Project KFC & FAST FOOD INDUSTRY

Project

KFC & FAST FOOD INDUSTRY
Strategic Management
PRESENTED BY
SHAHRYAR HASSAN 4517
KHALID YOUSUF 3724
SAQIB RAHIM 5286
TOUSEEF ALI 7363
RAFIQUE AHMED 5445
EXECUTIVE SUMMARY
The case is about 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 customer’s 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.
Industry’s 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 (Porter’s five forces model)
Threat of New Entrants / Entry Barriers
|Factor |  |HUF |MUF |Neutral |MFA |HFA |  |Comments |
| | |(1) |(2) |(3) |(4) |(5) | | |
|Economies of |Low |  |  |3 | |  |High |Giants are able to achieve|
|Scale | | | | | | | |economies of scale by high|
| | | | | | | | |volume of production and |
| | | | | | | | |many outlets but smaller |
| | | | | | | | |chains are unable to |
| | | | | | | | |achieve it due to low |
| | | | | | | | |volume production. |
|Capital |Low |1 | |  |  |  |High |Requirement of capital is |
|Required | | | | | | | |not that much |
|Differentiati|Low | |  |  |4 |  |High |Differentiating by |
|on | | | | | | | |offering unique value menu|
| | | | | | | | |item. |
|Brand Loyalty|Low |  |  |  |4 | |High |Brand loyalty is high |
|Experience |Low |  |  |  |  |5 |High |High experience with older|
|Curve | | | | | | | |chains which helps them |
| | | | | | | | |dominate the scenario |
|TOTAL | |1 |2 |3 |8 |5 | | |
Exit Barriers
|Factor |  |HUF |MUF |Neutral |MFA |HFA | |Comments |
| | |(1) |(2) |(3) |(4) |(5) | | |
|Specialized Assets |High |1 | | | | |Low |There are specialized assets which |
| | | | | | | | |cannot be used after existing the |
| | | | | | | | |industry |
|Fixed Cost on Exit |High | | | |4 | |Low |Fixed cost on exit as property and |
| | | | | | | | |equipments and tools. |
|Strategic Interrelationship |High | |2 | | | |Low |Strategic interrelationships exist as |
| | | | | | | | |some have given and taken franchises. |
|Govt. Barriers |High | | | | |5 |Low |Government does not intervene at the |
| | | | | | | | |time of exit. |
|TOTAL | |1 |2 |0 |4 |5 | |  |
Competitive Rivalry
|Factor |  |HUF |MUF |Neutral |MFA |HFA |  |Comments |
| | |(1) |(2) |(3) |(4) |(5) | | |
|Composition of |Equal Size| | | |4 | |Unequal Size |Sizes of competitors |
|Competitors | | | | | | | |different as there are some |
| | | | | | | | |big and some small ones with|
| | | | | | | | |limited services. |
|Market Growth Rate |Slow | |2 | | | |High |Slow growth rate 3.3% |
|Scope of Competition|Global | |2 | | | |Domestic |Competitors are mostly |
| | | | | | | | |global |
|Degree of |Low | | |3 | | |High |Differences do exist as |
|differentiation in | | | | | | | |companies were offering |
|Commodity | | | | | | | |different special Food for |
| | | | | | | | |different customers. |
|Strategic Stake |High | |2 | | | |Low |Stake is involved due to |
| | | | | | | | |franchises |
|TOTAL | |0 |6 |3 |4 |0 | |  |
Power of Buyers
|Factor | |HUF |MUF |Neutral |MFA |HFA |  |Comments |
| | |(1) |(2) |(3) |(4) |(5) | | |
|Number of important|Few |  |  |  |  |5 |Many |Customers are many |
|buyers | | | | | | | | |
|% of buyer’s cost |High |  |  |  |  |5 |Low |Not expensive |
|Switching Cost |low | 1 |  | |  | |High |No cost on switching |
|Importance to final|High |1 |  |  |  |  |Low |Customers want high quality |
|quality of buyers | | | | | | | |food |
|Pr. | | | | | | | | |
|Product supplied |Commodity |1 |  |  |  |  |Specialty |Common product which can be |
| | | | | | | | |supplied by any one |
|TOTAL |  |3 |0 |0 |0 |10 |  |  |
Power of Suppliers
|Factor | |HUF |MUF |Neutral |MFA |HFA | |Comments |
| | |(1) |(2) |(3) |(4) |(5) | | |
|# of important |Few | | | | |5 |Many |Suppliers for different |
|supplier | | | | | | | |ingredients |
|Availability of |Difficult | | | |4 | |Many |Many vendors and |
|substitutes | | | | | | | |ingredients suppliers but |
| | | | | | | | |some deliver quality and |
| | | | | | | | |reliability |
|Threat of forward |Low | | | |4 | | |Suppliers can open their |
|integration | | | | | | |High |own food outlets. |
|TOTAL | |0 |0 |0 |8 |5 | | |
Threat of Substitute Products
|Factor | |HUF |MUF |Neutral |MFA |HFA | |Comments |
| | |(1) |(2) |(3) |(4) |(5) | | |
|Threats of obsolescence of |High | | | | |5 |Low |New menu items do come up|
|industry products. | | | | | | | |but the older ones still |
| | | | | | | | |are sold |
|Aggressiveness of substitute |High |1 | | | | |Low |Promotion of substitutes |
|products in promotion | | | | | | | |is very high |
|Switching Cost |Low |1 | | | | |High |low switching cost |
|TOTAL | |2 |0 |0 |0 |5 | |  |
Overall Industry Attractiveness
|Factors |Unfavorable |Neutral |Favorable |
|Entry Barriers |2 |3 |13 |
|Exit Barriers |4 |0 |14 |
|Competitive Rivalry |4 |3 |4 |
|Power of buyers |3 |0 |10 |
|Power of Suppliers |0 |0 |13 |
|Threat of substitutes |2 |0 |10 |
| TOTAL |15 |6 |64 |
Strategic Groups
[pic]
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. Consumer’s 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” I’m chicken genius”. And also featured Jason Alexander from TV sitcom” Seinfeld” promoting Popcorn chicken using the slogan “There’s fast food, then there’s 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 “I’m 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.
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Church’s
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KFC
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Market Share
High
Low

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