Success of PepsiCo and Coca Cola India.............8 9.0Lesson Learnt from the Indian Experience............................................................9 List of References..................................................................................................... 11

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Introduction

1.1

Overview KFC Corporation or KFC was founded in Louisville, Kentucky. It is a chain of fast food restaurants or quick service restaurant. A QSR is a specific type of restaurant characterized both by its fast food cuisine and by minimal table service (Schlosser, 2005). Primarily, KFC sells chicken pieces, wraps, salads and sandwiches. Although it focuses on fried chicken, KFC also offers a line of roasted chicken products, side dishes and desserts. In some regions, KFC offers beef-based products such as hamburgers or kebabs, pork-based products such ribs, chicken rice and many other as effort of glocalization. The fast food industry is estimated to be worth approximately US$200 billion, with potential to continue to grow for both large multinationals such as McDonalds and Kentucky Fried Chicken as well as local chains. KFC synonym with modern lifestyles, convenience and appealing to a large segment of the population has become one of the leading franchises in Malaysia. Between 2000 and 2001, the Malaysian consumer food service market had grown by 6.7% in value terms. In 2001, there is about 957.0 million consumer food service transaction which is an increase of 19.1% from 1997. Fast food service sector has the highest growth in unit terms over the period of 1997 2001 with a total unit growth of 48.2% (http://www.euromonitor.com). Most of these fast food services originally started in the USA but similar services are also sprouting in other countries. McDonald, KFC, Burger King, Pizza Hut is strategically located in large shopping malls all over Malaysia (http://www.fas/usda.gov). As a global organization and an active player in the food industry, KFC faces many global issues which must be addressed and managed effectively.

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Objectives of This Assignment This assignment presents an industry analysis of global issues faced in the fast food industry. It also discusses how KFC Corporations as a key player in this industry faces and manages these issues.

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Global Issues in the Fast Food Industry The fast food industry is a growing and strong business which is not devoid of global issues. The fast food industry is a key player to the supply of food for the global population. Fast food industry is sometimes called as junk-food chains, which include global brands such as KFC and Pizza Hut. Due to the issue of limited resources, the population in the developed countries has been fighting for environment justice. Thus KFC and Pizza Hut, along with other fast food restaurants are under attack because of their environmental impact. Intensive breeding of livestock and poultry for such restaurants leads to deforestation, land degradation, and contamination of water sources and other natural resources. For every pound of red meat, poultry, eggs, and milk produced, farm fields lose about five pounds of irreplaceable top soil. The water necessary for meat breeding comes to about 190 gallons per animal per day, or ten times what a normal Indian family is supposed to use in one day, if it gets water at all. Therefore, animal farms use nearly 40 per cent of the worlds total grain production. In the United States, nearly 70 per cnt of grain production is fed to lubricant (South End Press, 2000). Aside from that, fast food companies such as KFC are also largely blamed for the increasing rate of obesity among the worlds population. Murphy (2000) stated that Americans are getting fatter and fatter every year. It is estimated that as many as one in five Americans is obese, a condition defined as being more than 30 percent above the ideal weight based on height. Also, obesity rates for children have doubled over the past 20 years, and overweight children are being diagnosed with obesity-related illnesses such as diabetes, sleep apnea and respiratory illnesses that in the past have only afflicted adults. Fast food is typically associated with high fat, high carbohydrate foods and has limited inclusion of whole grains, fruits, and vegetables. Fast food is usually prepared with saturated oil and the oil is typically reused many times, making it more vulnerable to bacteria and spoilage. Hot dogs, hamburger, French fries, fried chicken nuggets, and

similar foods are high in fat and calories. The four major food groups are not represented in the fast food world and this contributes to the obesity and overall poor health of American.

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Timing of Entry Timing of entry into the Indian market has brought different results for PepsiCo and Coca Cola India. There are some benefits and disadvantages accrued as a result of earlier or later market entry, which are explained in the following table. PepsiCo entered the Indian market earlier in 1986. The early entry before Coca Cola enabled PepsiCo to gain a foothold in the market while it was still developing. It gained PepsiCo 26% market share by 1993. However, this early entry provided some disadvantages to PepsiCo. Firstly, the global brand Pepsi cannot be used and instead Lehar Pepsi was used in the Indian market. Also, the government imposed a limit to their soft drink sales to less than 25% of total sales. PepsiCo also had to ward off local competition especially Parle which own 60% of market share in 1993. On the other hand, Coca Cola had a late entry, which happened in 1993. Some of the advantages are: (1) they were able to buy 4 bottling plants from industry leader, Parle; (2) Parle, who feared stiff competition, conceded to sell their leading brands Thums Up, Limca, Citra, Gold Spot and Mazaa; and (3) they were also able to set up new ventures with Parle to bottle and market product. Due to late entry, Coca Cola experienced some disadvantages such as: (1) entry denial by Indian government because Pepsi was already there; (2) harder to establish market share with Pepsi there; and (3) were not allowed to buy back 49% of equity.

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Response to the Huge Operation Scale in India PepsiCo and Coca Cola responded in many ways to address the sheer scale of operations in India in terms of product policies, promotional activities, pricing activities and distribution arrangements. In terms of product policies, both companies decided to cater to Indian tastes. The companies came to India with products close to those already available in India such as colas, fruit drinks and carbonated waters. Coca Cola also responded to the enormous population in India by introducing American type drink, Sprite while PepsiCo introduced Lehar 7UP. Both companies also partake in the introduction of new products bottled water. As for promotional activities, both companies advertise and use promotional material at Navrartri. Pepsi gave away premium rice and candy with Pepsi whereas Coca Cola offered free passes, Coke giveaway as well as vacations. Coca Cola also used different campaigns for different areas of India. They used India A campaigns to appeal to young urbanites whereas India B focuses on rural areas. In terms of pricing policies, Pepsi started out with an aggressive pricing policy to grab immediate market share from Indian competitors. Coca Cola embarked on a program called Affordability Plank with price cut by 15-25% in 2003. This was an attempt to encourage consumption by making coke drink affordable to Indians, as a strategic move to compete with Pepsi and gain market share. In order to address distribution arrangements, both companies have their production plants and bottling centres in large cities all around India. Coca Cola India, through alliance with Parle has bottling plants in Delhi, Mumbai, Ahmedabad and Surat. Coca Cola added new plants when their new product, Kinley (bottled water) was introduced to the Indian market. By 2002, Kinly commanded 28% market share and produced in 15 plants. The biggest of these are located in Mumbai, Delhi, Goa and Bangalore.

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Global Localization (Glocalization) by PepsiCo and Coca Cola India Glocalization is the combination of global and localization. By definition, the term glocal refers to the individual, group, division, unit, organization, and community which are willing and able to think globally and act locally (Wellman, 2002). In other words, it is the process of adapting a global product to the location and culture that they are trying to market it in. PepsiCo and Coca Cola have successfully implemented glocalization in India. Pepsis glocalization can be seen from the joint venture effort with two local partners, Voltas and Punjab Agro to from Pepsi Foods Ltd. In 1990, Pepsi Food Ltd changed the name of their product to Lehar Pepsi to conform to foreign collaboration rules. In keeping with local taste, Pepsi also launched its Lehar 7UP in the clear lemon category. Pepsi also had their advertising done during the cultural festival of Navrartri, a traditional festival held in the town of Gujarat which lasts for nine days. Pepsi also sponsored world famous Indian athletes such as cricket and soccer players. Coca Colas glocalization strategies included their joint venture with Britannia Industries India Ltd in the early 1990s and later a joint venture with market leader, Parle in 1993. The company was also involved in the festival of Navrartri where the company issued free passes to the celebration in each of its Thums Up bottles. They also ran promotions to provide people with free vacations to Goa, a resort state in western India. Similar to Pepsi, Coca Cola also hired some famous Bollywood actors like Aishwarya Rai and Viviek Oberoi to endorse their products. Coca Cola does not see itself as a global organization but rather a multi-local enterprise (Anonymous, 1994). This MNC is well-experienced as it has been operating as a ``multi-local'' business for decades in various world locations where they relied heavily on the insight of local bottling partners. Its global strategy permits its businesses in more than 200 countries to act according to local need, local laws, local cultures, and so on. CocaCola give allowance for differences in packaging, distribution, and media that are important to a particular country or geographical area (Anonymous, 1988). Hence, the
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global strategy is localized through a specific geographic marketing plan. Thus, instead of applying a global strategy, it is likely to be a strategy of thinking globally, but acting locally. Daft (2000, p. 20) comments that: . . . the global success of Coca-Cola is the direct result of people drinking it one bottle at the time in their own local communities. So we are placing responsibility and accountability in the hands of our colleagues who are closest to those billions of individual sales . . .

6.0

Coca Cola India Return to India Some analysts consider that Coca Cola India made mistakes in planning and managing its return to India. I agree with this statement based on several facts presented in the case study. By entering India, Coca Cola India had to agree to abide by all the Foreign Investment Laws of that year. Coca Cola India also tried to expand investment. They agreed to the governments request to sell 49% of equity within two years. Coca Cola which was experiencing loss tried to get extensions, of which initially they succeeded but the second extension was denied. Coca Cola India also tried to deny the upcoming Indian shareholder voting rights but denied by the Foreign Investment Promotion Board (FIFB). Coca Cola made two big mistakes when they attempt to return to India. Firstly, Coca Cola should have been more careful when they entered the market and what they were promising when they entered. Secondly, Coca Cola should not have tried to weasel their way out of the promises that they made. These mistakes caused damages to Coca Colas image and reputation as an international company.

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Management of the Issues of Water Pepsi and Coke were confronted with the issues of water use in the manufacture of their products. The U.S. Water News Online (2006) stated that three weeks after the allegations erupted in India. Pepsi and Coca Cola have done little to address the issue, apparently hoping that it will blow over. Both Pepsi and Coke should have taken a prompt action to address the situation by keeping constant and open communication with the public. They wasted time to defend that their products were free from these allegations. Activist groups are targeting large companies for other underlying reasons. It is not worthwhile for Coke to address the group directly. The group that they need to focus on is the consumers and the public. Coca Colas management of similar crisis in Belgium in 1999 where there were complaints that Coca Cola had a distinct smell and taste and some were hospitalized after consuming the product led Belgiums Coca Cola to take out all Coca Cola products from the market. They were also in constant communication with the public to put across the messages that the company is aware of the problem; is doing all they can to remedy the situation; is cooperating and collaborating with relevant agencies to ensure that public safety is uphold; stressing the core values of the company as a high quality product provider while at the same time investigate the core problem through integrative approach involving people who have expertise in those fields (Johnson and Peppas, 2003). Thus, Coca Cola should concentrate on building trust and putting in front the core value of the company. After crisis, Coca Cola should embark on an aggressive marketing campaign to win back consumers intention to buy this product.

8.0

Comparison of the Prospects of Success of PepsiCo and Coca Cola India In comparing Pepsi and Coca Cola, I choose Pepsi as the more successful company in the long term. This is because Pepsi has better marketing and advertising strategies. It is also more widely accepted as shown by the Pepsi vs. Coke taste preference test among
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consumer. In India, PepsiCo also has the major share compared to Coca Cola India. Coke is the lesser choice because of its problem with the government. The conflict with the government may still affect Coca Cola in the long run. Thus, Pepsi will fare better in the long run.

9.0

Lesson Learnt from the Indian Experience There are lessons learnt from each company drawn from their Indian experiences as they contemplate entry into other big emerging markets. Pepsi and Coca Colas learned lessons are shown as follows. Pepsis lessons learned: It is beneficial to keep with local tastes. Alliance with local companies showed that consumers in India can relate to them as they as also producer of local products It is also beneficial to pay attention to market trends. They entered the Indian market at the right timing and implemented their marketing strategies based on consultants findings about the market trends Their decision to include celebrity in the effort to appeal to the local consumers was effective in exceptional advertising. It pays to keep up with emerging trends in the markets. They were able to adapt the bottling requirement and preference and launched the mineral water products when the timing is right.

Coca Colas lessons learned: It is important to pay specific attention to deals made with the government. They should be aware of the unstable government policy and noted the corruption level in India They should establish a good relationship with the government
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It is important to make investment in quality products. The crisis of alleged pesticides in their drinks is a valuable lesson to ensure that products are of the highest quality

Advertising is crucial and plays a lot to position the product in the right perception of the consumers

Prompt action during a crisis is important and focus should be on informing the public about what is going on, what the company is doing about it and the core values of the company

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List of References KFC Malaysia (2006). Corporate Statement, Annual Report 2006, available at: http://www.kfcholdings.com.my/English/pdf/05_Corporate_Statement.pdf (retrieved 16 February 2010)

Schlosser, E. (2005). Fast Food Nation: The Dark Side of the All American Meal. London: HarperCollins Publishers Shiva, V. (2000), Stolen Harvest, South End Press, pp, 70-71 Murphy, J. (2000). The Super-sizing of America: Are Fast Food Chains to Blame for the Nation's Obesity? URL: http://www.speakout.com/activism/issue_briefs/1333b1.html

Website Links: 1. http://globaledge.msu.edu\ibrd\region.asp?RegionID=5) 2. http://blog.lidan.net/archives/000100.html, KFCs localization strategies in China 3. http://www.geocities.com/TimesSquare/1848/kfc.html, KFC in China: a Case Study
4.

http://globaledge.msu.edu/ibrd/region.asp?RegionID=5

5. http://www.kfc.com.my

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