Kfc Japan Case Study Analysis

Presentation on theme: "Case Study: Kentucky Fried Chicken and the Global Fast-Food Industry"— Presentation transcript:

1 Case Study: Kentucky Fried Chicken and the Global Fast-Food Industry
Presented by:Wajiha KhanFouzia Arshad

2 KFC Presentation Roadmap
Brief History About the Company.Merger and AcquisitionsPepsiCo TakeoverThe Industry Overview and Performance Highlights.Internal Analysis.Current Corporate StrategySWOT AnalysisElaborated Marketing StrategyElaborated Strategic Management and LeadershipFuture Strategy LayoutStrategic Vision and Mission StatementMarketing StrategyHR and Franchisees StrategyMonitoring and Evaluation of the Strategy

3 KFC Evolution Video

4 Origin of KFCThe restaurant in North Corbin, The first Kfc restaurant situated inKentucky where Colonel Sanders south salt lake, Utah and since itsdeveloped Kentucky Fried Chicken. replaced by a new Kfc.

5 History of KFCIn 1952, Harland Sanders began his travel around the United States to find prospects franchisees for its Unique Chicken Recipe.By 1960, Colonel Sanders had granted KFC franchises to more than 200 take home retail outlets and restaurants across United StatesIn the year 1963, KFC franchises touch the mark of 300 with the revenue of $500 million.On Sander’s 74 birthday he was eager to lessen down the load of his business, so he sold his business to two louisville businessman Jack Messey and John Young brown Jr. for $2 million.By the late 1960s KFC turned its attention to the Global Markets and joined hands with Mitsuoishi Shoji Kaisha, ltd that enabled them operation in England and Japan

6 R.J. Reynolds Industries, Inc.
The takeovers of Heublein, Inc. and R.J. Reynolds Industries, Inc.In 1971, Heublein were in negotiations with the KFCHeublein was in the business of Producing vodka, mixed cocktails and other alcoholic beveragesConflicts started between the managementsBy 1977, new restaurant opening was lowered to 20, remodeling of restaurants started as the services standards fell drastically.This strategy enabled KFC to gain better control of the existing franchises and then expand.Heublein, Inc.In 1982, R.J Reynolds Industries acquired HeubleinThis acquisition for a part of their corporate strategy of diversification.R.J Reynolds believed the KFC management were well versed to manage this business hence they had no interferences, which avoided various operating problems of KFCIn 1985, RJR acquired Nabisco Corporation and sold KFC to Pepsi Co one year laterR.J. Reynolds Industries, Inc.

7 KFC Commercial

8 KFC Product Line Burgers: Zinger Burger Colonel’s Chicken Burger
Colonel’s Fillet BurgerSUB60Zinger Jr.Chicken:1 piece2 pieces5 pieces10 pieces

9 Continued…. Combos: Chicken Meals Sandwich Meals Family Meals
Desserts & Beverages:Fruit SaladRegular & Large DrinkRegular & Large Mineral WaterTeaScoop of Walls Ice creamCoffee

10 Continued… Snacks & Side Orders: 5 & 20 Pieces Nuggets Arabian Rice
5 & 10 Pieces Hot wingsDinner RollRegular & Large FriesHot ShotsCorn on the CobHot & Crispy SoupCole Slaw

11 Pepsi Co ProfilePepsi Co, Inc was formed in 1965 with a merger of Pepsi Co. and Frito-lays, Inc.Business linesSoft drinksPepsi ColaDiet PepsiMountain DewSnacksLays Potato ChipsDoritos tortillaTostitos tortilla chipsRuffles Potato Chips

12 Corporate StrategyThe groups Acquired major businesses such as North American Van Lines, Wilson Sporting goods, and Lee Way Motor Freight. However it lacked management skills to operate these businesses.In 1984, Don Kendall the Chairman and CEO of PepsiCo restructured the business and got rid of the consumer product orientation and PepsiCo was divide into 3 divisions:Soft drinksSnack foods, andRestaurants

13 Restaurant Business and Acquisition of KFC
Why did PepsiCo entered the Restaurant Industry?Because,Same Patterns of MarketingAdditional venue for the Sale of the Pepsi Co brands (Soft drinks)Management Skills could be transferred and will be compatible in these business.So the acquisition initiated,1977: Pizza Hut1978: Taco Bell1986: KFCThis acquisition gave them the leading market share in all the segments.

14 Human Resource Restructuring
It was a collision between two different cultures.PepsiCo: Performance OrientedKFC: Laidback and LoyalistHarsh Comments were exchanged between the managements.Two massive downsizings.Immense Pressure on KFC management and employees

15 Poor Relations with the Franchisees
In 1989, John Cranor was appointed the President and CEO of KFC.John Cranor in the same year addressed the Franchisees to explain the details of new franchising contract. These were:PepsiCo can takeover the weak franchisesRelocate RestaurantsExisting KFC outlets will not be protected against competition from new outlets.PepsiCo will have a right to increase royalty fees

16 Continued…This address of the Cranor backfired and resulted in the Protest of the franchisees.However in 1996, the most object able parts were removed by KFCs new president David Novak.A new contract was ratified by KFCs Franchisees in 1997.

17 PepsiCo DivestitureBetween 1990 and 1996, PepsiCo sale grew by 10% surpassing $31 billion.However troubles were faced in the fast food segment where the margin reduced from 8% to 4% in 1996.As a result, PepsiCo food division absorbed half of the company’s capital spending and generated one-third of the cash flows, declining its ROA and stock price as compared to competitor Coca Cola.In 1997 PepsiCo decided to forward its restaurant business to a new company called Tricon Global Restaurant.

18 Continued..PepsiCo’s objective was to reposition itself as a soft drink and snack brand.Later PepsiCo acquired Tropicana Products.By the divestiture of Pizza Hut, KFC and Taco Bell sales fell down by $11.3 billion and asset fell by $7 billion.However the operating margin rose from 11 to 14% in 1999 and ROA from 11 to 16 % in 1999

19 Video on Fast Food Industry

20 Fast Food IndustryAccording to National Restaurant Association, food service sales increased by 5.4% to $358 billion in 1999.More than 800,000 restaurants and 11 million people employed.The industry comprises of 8 major segments with Mc Donald being the top performer with sales of $19 billion in 1999.

21 Chicken IndustryKFC is the market leader in the Chicken Industry with the Market Share of 55.2% and sales of $ 4.4 billion in 1999.However it has witnessed a decline of 15% in the last 10 years.The competitors like Chick-Fil-A and Boston market increased combined market share by 17%.It was assumed that KFC will face competition from Boston Market but the company filed bankruptcy due to mounted debt problem.

22 KFC Future StrategiesDrive aggressive international expansion and build strong brands everywhereDramatically improve U.S. brand positions, consistency and returnsDrive industry-leading, long-term shareholder and franchisee value

23 Continued… Particulars Growth Rate Sales (in million) KFC 4% Popeyes
10%Boston Market16%Number of US Restaurant1%6%11%Sales Per unit3%5%

24 Kentucky Fried Chicken Corporation Current Strategies
Marketing StrategyIn 1990, they focused on three types of Chicken: Fried, Extra Crispy, and Tender Roast.Launch of BuffetLaunch of Crispy Strips and Chicken SandwichDrive through and delivery points at nearby locationsIntroduction of “2 in 1” and “3 in 1” restaurants

25 International Operations
By year 2000, more than 50% of the KFCs restaurants were located outside USA.These restaurants were mostly owned by the country’s local entrepreneur who possess better understanding of the market.Of 5,595 KFC restaurants 69% were franchised 21% were company owned and 10% joint ventures.In larger markets such as China, Mexico, UK, Thailand Australia and Canada more emphasis was laid on company owned restaurants.

26 Latin America MarketKFC operated 438 restaurants in Latin America in Its established subsidiaries in Mexico, Puerto Rico in 1960s and launched company owned franchises.Franchises were also allocated to local entrepreneurs and further subsidiaries were formed in Venezuela, Virgin Island and Brazil.However the operation from Brazil Shut down.But still KFC is the market leader in the Latin America Region and enjoys the first mover advantage.

27 Risk Assessment in Latin America
NAFTA had eliminated tariffs on goods shipped between Canada, Mexico and US.Many countries such as Chile, Argentina, Paraguay, Uruguay and Brazil had also established free trade policies.That’s made Latin America an attractive place for investors.In 1992, researcher Kent D. Miller developed a framework for analyzing country’s risk and attractiveness of a country for future investment.He argued that firms must examine country, industry and firm factors in order to fully assess country risk.Many US companies believed that Mexico was an attractive country for investment . Its population was more than one-third as large as the US and represented a large market for us goods and services.

28 Continued…However, the volume of trade between the US and Mexico has increased significantly since the NAFTA went into effect in 1994.One year after NAFTA went into effect Mexico posted its first balance of trade surplus in six years

29 Risk and OpportunityKFC face variety of risk and opportunities in Mexico. It had eliminated all of its franchises in Mexico and operated only company owned restaurants that enable it to better control over quality, service and restaurants cleanliness.But company owned franchises required more capital than franchises did.MacDonald's was growing its restaurants base rapidly and was beating KFC in terms of sale.Even Wendy's had also announced plans to open 100 restaurants in Mexico by 2010.Habib’s , brazil 2nd largest fast food chain. Habib’s served traditional eastern dishes at prices below KFC and MacDonald's. It planned to open 400 units in Mexico by 2005

30 KFC Strategy in MexicoKFC wanted to sustain its leadership position in Mexico and the Caribbean.Second strategy was to invest more capital in these large markets to challenge existing competitors.Another strategy was to focus on building a franchise base through out the Latin America

31 SWOT Analysis Strengths Market leader in the Category
Outreach in 85 countriesStable parent companyGood and Consistent tastePioneer Brand Image

32 SWOT Analysis Weakness Limited Product line.
History of acquisition and transformations which limited their growth.Human Resource weaknessesPast Strategy FailureUnhealthy segment of Fried ChickenCannibalization of the Products

33 SWOT Analysis Opportunities Extend Product line.
Acquire small chicken companies of the segment.Move towards developing and untapped countries.Grilled Chicken, Roasted Chicken, and Bar-b-q chicken segment

34 SWOT Analysis Threats Increasing Growth of the Competitor
Sandwich market introducing me 2 products such as Mc Chicken and Crispy Chicken Burger.

35 KFC ControversiesKentucky Fried CrueltyKFC supporting Racism

36 New Strategy Formulation
Vision Statement:“We believe in being the best in chicken category by extending our product range and increasing our outreach, we also believe in acquiring small chicken company and extend our company’s portfolio”

37 New Strategy Formulation
Mission Statement:“Our mission is to improve and expand in the businesses maintaining excellent relationship with our suppliers, franchisees, customers and employees.”

38 New Strategy Formulation
Objectives:Increase sales by 5-7% annually.Acquisition of small grilled, bar-b-q and roasted chicken franchises.Expansion of All in one unit restaurants providing all the brands under one roof.Maintaining better controls on the franchisesBetter Animal Rights Control System.

39 Future Marketing Strategy
Induction of new products.Grilled Chicken.Developing acquired restaurant to compete against KFC.This Strategy will benefit the group and will also help KFC to stick to the original recipe and less Cannibalization will be seen amongst the products.Using Innovative mediums for Marketing such as Facebook , twitter and their websites.

40 Franchisees and Employee Development
Training and Development of all franchisees on quarterly basis enabling them to enhance service standards.Employee rotation in the international countries so that they could better understand and formulate the operational and functional Strategies

41 Monitoring and Evaluation
Third Party Audits.Performance evaluation and devising the future Short term Strategies to overcome quarterly highlights problems.

42 Questions?

43 Thank You

Tell me something. When was the last time you, your family – or, for that matter – any of your friends who celebrate Christmas, woke up on Christmas morning, rubbed crusty eyes from shopping hangovers, and said: “Hey, let’s go get a huge bucket of deep fried, fat-drenched chicken from KFC?

Well, in Japan they do. Though if you haven’t reserved your KFC Christmas bucket weeks in advance, you’re probably stuck in a ridiculous line.

All is not lost: lucky line-waiters might get a view of Colonel Sanders dressed as Santa Claus. The story behind KFC in Japan on Christmas is an instructive tale of diabolical marketing genius we all can learn from.

KFC in Japan – by the numbers

The numbers are finger-lickin’ good. As BBC reports:

  • Every Christmas season an estimated 3.6 million Japanese families treat themselves to fried chicken, in what has become a nationwide tradition.
  • Daily sales at Japan KFCs can run ten times the usual sales volume. KFC says that the special Christmas meal packages can account for as much as 1/3 the annual sales in Japan.
  • Customers who don’t order ahead must wait in lines that make United Airlines holiday service lines seem speedy by comparison.
  • Christmas Eve is the sales peak. For employees, it’s all hands on deck. In 2012, The Smithsonian reported that back office staff and executives pitch in to ease the Christmas Eve lines.

KFC on Christmas – “It’s not about the chicken”

But the real achievement goes beyond numbers. “KFC on Christmas” has embedded itself in Japanese culture. The BBC tells of the Ando family:

But for [Ando], he sees the tradition as more than just a company promotion. It’s not about the chicken. It’s about getting the family together.

KFC means family on Christmas day:

On Christmas night, the family will gather around the KFC bucket, just as Ando once did as a child, and just as his children will do in another generation. “It’s kind of a symbol of family reunion,” Ando says. “It’s not about the chicken. It’s about getting the family together, and then there just happens to be chicken as part of it.”

Contrast that with the shock of showing up to Christmas dinner in the U.S. with KFC. Kevin Gillespie, a chef from Atlanta, sums it up well:

If you brought a bucket of fried chicken to Christmas dinner, honestly, I’d be mad at you.

According to the BBC, the story dates back to 1970. Not long after the first KFC opened in Japan, store manager Takeshi Okawara woke up at midnight. The idea came to him in a dream: a “party barrel” to be sold on Christmas.

Okawara’s idea was spurred by overhearing foreigners in his store talking about missing turkey on Christmas in Japan. So, the legend goes – why not chicken? In 1974, KFC took the program national, dubbing it Kurisumasu ni wa Kentakkii – or “Kentucky for Christmas.” A big advertising blitz in 1974 took hold. The catchphrase, which some report as “Christmas = Kentucky,” took hold.

The rest is marketing history. Okawara did pretty well also. He climbed the proverbial ladder, serving as president and CEO of Kentucky Fried Chicken Japan from 1984 to 2002.

The opening was there: there isn’t a Christmas tradition to speak of in Japan (only 1 percent or so of Japan’s population is Christian). Why not fill the void with… buckets of chicken? The offering has evolved – now families can get meal-sized boxes with chicken, wine and cake. A Kentucky Christmas dinner ranges from a box of chicken (3,780 yen, or $32), to a “premium” whole-roasted chicken and sides. That will run you 5,800 yen (50 bucks).

My take – diabolical marketing lessons

I don’t call these lessons diabolical because KFC managed to gain cultural relevance in Japan. That’s up to the Japanese. But there is something wickedly clever about twisting the U.S. narrative.

Some lessons:

  • Start small with a localized campaign; double down hard on what works.
  • Take advantage of global reach – but only in the context of cultural nuances.
  • Have people on the ground who grasp the culture – and who are given the freedom to bring ideas forward.
  • Ensure you are pulling customer feedback into future offerings. Complaints are the seeds of winning ideas, but are often buried or ignored.
  • Look for openings that are not filled by other traditions and habits.
  • Create a perceived need from nothing.
  • Brand so that people feel like losers if they aren’t part of it. (See a recent KFC for Christmas commercial)
  • Adapt the product or service for cultural appeal (adding wines, cakes, etc). Don’t impose your solution or culture; blend with local rituals.
  • Convince people they are a part of something special by participating in your brand. Allow them to own it in a way that downplays its corporate origins.
  • Make your product so culturally appealing that the downsides of the product are irrelevant (in KFC’s case, the highly questionable nutritional value of their core offering).

KFC would probably take issue with my nutritional potshots. They’d point out that turkey aside, once you pile on the gravy, stuffing, fried green beans, desserts, and general overeating, that a KFC spread is not nutritionally inferior to a traditional Christmas feast. It would be a fair rebuttal.

Americans don’t want to see you on their Christmas doorstep with a bucket of KFC – but they might not have a nutritional leg to stand on. Unless you have a “free range meats only” advocate at your Christmas table. Oh, and maybe don’t read the 35 day life of a KFC chicken before ordering yours. KFC is also under pressure to cut human antibiotics from its chicken raising, something McDonald’s has already eliminated.

On the progress front, KFC’s nutritional info says they now only cook with Canola Oil, which has zero grams in trans fats. That’s not new to KFC – they’ve cooked without trans fats since 2006.

The rise of fast-but-healthier food is a trend I’ve seen in multiple countries via EAT, Pret and so on. That’s a KFC battle for another time. Two days before their big day in Japan, I’ll tip my cap to a cultural and marketing accomplishment that may be a tad diabolical, but has stood the test of time.

Image credit - Images from Instagram, account holders are listed on each screen grab.


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