Situation Audit of Kentucky Fried Chicken - Example

Business case Analysis Business February, TABLE OF CONTENTS Executive Summary 3 Part A Situation Audit ofKentucky Fried Chicken 3 1. Background of the company 3 2. Statement of the problem/ challenges of the company 4 3. SWOT Analysis 4 a. Strengths 4 b. Weaknesses 5 c. Opportunities 5 d. Threats 5 4. Strategies and recommendations 6 Part II. Business proposal 7 1. Overview of the proposal 7 1.Rationale 7 2.Products/services 7 3. Specific goals 7 4.Market research 8 5 .Strategies 8 6. Competitor analysis 8 7..Business location and facilities 9 8. Projected start-up costs and break-even analysis 9 2. Summary 11 References 12 Business Case Analysis of 2 situations Executive Summary This paper is presented in two parts. First part is a situation analysis of an existing multi-national corporation, the Kentucky Fried Chicken, or popularly known as KFC. Background of the company is presented, its strength weaknesses, opportunity, and threat is analyzed to find out if any problem lies in its management. KFC has been successful in its business model of franchising, but it seems some of its problems come also from this set up since competition is high. In some instances, vulnerability to perceptions and lack of back up plans caused decline of sales. Finally a recommended strategy is spelled out. Data and information used came from reliable sources such as company websites and news repots. The second part is a proposed development of a new company that will cater to packaging needs of many retail stores, supermarkets and consumers. Assumptions are used in the projections. A strategic marketing plan is proposed to provide guidelines for its implementation. Part 1. A Situation Audit of Kentucky Fried Chicken 1.Background of the company Kentucky Fried Chicken, or KFC, is known for its famous fried chicken for many years worldwide. Although, it was only formally established in 1950, Harland Sanders, its founder, had been serving the special fried chicken in a small restaurant inside his petrol station to serve hungry travelers as early as 1930s. People started to line up for his fried chicken, and as recognition for his contribution in state cuisine, the State Governor, in1935 gave him an honorary title of Kentucky Colonel. When his store closed due to an area improvement that bypassed his store, Col. Sanders practically initiated franchising as he started offering his fried chicken to restaurants in U.S. for only five cents per chicken covered. By 1964, he had franchised 600 stores all over U.S. Eventually, he sold this franchise to a group of investors on condition that he would remain a member of the Board. In 1986, the franchise changed hand to Pepsi at the cost of USD$840 million (KFC, Colonel Sanders story n.d.). He had to retire from active participation in management because of frail health due to old age. In 1977, and up to now, KFC became part of the YUM Brands, Inc. which is the largest food chain worldwide. (Yahoo Finance. February 15, 2013) 2. Statement of the problem/ challenges of the company When a business operation is seen successful, it is but normal that its marketing strategy is copied by others. Today, franchising has been the norm for worldwide operations since it is the simplest form in entering a new region or territory. Needless to say, the strength of competition is a possible way to ease out a company that is already in the market. Competition and perception of consumers are two of the biggest concerns of KFC. The perceptions of people are easily swayed by rumors such that sales easily decline (”Chicken scare…”Feb. 5, 2013) 3. SWOT ANALYSIS The SWOT analysis for this company covers the internal strength and weakness of the company while the external analysis are the opportunities and threat for the company. Strengths A well known brand recognized all over the world Strong market presence in Asian countries, UK, Mexico and Middle East. Second largest food chain and franchiser, next to McDonalds (Franchise Direct n.d.) Operates 38,000 stores in 120 countries as of 2012. As Profits of the company increases ever year, franchisee revenues also increase. Secret recipe for its fried chicken has been maintained and holds incomparability in the fast food business.(Col. Sanders story n.d.) WEAKNESSES Since it is a franchising business, quality of food might compromise its brand and image. Vulnerability to rumors affects sales. ( “Chicken scare…”’ Finance. Feb. 5, 2013) There is a lesser concern for research and development. Pricing is not flexible thereby making unavailable for middle class group of people Copies competitor’s ideas. OPPORTUNITIES Effortlessly tempts young customers, bookings for parties. Offers as a substitute for home cooked meal Efficiency of services is increased by home delivery service. Ready substitute for meat as scare for “mad cow” increases. Price is lower than meat dishes. Introduction of new products that complement the fried chicken as a wholesome meal. Positioning in new and strong markets. THREATS Higher price might turn away customers. People are getting conscious of eating healthy foods, and shun away fried foods. Company has a few choices of food to offer except its banner of fried chicken. Scare on avian flu and other toxins found in chickens and in the food. 4. STRATEGIES AND RECOMMENDATION Since it is observed that the company is rather low in research and development, it was caught unprepared and defenseless as sales declined severely due to food safety scare. The management, according to “Chicken scare…..” news cited in Yahoo Finance (05 February 2013) said that only time can heal the scare, meantime, they have to wait till the scare dies down and pass the time till the perception of the people favors them again. Management recalled a similar thing happened earlier when there was a scare on Avian flu, SARS, and Sudan Red-dye that caused a steep decline on KFC sales. It took several months before the company has regained its share of the market. Admittedly, management said advertisements and promotions did not work for the matter. As a franchising company it is also open to unethical standards that may damage or harm brand image. Franchisees might operate in a different standard that set it apart from its parent company. Things like these are most likely to happen, and company should adopt strict rules for franchisee to follow. Failure or non-compliance would subject them to stiffer fines, penalties or revocation of franchise agreement. Company should also spend on research and development or to come up with alternate marketing plans in case unexpected scare develops again. This my be in the form of alternate menu plans like using beef, pork, or lamb, whichever is deemed probable so as not to disrupt operations. They should always be in touch with developments on food and technology so they will be one step ahead all the time. Part II. Business proposal for a paper bags manufacturing company 1. Overview of the company 1.1. Rationale. The fight for environment protection has prompted us to come up with an idea of paper bag manufacturing. People are much concerned for the environmental damage of waste and pollution brought about by dumping plastics and Styrofoam packages in the dumpsites. It is reported that these materials do not easily disintegrate, burning it brings more harm to the environment and it clogs sewerage and waterways, thus damaging the ecosystem. 1.2. Products/services. As a start, our products will consist of Crafted Paper bags in different sizes, thickness and designs. Future plans are for creation of other packaging designs all made of Kraft paper. 2. Goal (specific and measurable) Our goal is to answer the needs for environment protection by replacing plastics bags used in retail stores with paper bags. By producing a recyclable paper bags, our proposal would be contributing something for the well-being of the nation aside from putting in something to the betterment of the environment. Specific goal is to be able to supply 2 million pcs of paper bags at the end of 2013. 3. Market research. Market research is an effort to identify gap in the market and business opportunities. We see an opportunity in the need to replace plastic shopping bags that are non-biodegradable to an environment-friendly paper bags. We are trying to capture the evolving trend due to environment and economic change. Our first step to this is by trial purchases. If customers are delighted by the idea, they may claim for more. Customers’ view will guide us if customers are ready to accept the new packaging procedure. Target markets are supermarkets, retail stores, and all other stores that use plastic bags to pack up groceries and other things purchased from the store in the US. Positioning. Customers will be delighted to receive crafted paper bags that they could recycle as gift bags later on. 4. Strategies Hire a team of sales persons and open a website for Internet sales. Strengths Beautiful designs of crafted bags. Timeliness of proposal due to calls of environment protection Weaknesses As a start up company, limited resources could be one of foreseen problems. Investors’ confidence is not strong enough. 5. Competitor Analysis - Suppliers from other countries like China. Big foreign suppliers gain competitive advantage due to positioning. Pricing - Competitors’ price will be our guide in pricing. As suppliers come from other countries, their added costs are shipping costs. Our price would be lower because it is less the shipping costs. Price depends on size, weight, and designs. For instance lowest price of paper bags coming from HongKong is 0.1289 per piece. So relatively, our price must go within the range or lower to become competitive 6. Proposed business location and facilities. According to the latest survey reported by Kurt Badenhause of Forbes Magazine (29 June 2011), the best place to do business is Raleigh, N.C. because of its low cost, pro-business regulatory environment. Additionally, the locale has a strong university growth presence that helps growth of the area. Having this in mind, our company proposed to settle in this area. We will rent a place to accommodate our business. 7. Projected start-up costs and breakeven analysis Start up costs includes owners’ capital in the amount of $75,000. Cost of machine is $20,000, rental is $900/mo. Commission is 1.5% of sales With a projected sale of 2 million paper bags at the end of 2013, at the price of 0.127¢ per bag, revenue is expected at $254,000. Fixed cost is $125,000. Variable cost is $8,610. To come up with a Break even cost per unit, calculation is: VARIABLE COSTS Utilities $1,000 Commission 3,810 Misc. expenses 3,800 Total $8,610 FIXED COSTS materials $101,600 Rental 9 mos 9,000 Labor 14,400 Salaries 10,800 Total $125,000 To get BEP : Fixed Cost / Price – Variable cost = BEP in units (Investopedia n.d.) To put it: $125,000 (FC)/ 0.127(Price) - $8,610(VC) = 975,647 units Meaning, the company must be able to produce and sell 975,647 units to cover its fixed expenses and variable costs. Anything below is a loss and above BEP is profit. To measure the Return on investment formula is ROI = (Gain from investment –Cost of investment / Cost of investment ROI = (90,300 - 75,000 = 15,300 / 75,000 = 20.4% ROI is an important measure to evaluate efficiency of an investment or in comparing the ratios of different alternatives.(Investopedia n.d.) 8. Summary Planning a new business involves several processes. First it should start with a market research to find out any gap or need that the company can fill. This is to assure the company that there is a target market for the proposed product or service. A market research could be gathered either thru direct interview or thru published literature to know the industry trend. A competition analysis is also needed to know if the company can compete with rivals in the industry. Thru review of literature, we learned of the need for paper bags to save the environment. Our company proposal could readily be accepted by supermarkets as part of their corporate responsibility. By doing projections, we are able to come up with a break even unit wherein we determine how many bags are needed to break even. Analysis show that the BEP unit is almost half of our targeted units of sale, so there is enough profits left to continue with operations without resorting to financing. So the weakness in financing is taken cared at the initial year. A 20.4% ROI gathered is a fair return to investments and therefore investment in this business is recommended. List of References Badenhausen, Kurt. (29 June, 2011) The Best Places for Business and Careers. Forbes. Retrieved 19 February 2013 from ://www.forbes.com/sites/kurtbadenhausen/2011/06/29/the-best-places-for-business-and- careers/ Chicken scare in China affected its sales December last year. Reuters cited in Yahoo Finance. Feb. 5, 2013 Retrieved 19 February 2013 from http://finance.yahoo.com/news/yum-ceo- says-time-not- 180558290.html;_ylt=A2KJ3Cd9zyFRGAkA73CTmYlQ Franchise Direct n.d.) Top 100 Global Franchises – Rankings Retrieved 19 February 2013 from Investopedia. (n.d.)ROI definition Retrieved 19 February 2013 www.investopedia.com/terms/r/returnoninvestment.asp - - - BEP definition KFC Col. Sanders story (n.d.) Retrieved 19 February 2013 from Yahoo Finance (15 February 2013) Yum Brands Profile Retrieved 19 February 2013, Finance.yahoo.com/q/pr?s=YUM+Profile Read More