KFC Fast Food Industry - Case Study Example

Table of contents 0 Executive summary........................................................................2 2.0 Overview of the situation...............................................................3 3.0 Statement of the main problem......................................................3 3.1Level of analysis.................................................................3 3.2 Problem type......................................................................3 3.3 Fast food industry attractiveness......................................4 3.4 Porter’s five forces model.................................................4 3.5 SWOT Analysis................................................................5 3.6 KFC stakeholder analysis.................................................5 4.0 Critical factors..............................................................................5 4.1 Major segments of fast food industry..............................5 4.2 Corporate culture..............................................................6 4.3 Differentiation..................................................................6 4.4 Diversification..................................................................6 4.5 International markets issue...............................................7 5.0 Alternative solutions....................................................................7 Ansoff Matrix........................................................................7 Market development..............................................................7 Market penetration.................................................................8 Product development.............................................................8 Diversification........................................................................8 Defensive marketing..............................................................9 6.0 Recommendation.........................................................................9 7.0 Rationale......................................................................................9 8.0 Bibliography................................................................................10 9.0 Appendix A- Porter’s five forces model.....................................11 Appendix B- Ansoff’s Matrix...........................................................12 Appendix C.......................................................................................13 1.0 Executive summary KFC is one of the first fast food industries to go international in the 1950s. Though it managed to grow steadily its customer base because of the uniqueness of its chicken products, the organisation has encountered some challenges in its operations. The fast food industry is mature especially in America and the viable strategy is to penetrate other international markets which are still growing. The main problem in this case is about establishing primary forces that affect demand directly and the attractiveness of the fast food industry as far as organisational growth is concerned. The problem to be overcome by KFC is that of ensuring its continual growth and the direction it can take to protect itself from competitors in the industry. Because KFC has limited products, though unique, it has been affected by tense competition especially from rivals like McDonald’s, Wendy’s and Burger King in its endeavour to penetrate growing markets. It has been recommended that the viable solution in the long run is to diversify its products while at the same time retaining its uniqueness. 2.0 Overview of the situation Kentucky Fried Chicken Corporation (KFC) was founded in 1952 and it was one of the first fast food industries to go international. Through Harland Sanders’ franchising strategy, KFC rapidly grew in the international market to become one of the most recognizable brands in the world. It managed to register on the New York stock exchange. Being the world’s largest chicken restaurant chain and third largest fast-food chain, KFC planned to grow through franchises and mergers. This marketing strategy was primarily meant to allow local people to market the products since they would have knowledge about the consumer needs. However, it can be noted that the restaurant industry is mature in US hence the need to penetrate international markets such as Latin America where business opportunities are lucrative. KFC is faced with a major challenge of successfully penetrating these markets ahead of competitors like McDonalds as well Burger King among others which calls for it to revise its strategies to gain this opportunity to operate successfully especially in new and lucrative international markets. 3.0 Statement of main problem The main problem in this case is about establishing primary forces that affect demand directly and the attractiveness of the fast food industry as far as organisational growth is concerned. 3.1 Level of analysis The level of analysis of KFC is Level 1 since it is related to industrial issues. Of great concern is the fact that the restaurant industry is mature where there are many competitors such as McDonalds’, Wendy’s as well as Burger King. This shows that this is a lucrative industry in which competition exists as illustrated by Porter’s analysis in (Appendix 1). 3.2 Problem type The problem to be overcome by KFC is that of ensuring its continual growth and the direction it can take to protect itself from competitors in the industry. For instance, the restaurant industry is comprised of eight thriving segments in which shows that the market is now mature and there is stiff competition whereby KFC has to gain a competitive advantage (Porter’s analysis in Appendix 1 illustrates this). The strategy that can be adopted can be diversification. 3.3 Fast food industry attractiveness in US In this case, it can be noted that the fast food industry in the US is mature and the competition is high. This shows that the fast food industry is lucrative given that there are mainly eight thriving segments in this industry. Though McDonalds dominates in other segments such as sandwich, KFC is a leader in the chicken segment. 3.5 SWOT Analysis “A SWOT analysis is a useful instrument for helping managers to identify internal strengths and weaknesses of a business and external opportunities and threats facing it,” (Strydom J. p 31). Basically, SWOT stands for strengths (S), weaknesses (W) while on the other hand the external environmental factors are regarded as either opportunities (O) or threats (T). This analysis is very important to the managers as it allows them to focus on key strategic issues based on the notion that an effective strategy fully utilises the strengths and opportunities of a business and strives to minimise the weaknesses and threats. Refer to appendix 3. 3.6 KFC Key Stakeholders’ analysis The major stakeholders for KFC include its franchises operating using its trade name in different parts. The employees also form a rich ground for the organisation’s stakeholders since they are the major drivers of business. It can also be note that the KFC customers are also major stakeholders. The customer is king in business since they are the ones who bring revenue which contributes to the profitability of the organisation. 4.0 Critical Factors 4.1 The major segments of fast food industry (Success) The major segments that make up the fast food segment of the restaurant industry include: sandwich chains, pizza chains, family restaurants, grill buffet chains, dinner houses, chicken chains, non dinner concepts and other chains. The case study shows that in 2002, the restaurant industry in US was comprised of about 858 000 restaurants which catered for diverse segments of the population and it employed more than 12 million people. Corporate culture Corporate culture is primarily concerned with the identity of an organisation which makes it different from the others. It is very important since it determines the success or failure of the firm. It can be noted that PepsiCo failed in its attempt to implement its performance-driven culture at KFC. KFC’s corporate culture was accommodative and the workers enjoyed job security. When things normalised, the original culture was adopted and KFC retained its position and continues to succeed. Differentiation (success) KFC offers differentiated products in that its products were unique and appealed to a large number of loyal customers. This greatly enhanced it to keep pace with the changing market environment in the fast food industry through ensuring its competitiveness. Product development aims at developing new products in the market which can go hand in hand with the existing product to increase the market share. KFC can add some variety to the existing chicken products to attract new customers. The main advantage is that products which are already popular in the market can be developed to meet the changing tastes of the consumers. As is the case, KFC has got a big customer base comprising of loyal consumers hence the need to penetrate other markets using the existing unique products. 4.2 Diversification (success) Though it can be noted that KFC lacks expertise to diversify its products like the other competitors such as McDonald’s, Wendy’s and Burger King, it has great potential. The consumer tastes are ever changing and these must be catered for. The aspect of cultural differences also plays a major role as far as food consumption is concerned. Offering other products on top of the popular brand can help KFC to gain more advantage over the other competitors just like what McDonalds and Wendy’s have done. 4.3 International markets issue The mature industry is a cause for concern due to intense competition in the restaurant industry which also makes it difficult to increase prices for their products. This also gives the customers the autonomy to choose where they wanted to have their food. Whilst product uniqueness may be guaranteed through market development, of concern is that businesses operate in a dynamic environment where all the changes have to be taken into consideration. Given that the fast food industry is now mature, there is need to devise new ways of reinventing the market through diversifying the products. 5.0 Alternative solutions 5.1 ANSOF Matrix Market Development Market development is concerned with selling the existing product to new market segments such as Latin America where the restaurant industry is still growing. A viable alternative that can be taken by KFC is to try to develop its market such that it will be better positioned to attract new customers. This will help it grow its customer base given it already has a big customer based comprised of loyal customers. Market Penetration KFC has a big customer base but it can alternatively try to penetrate new markets such as global markets which are still in their growth stage. A good example can be Latin America. This can be done through increasing the sales of the present product through reduction of price or embarking on a high promotional drive. This can be a viable alternative given that the restaurant industry is now mature. Product Development Though the chicken is very popular in KFC’s market, it is not an end in itself as it can be noted that the product can be continually developed to meet the changing tastes of the customers. It is also noteworthy to mention that KFC has managed to retain its loyal customers despite the competitive nature of the industry which is testimony that product development can be a viable alternative. It can be noted that competitors such as McDonalds as well as Wendy’s were market leaders by then but KFC’s chicken brand remained very popular because of its uniqueness. This marketing strategy is very ideal in that the organisation will be clearly distinguished from the other players by virtue of its differentiated product which will be highly valued by the customers. This can increase its competitiveness against other players hence the need to keep on developing the product. Diversification On top of its popular and unique chicken brand, KFC can also embark on a drive that is meant to diversify its products given that the restaurant industry is now mature. This can help to attract new customers on top of those already there. The need to keep on developing the products and the markets is necessitated by the fact that there are many players but it has to keep on developing its popular brand in order to keep pace with the competition by McDonald’s, Wendy’s as well Burger King. See Appendix C, Ansoff’s matrix which shows that diversification can be a viable option when the competition is intense. Defensive Marketing Strategy It can be noted that KFC is an already established entity ion its segment and is doing quite well in the international market. It is important for KFC to maintain its market position. Defensive maintenance is the kind of strategy that should be used by KFC in order to defend its market share while at the same time reinforcing its customer relationship (Dann & Dann 2007. The likely disadvantage is that KFC must ensure the sustainability of the strategy in the long term. 6.0 Recommendation Diversification Other competitors like McDonalds, Wendy’s as well as Burger king have a wide range of product offerings hence the need for KFC to diversify its products. Appendix 3, Ansoff’s matrix suggests that diversification is one viable option that can be adopted in a competitive environment like the one in which KFC is operating. Diversification will lead to product expansion as the organisation will seek to introduce more products on the market that will attract the other customers. 7.0 Rationale Given that competition in the market is intense, KFC can entrench its position in the market through attempting to diversify its products as one of the most viable options. This gives it the opportunity to attract new customers given that it already has a unique chicken brand which is valuable to the customers. This will enable it to capitalise on the existing markets as well as penetrating potential markets where diversified products are likely to appeal to new customers. Leveraging on existing markets is advantageous in that there are already some customers in the market and there would be likely chances of attracting new customers which will positively contribute to the revenue generated by the organisation and ultimately its profitability. Given that the restaurant industry is now mature, there is need to devise new ways of reinvigorating the market. Bibliography Aaker, David A. (2005). Strategic Market Management. (7th ed.). New York: John Wiley and Sons. Aaker, David A. and Mills, M.K. (2005). Strategic Market Management. (Pacific Rim Edn). Milton, Queensland: John Wiley and Sons Australia, Ltd. Ansoff, H.I. (1988). New Corporate Strategy. New York: John Wiley and Sons. Bateson, John E.G. and Hoffman, K. D. (1999). Managing Services Marketing Text and Readings. (4th ed.). Chicago: The Dryden Press. Brown, L. (1997). Competitive Marketing Strategy. (2nd ed.). Melbourne: Thomas Nelson Australia. Chopra, S. and Meindl, P. (2001). Supply Chain Management, Strategy, Planning and Operation. New Jersey: Prentice Hall. Czepiel, J.A. (1992). Competitive Marketing Strategy. New Jersey: Prentice-Hall Inc. Dann and Dann (2007) Competitive Marketing Strategy, Pearson Education Australia Doyle, P. (2000). Value-Based Marketing, Marketing Strategies for Corporate Growth and Shareholder Value. Chichester: John Wiley and Sons Ltd. Ferrell, O.C. and Hartline, M.D. (2005) Marketing Strategy (3rd Edn), Mason, Ohio: South-Western Publishing Co. Jain, Subbash C. (2004), Marketing: Planning and Strategy, 7th Ed. Mason, Ohio: Thompson Custom Publishing. Kaplan, R.S. and Norton, D.P. (1996), Balanced Scorecard, Boston, Mass: Harvard Business School Press. Porter M.E. (1985), Competitive Advantage; Creating and Sustaining Superior Performance. New York: The Free Press. Strydom J. (2004), Marketing, 3rd Edition, Juta & Co Ltd, SA. Walker, Jr., Gountas, J., Mavondo, F., & Mullins, J., 2009. Marketing Strategy: A Decision-Focused Approach. Australia. McGraw-Hill. Appendix A Porter’s Five Forces Model Appendix 1-Porter’s Five forces Model Walker et al (2009) suggest that Porter’s Five Forces Model is an ideal business strategy that is used to analyse five competitive factors that are likely to affect business. The following factors can be used as a check list to understand the attractiveness of the fast food industry as shown in Appendix A, Porter’s five forces model. Entry of competitors (High) In this case, there is entrance of other actors. In business wise, no one company should enjoy monopoly in the market. The fast food industry is now mature. Threat of substitute (high) This depends on the probability of a substitute overtaking the product already in the market in terms of cost. As can be noted it the case, other competitors like McDonalds, Wendy’s as well as Burger King have a variety of substitutes. Bargaining Powers Of Buyers (high) This depends on the interests and capacities of consumers on certain products. In this particular case focus is on KFC’s ability to capture the mature market in the fast food industry in order to ensure long term survival. Bargaining powers of suppliers (high) This depends on the strength of the sellers and in this case there are many suppliers of fast food products. There are several restaurants which offer a variety of different foodstuffs. Rivalry among the existing players (high) There are competitors in the fast food industry. Source http://www.12manage.com/methods_porter_five_forces.html The table above shows the five competitive factors that are likely to affect a business and have been used in the report to show how KFC is affected by competition in the fast food industry. Porter’s five forces model Factors Yes/ No Difficult entry to the industry No Many Small suppliers, unimportant contribution Yes Many small buyers Yes Few Substitutes No Few happy competitors No Appendix B Ansoff’s Matrix Present Products New Markets New Source: www.learnmarkerting.net 1) Market penetration is concerned with increasing the sales of the present product through reduction of price or embarking on a high promotional drive. 2) Product development is aimed at developing new products in the market which can go hand in hand with the existing product to increase the market share. 3) Market development is concerned with selling the existing product to new market segments. 4) Diversification entails innovation of something new. Appendix c ASWOT Analysis Strength -KFC has a unique chicken brand which is very popular among the customers. -it has a dedicated workforce which is the major driver of its success. Weaknesses -it does not have a variety of products to offer to its customers. Opportunities -Use of new information and communication technology can be harnessed to market its products as well as reach new markets. -Can harness emerging markets such as the ones in Latin America. Threat -The market is characterised by vey stiff competition. -in other cultures, chicken may not be a staple food. Read More