KFC & FAST FOOD INDUSTRY

Strategic Management Final Project Report

PRESENTED BY
SIDRA ZAFAR

EXECUTIVE SUMMARY

This report is about the company which when I wants to start the business so what will be the factors, strategy which I have to keep in mind. As my focus is on fast food industry so I compare it with the most valuable and well known fast food brand i.e. KFC, which is the third largest fast food chain with over 12,200 outlets in 99 countries. The outlets comprise of franchises, company owned and affiliated. One of the issues faced by KFC was that it offered only chicken related products and they were facing stiff competition globally where they suffer great losses but they continued there business even where they were facing losses to maintain there presence in the region due to which its customers were related to a certain segment. This issue can be resolved by diversifying its menu. Other issues like customers taste and preferences changes could be resolved by introducing new menu items that cater to their preference and innovating the product line. Complaints of bad customer service can be reduced by training the employees for proper customer dealing.

Industrys Dominant Characteristics

Market Size and Projected Growth
The total sales for the top US Fast Food industry were $422 billions in the year 2003. The top 7 chicken chains sales were 9861 million. Growth was around 3.3% in 2003.

Scope of Competitive Rivalry

Companies having presence globally by offering franchises and company owned outlets but now companies prefer to have joint venture with local entrepreneur because they understand the local culture and customs of the domestic market.

Number of Rivals
Competition is very intense in this industry. There were tens of thousands of fast-food outlets in United States including all of the regional and local outlets, the 10 largest chains in 2003 accounted for about 88.88% of total Sales.

Pace of Technological Change

Pace of change in the technology was minute as franchises were renovating outlets and also locating outlets on more prominent locations and upgrading the facilities of kitchens

Structural Analysis of industry (Porters five forces model) Threat of New Entrants / Entry Barriers

Factor Economies of Scale Low

HUF (1)

MUF (2)

Neutral MFA (3) (4) 3

HF A (5) High

Comments Giants are able to achieve economies of scale by high volume of production and many outlets but smaller chains are unable to achieve it due to low volume production. Requirement of capital is not that much Differentiating by offering unique value menu item. Brand loyalty is high High experience with older chains which helps them dominate the scenario

Capital Required Differentiation Brand Loyalty Experience Curve TOTAL

Low Low Low Low

1 4 4 5

High High High High

Exit Barriers
Factor HUF (1) MUF (2) Neutral (3) MFA (4) HFA (5) Comments

Specialized Assets

High

Low

There are specialized assets which cannot be used after existing the industry Fixed cost on exit as property and equipments and tools. Strategic interrelationships exist as some have given and taken franchises. Government does not intervene at the time of exit.

Fixed Cost on Exit

High

Low

Strategic Interrelationship Govt. Barriers

High

Low

High

Low

TOTAL

Competitive Rivalry
Factor HUF (1) MUF (2) Neutral (3) MFA (4) HFA (5) Comments

Composition of Competitors

Equal Size

Unequal Size

Market Growth Rate Scope of Competition Degree of differentiation in Commodity

Slow

High

Sizes of competitors different as there are some big and some small ones with limited services. Slow growth rate 3.3% Competitors are mostly global Differences do exist as companies were offering different special Food for different customers. Stake is involved due to franchises

Global

Domestic

Low

High

Strategic Stake

High

Low

TOTAL

Power of Buyers

Factor

HUF (1)

MUF (2)

Neutral (3)

MFA (4)

HFA (5)

Comments

Number of important buyers

Few

Many

Customers are many

% of buyers cost

High

Low

Not expensive

Switching Cost

low

High

No cost on switching

Importance to final quality of buyers Pr. Product supplied

High

Low

Customers want high quality food

Commodity

Specialty

Common product which can be supplied by any one

TOTAL

10

Power of Suppliers

Factor

HUF (1) Few

MUF Neutral MFA HFA (2) (3) (4) (5) 5 Many

Comments

# of important supplier

Suppliers for different ingredients

Availability Difficult of substitutes

Many

Threat of forward integration TOTAL

Low

4 High

Many vendors and ingredients suppliers but some deliver quality and reliability Suppliers can open their own food outlets.

Threat of Substitute Products

Factor

HUF MUF Neutral MFA HFA (1) (2) (3) (4) (5)

Comments

Threats of obsolescence of industry products. Aggressiveness of substitute products in promotion

High

Low

New menu items do come up but the older ones still are sold Promotion of substitutes is very high

High

Low

Switching Cost

Low

High low switching cost 0 0 0 5

TOTAL

OVERALL INDUSTRY ATTRACTIVENESS

Factors

Unfavorable

Neutral

Favorable

Entry Barriers Exit Barriers Competitive Rivalry Power of buyers Power of Suppliers

2 4 4

3 0 3

13 14 4

3 0

0 0

10 13

Threat of substitutes TOTAL

10

15

64

Strategic Groups

High

Market Share

KFC Chick-fil-A Popeyes

Churchs Boston Market El Pollo Loco

Low

Few

Many

Number of outlets

Key Driving forces of Change

Globalization Where one or more globally franchise ambitious companies are pushing hard to gain significant competitive position in many attractive markets by expanding globally in more than 99 countries Impact: increasing competition and major competitors were expanding their operations in order to increase market share. Provide more market to serve the customers to increase the revenue. Product Innovation The companies tend to distinguish by providing its customers with a unique fast food experience and offering value menu items in their foods. Most recently product innovation includes Pop cone chicken, Chick Chicken Pot pie (A flour tortilla filled with chunks of chicken. Impact: With the introduction of new menus and product which is designed to gain competitive advantage on its competitors, Continuous innovation is important in order to maintain sustainable competitive advantage.

Growing preferences for differentiated products As the fast food industry has mature which change the consumer preference and consumers are going for new menu and differentiated products. Consumers preferences began to change due to technological advances such as microwave oven and increasing health consciousness that led to decreased consumption of fried food. Impact: Companies has to differentiate in order to survive and to retain its customers as market is becoming saturated and matured but mean time provide new opportunities target new customers who are health conscious.

 Changing Societal concerns, attitudes, and lifestyles As consumers are becoming health conscious demanding healthier menu and the lifestyles of people changing and they started visiting fast food shops, Income higher level enables customers to dine out more often.Items ranging chicken sandwiches and core fired chicken products. People like to eat the food which can be prepared instantly Impact: People like to eat the food which is healthy and quick served as income level increases more and more people are becoming customers of fast food industry.

Marketing Innovation Markets play important role for any fast food chains as consumer preferences were changing rapidly. They want new taste and value added items at lowest possible prices so it is important to promote their new products using innovative advertisement campaign featuring a cartoon creature of Colonel Sanders stating Im chicken genius. And also featured Jason Alexander from TV sitcom Seinfeld promoting Popcorn chicken using the slogan Theres fast food, then theres KFC. KFC opened launched multi brand strategy to open 2 in 1 unit that can sold both KFC and Taco bell or KFC and Pizza hut in the same location. Impact: It would create brand endorsements thus attracting a large customer base through marketing and can target the customers more attractive way. Multi branding will make sure that new restaurants could be opened in more expensive location and lower population areas then were profitable with stand alone restaurants.

Key Success Factors

Technology:
Technology is increased used to lower cost and improves efficiencies KFC viewed computers as number one tool for improving efficiencies. Computers were used to improve labor scheduling, payrolls, sales analysis and inventory control. KFC used point of sale system that recorded selected menu items and give the cashier break down of food items and ticket prices.

Marketing:
Regionally and globally recognized brand name Courtesies, personalized customer service. Specially designed advertisement campaign Im Chicken Genius for its target market. Multi-Brand 2 in 1 units that can both sold KFC and Taco bell or Pizza hut in the same location. Marketing strategy to locate franchise in convenient location.

Distribution:
Strong relationship with franchises which are owned by local entrepreneur who are familiarized in localized in culture ,customs, laws, financial market and marketing characteristics. Effective supply chain management international with company owned outlets as well as with franchises.

Skills and Capabilities:

National and global distribution capabilities. Product innovation Strategy. Talented work force. Just in time delivery.

Production:
Quality controls know how. Access to attractive supplies of material. Overall low cost. Ability to make product that is customized to buy specification.

Conclusion:
In this report, it is stated that KFC fast Food as a model that can be used to analyze organizational change and leadership styles within a dynamic work environment. It examines how KFC's operations affect a major facet of a business, its organizational structure. The examination is somewhat exploratory so as to highlight the strategic elements of the organization, while exploring issues related to change and other related organizational behavioral trends. Other issues and functions, which play an important role within the context of its organizational culture and have a drastic impact on human resources, and financial objectives, are explored and discussed using charts. The paper concludes that understanding and integrating the organizational structure with the KFC's company objectives is the key to effective management. It is common knowledge that motivating the workforce is a necessary prerequisite for effective management. KFC has gained tremendous success, by enforcing being able to correctly identifying rewards to performance and hence motivating the workforce to support the organizational structure. This is evident from the employee files and reviews that have shown improvements in major aspects of employee development. In this article, maintaining that in business, it is critical that companies carefully conduct research before implementing new marketing strategies. Companies will often have to conduct marketing research by defining marketing problems and opportunities, systematically collecting and analyzing information, and recommending actions. The writer notes that KFC fast Food, has experienced significant growth and is focusing on expanding its services by way of new marketing strategies. Focusing on the company desires to improve the efficiency of its operations and increase the customer purchase cycle as a means to increasing the loyalty and profitability of its consumers. The discussion that without conducting careful marketing research, KFC's marketing strategy and tactics will not yield the projected results the company hopes to achieve, but will instead lose its competitive advantage and uniqueness as it spends more money than it earns., identifies the areas where additional research is needed, and finally, analyzes the importance of competitive intelligence in strategy-development.

References:
www.wikipedia.com www.google.com www.answer.com www.eHow.com Porters five forces strategy Fast food industry