KFC and Fast Food Industry - Case Study Example

 KFC and Fast Food Industry Abstract This paper aims to present the Fast Food Industry Analysis in association with KFC which is one of the leading fast food chains of the world. KFC is operating under the parent company YUM! Brands. Initially KFC was established by Colonel Sanders who was an American expert in cooking. Due to the poor financial condition of his family he started cooking at a very young age and gained immense experience. Later in life he started a food chain which turned out to be very successful and named as KFC. The company was performing well and therefore it was bought by PepsiCo. This paper has discussed the history and outlook of the company along with a deep analysis of the over Fast Food Industry of US. KFC and Fast Food Industry Analysis Introduction Kentucky Fried Chicken (KFC) is a sister concern of Yum Brands who also have other fast food chains including Pizza Hut, Taco Bell and Long John Silver’s. KFC was established by Colonel Sanders who initially presented the idea of fried chicken which ultimately turned up to be the most exciting fast food. KFC is the world’s leading fast food restaurant with billions of customers from around 80 countries [Rom10]. The success did not come to the company in an easy way. KFC has a long story of struggle which is briefly described below. History Colonel Harland Sanders learnt cooking at an early age since his mother used to work outside and he was responsible to administer all the household tasks. Very soon he mastered some of the local dishes but due to financial constraints he could not think of pursuing a career in cooking. He kept on working as a streetcar conductor and insurance salesman while the supreme art of cooking resided inside him. In 1930 he began to serve the hungry travelers and developed the novel idea of replacing the home meal with something equally delicious. He was then in commission of a service station at Corbin, Kentucky, there he initiated the ‘Sunday dinner, seven day a week’. Later he got so much fame due to his distinctive chicken recipes that he was made the Colonel of Kentucky in response of his extraordinary services to the food industry. By 1955 he was very much confident about his chicken recipes which compelled him to establish KFC; within the time span of 10 years KFC had more than 600 branches in United States and Canada. Due to effective managing and marketing strategies KFC increased its profits within no time. Consequently in 1986 it was acquired by Pepsi Company which ultimately turned its restaurants including KFC and others in a separate company namely Tricon Global Restaurants, Inc which is presently known as YUM! Brands, Inc [His13]. The managerial activities of KFC have been greatly influenced by the perceptions of its different owners. The initial managing style of KFC which was followed in the time of Colonel Sanders is now replaced with the Consumer Product Orientation of PepsiCo. The Pepsi Company found that marketing fast food restaurants is somewhat similar to the marketing of soft drinks therefore they integrated their fast food chains with soft drinks which ultimately generated immense profits for the company. Outlook The fast food industry has widened its horizon of services within a very short time period which has made significantly difficult for many of the fast food chains to maintain their leading position in the market. This requires the famous brands such as KFC to have a forecasted business outlook in order to face the challenges of current market situation [Pro10]. KFC has customers from diverse groups; however, majority of them are college students and office employees. Consumers require them to provide more choices and a large variety of fast food dishes therefore KFC aims to provide its customers with the best possible fast food range available at one place since these people frequently need change in menu. As the company is expanding its services and menu it is also focusing on the nutritional improvement and overall good taste of food. In the near future they plan to develop dishes which have lowest calories, fats and sodium reductions. The primary concern of the company is to increase its sales and services extended to the customers so that they can enjoy high quality food with balanced diet. In addition to this they intend to introduce KFC in comparatively new markets which will enable it to increase profits since in under developed and some of the developing countries there are great opportunities for fast food restaurants [Pro10]. This is because the US fast food industry has reached to the highest saturation level and now the fast food chains are required to identify new market opportunities. Due to this KFC has more than 170 restaurants in India and the company aims to increase this number to 500 by 2015 due to the increasing fast food trend in the country and also because Indian fast food industry has much capacity for the multinational companies as it is not yet fully saturated like US or Canada [Vee12]. In the previous month KFC has launched its marketing campaign in China in response to the poultry suppliers’ scandal. The company is now looking forward to test all its ingredients and poultry chicken so as to ensure that the material used is free from banned drugs and harmful constituents [APJ13]. Fast Food Industry Analysis This is primarily done in order to compare the performance of different restaurants with one another. Restaurants obtain secondary data from A.C. Neilson or NPD Group which includes the market share along with dollar sales per unit made by the competitor. With the help of fast food industry analysis companies are able to compare the satisfaction level of different consumers with respect to the services and products of other food chains operating in the same industry. Satisfaction is measured on the basis of cleanliness, service and variety of food items [Ric13]. Companies operating in a Fast food industry receive payments before the service or the product is delivered. Payments are made over the internet, in the restaurant counter or at the door steps in case of home delivery. Gross sales are calculated through the company franchises and authorized stores only. Restaurants which are extending fast food services, drive-thru or quick services comes under this industry. Due to the variety of services and a large number of restaurants including KFC, McDonalds, Starbucks, etc; fast food industry of United States gains substantial profits and revenues which are given below [Rom10]. Industry runs around 300,645 businesses including all the superior and inferior fast food chains. The industry has annual revenue of $184.0 billion with $8.3 billion profit. Annual growth rate of overall industry is 0.4% The total number of wages is $48.0 billion Following Graph represents the major business locations of Fast Food Industry [Rom10]: It represents that the South Eastern Region creates maximum profit of 57855 for the industry as it has the highest market share on the basis of different regions. Apart from this Rocky Mountains has the lowest capacity of fast food business which specifies that different operations and activities of the fast food industry are highly affected by the regional differences and the nature of local inhabitants. Following Graph represents the revenues of Fast food industry with respect to employment growth rate [Rom10]: It indicates that as the revenue of Fast Food Industry increases it creates new job opportunities and consequently the unemployment rates decreases. Hence the fast food industry is an essential component of economy which directly influences the job market and employment growth. If this industry is working on its optimum level then it will result in increasing the GDP growth rate and per capita disposable income. Following chart represents the change in per capita income of American population in relation to the yearly performance of Fast Food Industry [Rom10]: The analysis of Per capita disposable income with revenues and employment growth rate indicates that when there is no significant percentage change in the revenues then the unemployment rates starts to decrease and the per capita disposable income reaches to its peak. Market Analysis McDonalds has the highest market share of the Industry i.e. 12.7% and KFC (YUM Brands) has acquired the second position with 9.7% market share. The key driver of the industry on the basis of external environment includes [Rom10]: Per Capita Disposable Income Health perception Consumer Sentiment Index Competition from fully operating Restaurants The Fast Food Industry has varying demands from different economic institutions which is briefly illustrated from the following chart [Rom10]: This indicates that the household which have yearly income between 50,000 to 70,000 constitutes the biggest market for the fast food industry. The main foods offered by the industry includes sandwiches, coffee, hand burgers, pizza, fried chicken, etc. in addition to Chinese food, Mexican food and salads are also supplied to different consumer markets. However, the percentage of supplies largely depends upon the consumers’ demands and changing market trends. Following graph illustrates the segmentation of products and services supplied by Fast Food Industry [Rom10]. The above segmentation indicates that the restaurant supplies constitute the largest portion of the products supplied. According to this it can be concluded that restaurants create highest business opportunities for the fast food industry. Industry Concentration Analysis The structure of the Fast Food Industry is as follows [Rom10]: It has a mature life cycle stage with comparatively low revenue volatility. It does not require huge investments since the industry is operating at its optimum level and also because the fast food market of US is completely saturated. It has a low concentration level. The Industry is subject to high regulation level due to fluctuations in market supply and demand. It experiences overall medium technological change. For instance, the fried chicken of KFC stills goes through the same procedure as it was cooked in the time of Colonel Sanders with very little use of latest technology. The industry has low barriers of entry which reflects that new companies can enter in to the market easily, however, if they aim to reach the highest level then they will possibly face extensive challenges. The Industrial Globalization is very high, for example, KFC alone has its franchises in more than 80 countries. High Globalization level has subsequently increased the competition level as well. Pricing or Advertising Decision Analysis The pricing of products is done on the basis of demand from different household groups. The households having annual income between 50,000 to 70,000 demand the highest percentage of fast food. Therefore the pricing is done so as to attract these customers additionally the pricing strategy of fast food industry largely depends upon the economic conditions and lifestyle of general people [Jen09]. Companies operating in fast food industry primarily target college going students and office employees consequently the advertising decisions are made considering the lifestyle, trends and habits of the target market. Majority of the advertisements showcase college or office environment and the typical nature of teenagers. The advertisement costs restaurants huge amounts which are then categorized as marketing expense. For instance in 2009 KFC had an expenditure of $268.9 million over the advertisements and other marketing policies [Jen09]. Game Theory Analysis Game Theory in Business deals with the outlook of different companies operating within the same Industry. According to this theory the decision making style of each company significantly influence the activities of other companies. For instance, if KFC plans to step in new markets then it has to consider its impacts over the competitors such as McDonalds that how it would react to this step of the company and how it can actually affect their own business activities. Fast Food companies require to make this analysis particularly when they are about to launch some new products so as to analyze the profits that they can earn through the launch of new product and also the time period in which the competitor is expected to come up with something better than this. Recently KFC has launched its new campaign in China which will compel its competitors to make some different strategies especially for China [Fer03]. Conclusion and Recommendations Fast Food Industry is one of the most significant economic constituent for United States of America. It generates extensive profits for the country and also creates different job opportunities. Research indicates that it have been proved beneficial in increasing per capita disposable income of an average American. However certain improved business strategies can further advance the overall industry performance. Following are the Business Strategy Recommendations for the Fast Food Industry in general and KFC in particular [Pau13]: Stepping into new markets: KFC can step in to new markets such as those of the under developed countries. This could be done through introducing simple products at the initial point and then leading towards the more complex items such as Zinger burger. This business strategy would have to be made through analyzing the economic conditions and interest of people towards the fast food. Advertisement: Food chains can now use different humorous techniques in T.V commercials because in the present day it the most convenient tool to create awareness among the population in a light and acceptable way. Internet: Usually the company’s official website is used to place orders but as per the intense public demand KFC must initiate order placement option over the social networking websites. Engaging customers: KFC need to engage its customers on regular basis in different activities. For instance, they can have different talent hunts at national or even among different colleges. Similarly they can run T.V shows so as to display their newest products. Sponsorships: KFC can sponsor major world events such as Olympics or Cricket World cup so as to increase its profits and also to gain attention from a large audience at the same time. References Rom10: , (Zwolak, 2010), His13: , (History: Colonel Sanders, 2013), Pro10: , (Progress and Future Plans, 2010), Vee12: , (Venugopal, 2012), APJ13: , (KFC Launches China Campaign to Rebuild Brand, 2013), Ric13: , (Rick Suttle, 2013), Jen09: , (Jennifer L. Harris, 2009), Fer03: , (Feryal Erhun, 2003), Pau13: , (Paul, 2013), Read More