Critical Review of Kentucky Fried Chicken in China - Report Example

Kentucky Fried Chicken (KFC) Contents Kentucky Fried Chicken (KFC Contents 2 KFC and its Business 4 KFC Business in China 4 Corporate Level Strategies 7 Strategic Direction Matrix Analysis 7 Market penetration 8 Market development 8 Product development 8 Diversification 9 BCG Matrix Analysis 10 This matrix analysis will help to analyze the business units or product lines of the company. 10 Business Level Strategies 10 Empirical Analysis 11 Marketing Mix 11 Product 11 Price 12 Place 13 Promotion 13 People 13 Physical Evidence 13 Production 14 Positioning 15 Segmentation 15 Value Chain Analysis 16 Inbound Logistics 16 Operations 16 Outbound Logistics 16 Marketing and Sales 16 Service 17 Ethics in Business 17 CSR Activities 17 Strategic Issues in Business Internationalization Process 18 Critical Review 18 Reference List 20 KFC and its Business KFC Corporation is a popular multinational company, based from United States. The company engages in providing fast food restaurant service across several nations in the world. The company was founded in 1930 in North Cabin Kentucky, United States (KFC, 2014). The chairman of the corporation at present is David C. Novak. It is the second largest restaurant chain in the world, after Macdonald’s. Since, its inception, the company has actively expanded the scale and scope of its business internationalization (Atikian, 2013). As, recorded in 2013, the company operates in almost 120 nations of the world. However, the headquarters of the company is in Gardiner Lane, Louisville, Kentucky, United States. Across all its marketplaces, the company generates large amount of employment opportunities in its 18875 outlet locations (KFC, 2014). It is a subsidiary organization and its parent company is Yum! Brands. Hence, the CEO of Yum! Brands are also the CEO of KFC. Apart from KFC, its parent organization also owns other popular restaurant chains like Pizza Hut and Taco Bell (KFC, 2014). The company was initially founded by Harland Sanders and who started its business by simply selling fried chicken from his own roadside restaurant in Corbin, Kentuky, at the time of Great Depression (Arkel, 2013). With time the company expanded its business product and process and as recorded in 2013, generated revenue of US$21 billion. At present the company sells various types of food and beverages like fried chicken, wraps, burgers, soft drinks, French fries, deserts, salads and breakfasts. It operates in the restaurant industry but its genre is in the fast food market (KFC, 2014). KFC Business in China Until 1970, open door policies were not adopted in China. From 1970 onwards foreign investments were encouraged by the government of China. The political authorities of the country provided several benefits to the company for encouraging its investments in the Chinese markets. Overtime, the taxes imposed on the company has increased in China (Jekanowski, 2014). Since, globalization the developing economies like China has experienced high growth rates within its economy. This has helped KFC expand its business in China. Moreover, the per person income level of the country have increased over time with rise in the proportion of discretionary spending and this has helped to increase the sales of the company (Jekanowski, 2014). China is the world largest populated country and hence its aggregate market demand is also very high (Estopace, 2013). The overall living standards of the individuals have improved in the country and this has enhanced the proportion of food spending. The young generations and middle aged professional individuals now prefer fast food products. In addition to that individuals who are very busy in their daily activities often choose to consume easily and readily available fast food and beverage products of restaurants like KFC (Jekanowski, 2014). Thus, the rising income level and discretionary spending power of the large strength of Chinese population have helped KFC earn substantial revenue from its market. The state of technological innovation in China is very high. Smart communication electronic gadgets are commonly used by most of the individuals in the country. KFC provides free Wifi services in some of its popular outlets in China. Hence by utilizing the fruits of new innovative technologies, the company has reduced its operational cost and enhanced its brand value in the Chinese markets (Jekanowski, 2014). The company needs to modify its operations and marketing plans according to the changes in the legal aspects across all its marketplaces (Krug, n. d.) Like, in the current era some health organizations and nutrition expects of China are imposing some legal barring against fast food consumption (Jekanowski, 2014). This has become a challenge for the organization. In the recent years individuals are becoming more conscious about protection and preservation of environment. The company conducts all its inbound and outbound logistic operations in business in ways through which they are sustainable to the environment. Perhaps this is the reason for which it has been awarded with the LEED Gold certification (Jekanowski, 2014). Due to the benefits received by the company in China, its business internationalization in its economy is the highest. The company has 4563 outlets in China. In, Qianmen, Beijing, in November 1987, KFC opened up its first fast food outlet in China (KFC, 2014). Figure 1: KFC Business in China (Source: KFC, 2014) The above pie diagram states that the sales and operating profits of the company was highest in China in 2010, relative to other international markets along with KFC’s native market, U.S. Corporate Level Strategies As the part of its corporate strategy, the company has started to convent its franchising form of business into company owned type in its popular markets. It alters its services in all its marketplaces according to the taste and preference pattern of the local communities in each market. It implements performance oriented management strategies in business (Christian and Gereffi, 2008). Strategic Direction Matrix Analysis Its corporate strategies can also be well understood through strategic direction matrix analysis. Figure 2: Ansoff Matrix Existing Products New Products Existing Markets (Market Penetration) (Product Development) New Markets (Market Development) (Diversification) (Source: Authors Creation) Market penetration By implementing this strategy in business, the company tries to increase its sales of its existing products in the existing markets. In its Chinese outlets the company is found to improve the restaurant services and is providing additional facilities like free wifi services to its customers (Estopace, 2013). Market development By incorporating this strategy in business, the company tries to launch its existing products in the new markets. Since 2012, the company is expanding its business branches in the Caribbean and Latin America nations. It has adopted the policy of expanding its business branches in Asian countries like Malaysia, Singapore, Brunei, Cambodia and India (KFC, 2014). Product development Through this strategy KFC invests new products and services for its existing markets. In 2009, the company has launched a new type of frozen beverage known as Krushers. In 2012, it has introduced the new “KFC am”, special breakfast menu’s that includes wafers, porridge and pancakes along with fried chicken (Christian and Gereffi, 2008). Diversification This strategy helps the company launch new services or products in the new marketplaces. It should be noted that that the above four are corporate level strategies of the firm and are its marketing initiatives as all these strategies helps it to increase its gross revenue in business. Like in its Indonesian outlets, the company sells chicken porridge, wraps and spaghetti that only favour’s the taste choices of the Indonesian customers (Arkel, 2013). It provides special halal chicken in Islamic nations and new forms of vegetarian dishes in its Indian markets. BCG Matrix Analysis This matrix analysis will help to analyze the business units or product lines of the company. Figure 3: BCG Matrix High Relative Market Share Low Relative Market Share High Market Growth Rate (Stars) Grilled Chicken Bucket (Question Mark) Wrap Meals Low Market Growth Rate (Cash Cows) Zinger Berger (Dogs ) Rizo Rice (Source: Authors Creation) From the above Boston matrix it can be stated that KFC is at present framing new marketing strategies for selling its Grilled chicken and wrap meals. This is because such food items are experiencing high market growth rates. The rice meals are traditionally favoured in some of its Asian markets like India. Such food menus are less popular in its western marketplaces. Hence, it experiences low market demand with lower growth prospects (Hennessey, 2004). Business Level Strategies The business strategy of KFC helps it achieve sustainable competitive advantage in the market. Product leadership is the primary business level strategy of the firm. By implementing this strategy, the company claims to offer high quality food products to its customers. It also claims to encourage innovation in its food menu offerings. Apart from product leadership, the company also applies differentiation strategy in business. By undertaking this strategy, the company serves separate menu’s for different marketplaces. By following this strategy in business, the company aims to add value to its brand in the market. It also tries to implement cost leadership strategies in business through which it lowers its average cost of production. For making this strategy successful, the company tries to widen its demand and production scales to achieve cost efficiencies through economies of scale in production process (Baker and Hart, 2007). Empirical Analysis From the above context it can be stated that with time, the restaurant industry has achieved significant growth rates in the market. However, within it, the fast food segment has gained good popularity due to favourable tastes and preferences of the consumers. At this juncture KFC has correctly captured the fruits of this booming segment and achieved substantial growth in business. With its efficient product leadership, differentiation, market and product development, penetration and diversification strategies the company has achieved the position of being the second most popular fast food restaurant chain in the world. Marketing Mix The various marketing strategies of the company can be studied elaborately with the help of 7 P marketing mix analysis. Product The company serves diversified foods and beverages to its customers, in the forms of fried chicken, flavoured rice, wraps, burgers, mock tails and porridges. By selling such diversified food menus, the company widens its customer base in all its markets. It diversifies its product lines to meet the taste and preference requirements of customers belonging to different economic, cultural and social backgrounds. In order to satisfy the local tastes and preference pattern in China, KFC has introduced its customized menu’s for Chinese consumers. This special item includes egg custard tarts, rice congee, and tree fungus salad and 50 other types of items along with these (Porter, 2013). Figure 2: Variable KFC Products (Source: KFC, 2014) Price The company prices its food and beverage products according to the premium pricing strategy. This is because; it shares high brand value in the market and enjoys strong goodwill in the fast food restaurant segment. As, the company acquires these two intangible assets in business, its consumers readily pay premium prices for its products. Place The company provides its services across different nations in the world. Its most popular business hubs are U.S., China, Japan and U.K. However, in the recent years, the company is expanding its business in emerging nations of the world like Indonesia, India and South Africa. Promotion The company invests large amount of money for conducting promotional activities in business. It generally advertises its brand through television, newspapers and radios, by popularizing its latest meal, snack or beverages. It provides numerous discount options to its loyal customers in the form of price cuts or combo offers. It also sponsor’s certain television programs like Chicky Hour (Grover and Malhotra, 2003). Such popular programs are viewed by many individuals and hence help to popularize the brand value of the firm (Grover and Malhotra, 2003). People KFC at present operates on the basis of cooperative intelligence instead of competitive intelligence. Under the regime of this strategy, the company frames all its business activities by providing major focus to the consumers. Perhaps this is the reason for which it offers food and beverage menu’s according to the local taste and preference pattern of consumers across all its marketplaces. Its product leadership strategy is primary adopted for generating higher value to its customers. Physical Evidence Figure 4: KFC Store (Source: KFC, 2014) All the outlets of the company are well decorated in ways that promotes its company logo and its logo colour. The billing systems are highly advanced and some of its outlets also offer fee wifi services. The stores are designed with modern interior decorations. The booth and outdoor seating arrangements of its stores along with plasma screens have helped to make its outlets highly sophisticated food junctions (Andersen, 2002). Production The company has gained high popularity in the market because it serves fast foods with its own secret original recipe. The company states that its fried chicken coatings are made of 11 different types of herbs and spices. Moreover, it uses good quality cheese and syrups in its beverages. The food and beverages of the company are produced with the help of modern cooking instruments (Czinkota and Ronkainen, 2007). Positioning Figure 5: Position Map High Quality Low Price High Price Low Quality (Source: Authors Creation) The company positions its brand in the market by claiming that its products are charged premium because of its superior quality. Segmentation It can be claimed that the company focuses its most potential customers through demographic means of market segmentation. Its most potential customers in terms of income are the upper and middle upper income group of individuals. In terms of age the company targets to sell its products to the young and middle aged individuals between 4 to 50 years (Hu and Xie, 2013). Value Chain Analysis Inbound Logistics The company procures raw materials like Chicken and cheese from the suppliers in the form of composite demands; this is because its final food products have direct links with each other. As, it procures the raw materials in bulk, it receives several discounts from its suppliers (Quazi, 2001). Operations The company produces its fast food products and beverages with its own secret recipes. More than 11 types of special herbs and spices are used in the food recipes of the company. It uses modern means of cooking for preparing its food and beverage products (Hu and Xie, 2013). Outbound Logistics The extensive success of the company across its international markets indicates its efficient outbound logistic activities in business. The company sells its fast food and beverages in more than 120 nations of the world. In each of its popular marketplaces like U.S. and China, it owns more than 2000 outlets (Hu and Xie, 2013). Marketing and Sales The marketing catchphrases of the company like “finger linckin good”, “nobody does chicken like KFC” and “so good” have become popular across the world and considerably helped the firm to enhance its brand value in the market (Yum, 2014). Apart from this, the company conducts several types of promotions through programme sponsorships, discounts or advertisements. The net revenue of the company was US $ 15 billion in 2013 (Yum, 2014). However, since the recession in 2008, the business prosperity of the company has decreased to some extent. Service The services of the company are good with the active contribution of its workers. The employees of the company are highly trained and possess utmost value to the needs and requirements of its customers. Its services are provided through dine-in, take-out or drive through facilities. However, the delivery facilities of the firm are less diversified in its less popular business hubs (Hu and Xie, 2013). Ethics in Business The company tries to abide the norms of ethics in business by providing maximum value its customers. Within its workplaces, it does not differentiate among its workers in terms of caste creed, religion or sex. In addition to that the company conducts several corporate socially responsible initiatives. Through such services the company promotes education, animal welfare and diversity (Yum, 2014). CSR Activities The animal welfare activities of the company are conducted by its Animal Welfare Advisory Council. It has formed partnerships with American Association of Avian Pathologists for providing welfare oriented services (Yum, 2014). Moreover, it provides genetically modified food products to its customers that are rich in nutrients and organic substances. It has also collaborated with the organizations of U.S. Centers for Disease Control and Prevention as well as U.S. Food and Drug Administration, for providing social services in the market (Yum, 2014). By following ethical norms in business, the company tries to enhance its brand value in the market and generate higher economic prosperity in business. Strategic Issues in Business Internationalization Process Despite of its good marketing strategies, KFC is facing some issues in business. The health experts around the world are rigorously proving the fact that fast food products are unhealthy and cause obesity. Fast food restaurant chains like Mc Donald’s and KFC are not easily allowed to sponsor sports events for this reason (Hu and Xie, 2013). In addition to this, it was wrongly believed by the company that its business would be recession proved. Despite of several discounts and promotions it is noted that since the materialization of global financial crisis, the burger and other beverage sales of the company has significantly fallen, due to fall in per person consumption level in most many major markets of KFC like U.S. and U.K. Overtime, the taste and preference patterns of the consumers are now favouring organic foods other than high calorie fats foods. Hence, both recession and growing fitness consciousness among individuals have enhanced challenges for KFC in the path of its business internationalization process. (Yum, 2014). Recently, in 2012, the company has faced some allegations in China, on grounds that its supplies injected growth hormones and antiviral drugs into its poultry. Due to such problems, the company’s sale in China has fallen by 41% in 2013 from 2012. Critical Review From the above context it would be correct to state that multinational companies in the contemporary world undertake complex commercial activities. At the same time it is also true that open door liberal trading norms of the global economy have substantially helped to carve more growth opportunities for such corporations (Georgi and Mink, 2012). KFC is an eminent multinational fast food restaurant chain and it has achieved high social as well as economic prosperity with the help of its marketing and strategic management skills. The company has adopted the strategy of adaptation but not standardization to serve its customers across different marketplaces. Perhaps, this is the reason for which it has altered its food menu lists according to the states and preference pattern of the local consumers of different nations like China. Thus, the commercial success of KFC in China is primarily due to its adaptive business strategy. However, it needs to adopt some new strategies in business to sustain the external uncertainties in the market like recession. One way out is to approve norms of adaptive complexity in business. At the same time it must diversify its food menus by introducing new organic based food items, because intrinsic harmfulness of fast foods is lowering its popularity among consumers. By making these small alterations, the company can successfully grow in the long run by providing utmost value to its stakeholders (Wei, 2012). Reference List Andersen, J.A., 2002. What we know about leadership and effectiveness. First International Workshop on Leadership Research, European Institute for Advanced Studies in Management, pp. 16-17. Arkel, T. V., 2013.2013 restaurant brands annual reports. [pdf] Economitor passport report. Available at: [Accessed 5 April 2014]. Atikian, J., 2013. Industrial shift: The structure of the new world economy. Basingstoke: Palgrave Macmillan. Baker, M. and Hart, S., 2007. The marketing book. London: Routledge. Christian, M. and Gereffi, G., 2008. The marketing and distribution of fast food. [pdf] Available at: [Accessed 5 April 2014]. Czinkota, M.R. and Ronkainen, I A., 2007. International Marketing. Toronto: Thompson Learning. Estopace, E., 2013. Free wi-fi at KFC Australia restaurants. [online] Available at: [Accessed 5 April 2014]. Georgi, D. and Mink, M., 2012. The quality of electronic customer-to-customer interaction. Journal of Retailing and Consumer Services, 20, pp. 11–19. Grover V. and Malhotra, V. K., 2003. A transaction cost framework in operations and supply chain management research: theory and measurement. Journal of Operations Management, 21, p. 457–473. Hennessey, J. 2004. Global Marketing Strategies. Massachusetts: Houghton Mifflin. Hu, W. and Xie, Y., 2013. Comparative study of Mac Donald’s and Kentucky Fried Chicken (KFC) development in China. [pdf] Savonia. 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