MGT 401 KFC analysis Cover pages

Table of Contents 1. Introduction ................................................................................................................................. 2 2. External analysis of KFC............................................................................................................. 3 2.1. Macro environment .............................................................................................................. 3 2.1.1 PEST Analysis................................................................................................................ 4 2.2. Porters 5 forces Model Analysis on KFC............................................................................. 5 3. Internal analysis:.......................................................................................................................... 7 3.1. Core Competency of KFC .................................................................................................... 8 3.2. SWOT Analysis of KFC....................................................................................................... 8 4. Competitive Strategies and Implementation.............................................................................. 11 4.1. Corporate Strategy.............................................................................................................. 11 4.2. Implementation Strategy .................................................................................................... 11 4.3. CSR Policy ......................................................................................................................... 12 5. Recommendation and Future Challenges.................................................................................. 13 6. Conclusion................................................................................................................................. 14 References ..................................................................................................................................... 15

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1. Introduction Kentucky Fried Chicken (KFC) stands for high-quality fast food in a popular array of complete meals to enrich the consumer’s everyday life. KFC strives to serve greattasting, “finger lickin’ good” chicken meals that enable the whole family to share a fun, uninhibited and thoroughly satisfying eating experience, with the same convenience and affordability of an ordinary Quick Service Restaurant. TFL successfully launched the flagship KFC on South Avenue, Gulshan in September 2006. It has already won over the heart of the Dhaka crowd with its great tasting food, high standard of hygiene, cleanliness, terrific interior and of course excellent and affordable pricing. Following its enormous success in Gulshan, the second outlet was opened in Dhanmondi in November 2008, and yet another in Banani in December 2008. Most recently TFL has opened two outlets at Eskaton on February 2010 and another one is in Paltan. Transcom Foods Limited (TFL) started its journey in 2003 as a franchisee of Pizza Hut, the first International Chain Restaurant in Bangladesh, and went on to sign the contract to become the franchisee of Kentucky Fried Chicken (KFC) in the year 2006. Both Pizza Hut and KFC are subsidiaries of the world’s largest restaurant company Yum! Restaurants International. In a span of seven years, TFL has opened 4 Pizza Hut and 7 KFC outlets so far throughout the country. Every day, nearly eight million customers are served around the world. KFC’s menu everywhere includes Original Recipe chicken—made with the same great taste Colonel Harland Sanders created more than a half-century ago. Customers around the globe also enjoy more than 300 other products—from a Chunky Chicken Pot Piein the United States to a salmon sandwich in Japan.KFC continues reaching out to customers with home delivery in more than300 restaurants in the United States and several other countries. And in quitea few U.S. cities, KFC is teaming up with other restaurants, Taco Bell

Hut, selling nearly fifty years ago; Colonel Sanders

invented what is now called “home meal replacement” – selling complete meals to harried,time-strapped families. He called it, “Sunday Dinner, Seven Days a Week.”Today, the Colonel’s spirit and heritage are reflected in KFC’s brand identity – the logo features Colonel Harland Sanders, one of the best-recognized icons in the world. In this report, I am trying to find the secret reason about the success of KFC. Page 2 of 15

2. External analysis of KFC

An external analysis can be defined as “the process of scanning and evaluating an organization’s different external environmental sectors to determine positive and negative trends that could impact organizational performance”(p. 66, Coulter 2005). A company’s strategic decisions can be predisposed by a number of factors. The external environment can be one of those things and should be closely monitored. We should be aware of changes and trends in the environment around you, know what your customers prefer and what your competitors are up to. We should also be aware of the latest technological developments and maybe even political changes that might affect your strategic plan. Partly we are conversant about changes and trends through the media, there are however large changes occurring that we notice first after a while if we do not try to imprison the information earlier. Being able to see changes early and act accordingly is a vital competitive factor. In order to do this an external analysis is appropriate to use. Why is this so important? Changes in a company’s environment can radically change the conditions for their operations. Additionally, the rate at which changes occur nowadays has increased tremendously. The benefits of conducting an external analysis are that it helps to generate profits, helps to support change, helps to cut costs, and increases knowledge and supports learning.

2.1. Macro environment KFC operates in a larger macro environment of forces that creates opportunities, but also threats. (Kotler et al 2003). A company such as KFC usually cannot influence trends in the macro environment, as they affect people and organizations on a larger scale. However, KFC has to carefully examine macro environmental trends and must create competitive responses to such trends. There are six major macro environmental forces KFC has to take into account.

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2.1.1 PEST Analysis

PEST analysis is an analysis of the external macro-environment that affects all firms. P.E.S.T. is an acronym for the Political, Economic, Social, and Technological factors of the external macro-environment. Such external factors usually are beyond the firm's control and sometimes present themselves as threats. I’ll discuss the PEST analysis starting with the political analysis, followed by economic, social and technology analysis. i) Political Analysis: Though there is several political insatiability occurred in Bangladesh, it has not any big impact on KFC. Hence, they might face some problems in the last year when there were constantly strikes and hartals. Government is friendly to the fast food industry so that this industry is growing up. Moreover Government is earning huge revenue from this industry.

ii) Economy: Bangladeshis one of the growing economies in the world. Bangladesh is developing from an agriculture based economy to an industrial manufacturing based economy, though the country maintains strong manufacturing, service and agricultural sectors.. Bangladesh is still surviving to be politically and economically stable and is open to foreign investment.

iii)Social - Cultural Environment: Society's attitudes have changed in the past decade toward eating healthier food selections, eating fewer fried foods, and eating more Page 4 of 15

reduced-fat food selections. The majority of KFC's menu items are fried foods. Today, KFC’s customers generally choose the restaurant they will eat at based on quality, rapidity and variety of items. KFC’s customers are also really price sensitive and will go elsewhere if they find that the value is not worth the price. The customers can also be characterized by being people that want to be served fast and be out of the restaurant in no time. This is due to the increasing. In, Bangladesh KFC is decorating their outlets in different national and cultural events.

iv)Technological Environment: As the technology continues to improve, it creates unlimited opportunities for innovation. Technology helped restaurant chains a bit by increasing productivity and efficiency.

2.2. Porters 5 forces Model Analysis on KFC Buyer Power The factor of a lot of competitors such as Pizza Hut, BFC, Nandos, CP, the loyal and potential customer are starting to decline and this caused a big loss to KFC. Customer can go to any fast food restaurant that offered more affordable price especially to students which requiring a lot of money to survived. To attract their consumers back, KFC start to decrease their prices and give a discount of their products to the consumers. So, the buyer power of KFC is high when this proved that the consumers able to influence the pricing when they has many choices. Supplier Power There are a lot of suppliers available for KFC’s raw materials. KFC can easily switch their supplier to another supplier since the materials need in the process of producing KFC is easily to get such as chicken. In 2004, KFC has some internal problems and issue regarding of their raw chicken supplier was found doing something horrible when butchering the chicken. KFC decide to terminate the contract between them and find the new supplier to replace them. So, chicken supplier can not easily increase the price for chicken since their supplier power is low. Other than that, KFC also binding a contract Page 5 of 15

with Pepsico for supplying carbonate water to KFC’s customer. But, Pepsi do supplies their drinks to the competitors of KFC. This is lowering down the supplier power of KFC. The Threat of New Entrant There lot of substitute’s product offered to the consumers. The barrier to entry in the industry is very low. So, there are already so many competitors in the market such as BFC, CFC etc. Yet McDonald does not come to Bangladesh. But if they will come here, then KFC will face a tough competition. The Threat of Substitute Product Popeyes Louisiana Kitchen, CP, Nandos also sell the product/service almost same as KFC. Popeyes serves chicken dishes in mild and spicy flavors. The price for both fast foods is almost same. Moreover, there are new issues regarding health which deriving the consumer to restrict their food habit from the fast food such as KFC. So they are switching the other healthier foods which may hinder the business of KFC.

The Rivalry among the Existence Firm in the Industry In Bangladesh fast food industry, BFC ranked as the most favorite fast food and follow by KFC and Pizza hut. Yet McDonald does not come to Bangladesh, the competition is too open here.KFC has implemented loyalty program to attract their consumer attention to their brand. They have provided their customers a card to kids.

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3. Internal analysis: In order for the strategic management process to begin, managers are required to conduct an internal analysis. This involves identifying the business' strengths and weaknesses, by analyzing its competencies. It also involves managers highlighting the business' competitive advantage. For strategies to be effective, the organization must exploit and expand on its strengths, as well as reduce or eliminate its weaknesses; thus furthering its competitive advantage, in order to achieve profitability. A business' competencies are its resources and capabilities that allow the business to differentiate itself and its products and services, or reduce its costs, when compared with competitors. A business' resources are its assets, which may be tangible assets, such as equipment or technology, or intangible assets such as brands, knowledge and expertise. These resources become valuable to your business, and thus a competence, when it adds value to your outputs, that is, customers place a positive distinction with your business and its offerings, over those of competitors. This is likewise for your business' capabilities, which are its' skills, processes and structures. In order to analyze your internal assets, along with your external assets, managers may conduct a SWOT analysis. SWOT stands for strengths, weaknesses, opportunities and threats. As mentioned above, a business' strengths and weaknesses make up the internal analysis, identifying its competencies, whilst the external analysis looks at the external environment of the business, and any opportunities and threats that externalities pose to the business. By effectively identifying the business' competencies when conducting an internal analysis, managers are able to identify its strengths and weaknesses, such as process efficiencies, powerful machinery, or outdated technology, and thus capitalize on these, as they are to be factored into the strategy formulation process. By utilizing strengths and eliminating weaknesses, businesses are able to gain competitive advantage, which will be reflected on its profitability. (Smallbiz connect, 2014)

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3.1. Core Competency of KFC The core competency of a company provides the consumers of its products with benefits while not being easy for the competitors of the company to imitate and providing leveragability for different products and markets. The core competencies of the KFC Corporation include its capability to deliver a unique recipe based chicken which has a distinctive taste. This recipe is shared with the franchises all over the world which results in a uniform product being disbursed amongst the global markets. Moreover the KFC Corporation also has significant expertise in managing and opening franchises and restaurants in the international markets. The company also has bargaining power with its suppliers which enables the company to get supplies at lower costs increasing its profit margins on the products sold. The company also can realize economies of scale with its local, regional and international operations. This can be used to strengthen their cots advantage with suppliers, however currently the strategy has not been employed. Ever since KFC started, they have only emphasized on chicken, so people from all over the world take KFC as Chicken expert.

3.2. SWOT Analysis of KFC Strengths i) Second best universal brand in fast food business in provisions of value ($ 6 billion): KFC is known by many and is a reliable brand in many countries mainly due to its early on franchising and global extension. ii) Unique 11 herbs and spices formula: KFC original chicken recipe is a trade covert and a basis of comparative advantage against firm’s competitors. iii) Strong position in emerging China: KFC receives half of its revenue from China, where it operates more than 4,000 outlets. KFC position in China is one of its main strengths as China’s fast food market is growing steadily. iv) Combination of KFC – Pizza Hut: KFC partnership with other Brands yields some benefit as the restaurant can propose items from its partners it doesn’t have itself and gratify more customers’ needs.

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Weaknesses i) Unreliable suppliers: Over the years, KFC has been contracting suppliers, which supplied contaminated poultry to KFC or were mistreating chicken, thus resulting in falling sales and damaged reputation. ii)Negative publicity: KFC receives much criticism from PETA over the conditions chickens have been raised. Furthermore, it received bad publicity for selling chicken wing with kidney. There are many more or less bad news from KFC, which damage firm’s reputation significantly. iii) Unhealthy food menu: KFC menu is largely formed of high calorie, salt and fat meals and drinks. Such menu offering prompts protests by organizations that fight obesity and hence, decreases KFC popularity. Consumers also often opt out for healthier choices. iv) High employee turnover: Employment in KFC is a low paid and low skilled job. It results in low performance and high employee turnover, which increases training costs and add to overall costs of KFC. Opportunities i) Increasing demand for healthier food: While demand for healthier food increases, KFC could bring in more healthy food choices in its menu and reverse its weakness into strength. ii) Home meal delivery: KFC could fully exploit (it test deliver services now) this opportunity and reach more customers. iii) Introducing new products to its only chicken range: KFC could introduce new meals to its menu and offer pork, beef or only vegetarian meals, which would target wider consumer group and would result in more costumers. Threats i)Saturated fast food markets in the developed economies: The fast food market in the developed countries is already overcrowded by so many fast food restaurant chains and this already proves to be a threat to KFC as it finds it hard to grow in the developed economies. Page 9 of 15

ii) Trend towards healthy eating: Due to government and various organizations attempts to fight fatness, people are becoming more aware of eating healthy food rather than what KFC has mainly to offer in its menu. iii) Local fast food restaurant chains: Local fast food restaurants can often offer a more local approach to serving food and menu that precisely represents local tastes. Although KFC does a great job in adapting its own menu to local tastes, the rising number of local fast food chains and their lower meal prices is a threat to KFC. iv) Economic Degradation: KFC receives part of its income from foreign operations. That income has to be converted into dollars and may affect the business' profits, especially when the dollar is appreciating against other currencies.

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4. Competitive Strategies and Implementation 4.1. Corporate Strategy KFC is now following Growth strategy. The model of business expansion of KFC is franchising. The components of KFC’s corporate level strategies are: 

Toggled from franchise to company owned in their bigger market

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Concentration in local Community.

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Combining the two concept in the same unit

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Changed name

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Introduced diverse menu items to stay up with local competitors.

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Switched to highly performance based administration strategies

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More responsibilities assigned to franchisees and marketing managers

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Pay closely aligned with customer service and restaurant performance.

The potential raise in other countries encouraged KFC to build a principal spot and have more popularity. The practice of achievements saved a lot throughout R&D, creating and involving technology in developing exertion. These strategies are the gate to reduce cost/changing leadership, because it depended mainly on its brand name and unique taste and recipe to be finer while at the same time benefits of cost saving from economies of scale remain them competing on price.

4.2. Implementation Strategy An implementation strategy that KFC utilized successfully was, once a decrease in earnings occurred the restaurant was closed down. A horizontal discrepancy is implemented through style options. KFC wants to meet the needs of local markets, they not only introduce neighborhood programs but they also hire locally. KFC also help the cut out subsidiary products. KFC put massive emphasis on having sanitary and update restaurants. They also knew if their products were not reliable, customers would find other chicken providers. KFC pay close attention to service and dedicate time to maintaining the reliability of their product provided to their customers. The implementation level is including: 

Straight differential through different style options

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Stopped up unbeneficial restaurants Page 11 of 15

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Struggle to fill the needs of local of local markets by hiring locally and offering menu items that mirror the culture.

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Endeavor to fill the needs of local markets by hiring locally and offering menu items that reflect the culture.

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Reestablish and maintain an emphasis on clean and updated restaurants paying close attention to service while maintaining product consistency.

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Cutting out subsidiary products.

4.3. CSR Policy Though KFC do not focus yet in the corporate social responsibilities in Bangladesh but globally KFC has a very good CSR policy. The CSR activities are described below: KFC FOUNDATION: KFC believe in a world where educational opportunities are available to everyone; where they never give up on helping people achieve their dreams. DIVERSITY: Diversity is more than a philosophy at KFC; it is part of our founding How they Work Together principles. Their global culture is actively developing a workforce that is diverse in style and background, where everyone can make a difference. SUPPLIER CODE OF CONDUCT: Yum! Brands is committed to conducting business in an ethical and responsible manner. To encourage compliance with all legal requirements and ethical business practices, Yum has established a Supplier Code of Conduct for it's U.S. suppliers. THE ENVIRONMENT: KFC is as committed to the environment as they are to their food and customers. They have taken few steps to reduce our environmental footprint and plans for improvement moving forward. ANIMAL WELFARE PROGRAM: Yum! Brands, parent company of KFC, is committed to the humane treatment of animals

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5. Recommendation and Future Challenges To do the SWOT analysis I observe some challenges which KFc may face in the near future. So there are some recommendations which KFC may follow for their continuous business growth. The recommendations are given below: i) Focus on healthy food: Currently, people become more conscious about their health. So they start to stop the fast food items such as fried chicken. As a result KFC can lose their business. So KFC can include some healthier menu such as vegetable food items. ii) Expanding the business in every divisional city: KFC has a very good demand in the big cities in Bangladesh. So, KFC may establish their outlets in the divisional cities to expand the business. iii) Set convenience pricing menu: KFC can introduce some convenience pricing menu so that they can attract new consumers specially the students. iv) Enhancing employee motivation: KFC may include and develop their motivation plan towards their employees so that the turnover rate will be reduced and the employee can give better services. As a result, the customer satisfaction rate will be boosting.

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6. Conclusion To conclude I want to say that KFC has a strong brand value among the consumers. I get a nice and practical experience by making this analysis on such a good brand KFC and succeed to implement the knowledge what I have learnt from the course in the classroom. I wish that KFC can successfully do their business and maintain the growth for a longer time

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References o http://projects.bus.lsu.edu/independent_study/vdhing1/ o www.qsrbrands.com o www.kfcholdings.com.my o www.netmba.com o http//wwwkfc.com/kitchen/nutrition.htm o http://www.strategicmanagementinsight.com/index.html

o www.smallbizconnect.com    

KFC (2013). About us. Available at: http://www.kfc.com/about/ Wikipedia (2013). KFC. Available at: http://en.wikipedia.org/wiki/KFC 9WSYR (2013). Yum Brands: KFC sales will fall in China after probe. Available at: http://www.9wsyr.com/business/story/Yum-Brands-KFC-sales-will-fall-in-Chinaafter/bcy0s-8mAUeqWoh6fnmpCw.cspx Interbrand (2013). Best Global Brands 2012. Available at: http://www.interbrand.com/en/best-global-brands/2012/Best-Global-Brands-2012.aspx o http://www.ukessays.com/ o http://www.kfc.com/ o https://www.scribd.com/ 

The website of Transcom Bangladesh

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