Quick Service Restaurant Industry in China - Coursework Example

KFC in China Introduction China is one of the BRICS countries that have registered high GDP growth rate during most part of the last decade. The emerging economy of China is on course to become one of the economic superpowers in the near future (Stuenkel, 2014). The liberalization and globalization policy adopted by the government has attracted many multinational companies to set up shop in the country. U.S. based Kentucky Fried Chicken (KFC) set foot on the Chinese soil in 1987. The present paper analyses the Quick Service Restaurant (QSR) industry in China. The focus of the paper is to examine the market position and strategies of KFC. Finally, the paper recommends certain strategies so that the fast food giant continues to grow in the country. Restaurant Industry in China China, the most populous country of the world, has become the preferred destination for marketers from all over the world. The restaurant industry is no exception. The restaurant industry in the country is growing at a fast rate and therefore big restaurant chains have thronged the country to cash in on the opportunity. Market Structure, Size and Competition The restaurant industry in China can broadly be divided into Full-Service Restaurants and Quick Service Restaurants. The Full-Service Restaurant industry in China was pegged at $290 billion in 2013. The industry registered and annualized growth rate of 11.6 percent from 2008 to 2013. The main players in the industry are Beijing Little Potato Catering Management, China Quanjude Group, Chongqing Taoranju Catering Culture Group, Inner Mongolia Little Sheep Catering Chain Co, and Zhongshan Seaport Catering Group (Euromonitor International, 2014). The fast food industry in China is highly competitive. There are large international and domestic companies including Ajisen (China) Holdings Limited, Beijing McDonalds Foods Co., Ltd., Dico’s Food Development Co. Ltd., Malan Noodles Fast Food Chain Co., Ltd., and Yum! Restaurants China, which operate in China and vie with each other to grab a larger chunk of the fast food market share. In addition to these behemoths, many small local and regional players also compete in the market. The QSR industry in China generated revenue of $94 billion in 2013. The industry has recorded a compounded annual growth rate (CAGR) of 13 percent over the last five years from 2008 to 2013 (IBIS World, 2014). The main reasons for a high growth rate in the industry is the lifestyle changes and reduced leisure time whereby customers have moved away from full service restaurants and instead patronized QSRs. The other main factors for the growth of QSR industry in the country are increasing income levels and exposure to the western culture and values. The restaurant industry in China managed to keep its head above the water even during difficult economic conditions. The restaurant sector as a whole has the support of the Chinese government which intends to give a boost to the overall service sector in the country as a part of its five-year national development program. Overview of KFC KFC, a subsidiary of Yum! Brands, is one of the most popular chicken restaurant chains in the world. History KFC was founded by Colonel Harland Sanders. The self made man overcame numerous personal problems, including the death of his father at age six, to build one of the biggest brands in the world today. As a young child, Colonel Sanders did a lot of cooking at home and mastered quite a few regional dishes. As an adult, he switched various jobs but wasn’t satisfied. In 1930, the Colonel opened his first restaurant, ‘Sanders Court & Cafe’ in a small front room of a gas station. Thereafter, there was no looking back for him and his business. The Colonel experimented with numerous seasonings to flavor his chicken. His unrelenting commitment to develop recipes that would satiate the taste buds of his consumers led him to develop a secret recipe of 11 herbs and spices (KFC, 2014). The clandestine recipe and the basic cooking techniques developed by Colonel Sanders are used at KFC outlets even today. Product Portfolio KFC offers a vast array of foods and beverages. The company’s portfolio includes chicken, sandwiches, sides, classics, desserts, and drinks. KFC has some immensely popular chicken items like Extra Crispy, Kentucky Grilled Chicken, Go Cups, Hot Wings and Original Recipe Bites. Doublicious and Chicken Littles are KFC’s major sandwiches. The company’s sides that find favor with the consumers include mashed potatoes, Cole slaw, wedges, green beans, biscuits, whole kernel corn and corn on the cob. The pot pie and famous bowl are two immensely popular classics sold by KFC. The consumers can also buy scrumptious chocolate chip cake and chocolate chip cookies at KFC outlets. Last but not the least, consumers can have sweetened or unsweetened ‘Colonel’s Iced Tea’ in addition to any of the Pepsi’s beverages at KFC outlets (KFC, 2014). International Reach From a humble beginning, the restaurant chain has grown by leaps and bounds to become a major international force to reckon with. At present, KFC operates more than 17,000 restaurants in more than 115 countries around the world. Of these, 5,100 outlets are located in the United States, while 11, 900 restaurants are situated in different international markets. The company has been able to achieve this massive scale because of its franchise-led business model. The company’s outlets operate as free-standing units and kiosks in high visibility, high-traffic areas. KFC reportedly serves more than 12 million customers every day through its humungous network of outlets (KFC, 2014). United States, KFC’s home market, is saturated. Therefore the restaurant chain has increased its focus on international expansion. KFC has set foot on many emerging markets like South Africa, Indonesia, Malaysia, Russia, Vietnam, Turkey, Thailand, India and China. The Louisville, Kentucky based QSR has ambitious long term growth plans in these markets. Corporate Social Responsibility KFC is a responsible corporate citizen and abides by the law of the land. The company discharges its corporate social responsibility and takes care of the planet, people and the communities in which it does business (KFC, 2014). KFC in China KFC considers China as the finest prospect of the 21st century as the middle class in the country is expected to zoom to 600 million by 2020, an increase of 100 percent from the current size of 300 million people. KFC set foot on the Chinese soil in 1987 by opening its first outlet in Beijings Tiananmen Square. KFC benefitted from the first mover advantage as Chinese customers were eager to experience Western food and lifestyle at that time. The chain has steadily grown in China to become the number one foreign brand in the country. KFC is known for its comfortable store environment and excellent customer service. The chain has gained a lot of traction in the country as it provides a distinctive culture to its consumers (Cho, 2014). Product When it first entered China more than quarter of a century ago, KFC fine-tuned its menu to cater to the taste and needs of the Chinese customers. The Yum! Brands’ company is contemplating a menu overhaul to continue its upward momentum in the country (Cariaga, 2014). KFC plans to launch 15 new menu options in China shortly. These food items and beverages have been developed after gathering valuable insights into consumer’s tastes and eating habits. While ten of the new products being introduced are totally new, one-third of them are new versions of old products that have been demanded by consumers during the marketing research process. The new market offerings include chicken sandwiches, rice dishes, snacks, drinks and desserts. The tally of menu options at KFC China will touch 66 once these new options are available at the outlets (Business Wire, 2014). The example of KFC features as a successful market localization case study in many business schools around the world. Place At present, KFC has 4,600 restaurants in over 950 cities in China. McDonald’s is the biggest competitor of KFC worldwide. Both restaurant chains compete with each other to attract customers in all markets that they compete in (Shen & Ping, 2014). The intensity of competition is no less. However, unlike other markets, KFC has an edge over McDonald’s in the Chinese market. In fact, China is the only country where KFC leads McDonald’s in market share and store count. KFC has a two-to-one lead over McDonald’s in terms of restaurant count in China (Shen & Ping, 2014). Price KFC products are competitively priced in the Chinese QSR market space. The company increases its price from time to times especially in the wake of rising input costs. Rising costs of raw material put the profitability of companies like KFC under enormous pressure. In 2011, KFC increased the prices of its market offerings marginally by eight to 16 U.S. cents. While this helped the company offset the increasing costs of inputs, this nominal increase went unnoticed by the consumers. In 2013, KFC was in the news because of its deceptive pricing. The company slashed the price of its family-sized bucket by half. However, pictures of quantity of chicken sold at new, reduced prices were juxtaposed with the original quantity given by the company. The comparison established that the consumers were being ripped off and the ‘half price deal’ was, in reality, no price off (FlorCruz, 2013). The news went viral and brought a lot of negative publicity to the company. Promotion KFC advertises in the print and electronic media. These advertising campaigns enable KFC remain on ‘top-of-mind’ of the consumers. Recently, the food outlet roped in two popular Chinese celebrities to endorse the KFC brand. The national level campaign featured Chen Kun and Ke Zhendong to promote Original Recipe and Extra Crispy chicken. To enhance consumer engagement and create a buzz, the celebrities asked customers to vote for their favorite product online. The campaign was immensely successful as consumers cast more than 20 million votes (Business Wire, 2014). The company also uses sales promotional techniques like coupons, price offs and bargain deals to coax consumers to increase their purchases at KFC. Target Market KFC offers numerous menu options to attract people across all demographic profiles. Kids, youngsters, and adults who visit the restaurant find something or the other that satiates their taste bud. KFC’s tailor made menu for the Chinese customers has made it immensely popular amongst the locals (Cho, 2009). The QSR is particularly suitable for people who have paucity of time. These people can have a quick, hearty meal at the restaurant or can pick it up from a drive-thru KFC outlet. Conclusion of Performance KFC is regarded as one of the most successful foreign brands operating in China. The company’s astute understanding of the Chinese consumer and local adaptation of menu has played a vital role in its continued expansion in the country. KFC outlets in China outnumber McDonald’s stores in China; a feat that the former has not been able to achieve in any other part of the world. The phenomenal success of KFC in China can be gauged from the fact that KFC alone accounts for more 50 percent of Yum Brands’ overall sales in China. China is one of the biggest markets for Yum! Brands. The profitability of the company took a beating when sales at KFC stores dipped by 15 percent in 2013. The fast food chain has bounced back with an 11 percent spike in sales in the 1st quarter of fiscal 2014 (BBC News, 2014). With the middle class in China expected to burgeon, there is sufficient room for the company to grow in the country. Recommendations for Future In order to maintain its growth trajectory in China, KFC should continue to evolve its menu, harness the power of digital technology, invest in training and development of employees and improve the physical evidence of its stores. Last but not the least, the public relations department of KFC should play a more active role. Menu Options KFC is successful in China primarily because of its willingness to alter its menu according to local requirements. The company should not become complacent on this front but should rather conduct marketing research and find out more about consumer preferences. KFC will stand to gain if it can satisfy latent demands by rolling out innovative market offerings from time to time. Digital Initiatives Adoption of digital initiatives has become a sine qua non in recent years. KFC can attract more customers by including a new mobile app and a new e-menu. Customers should have the option of placing an order online and picking up the food items at the stipulated time. This option will increase the revenue of KFC considerably. The option of ‘prepay take-out’ can be clubbed with the e-menu which will make it more convenient for the consumers. Training and Development The employees of KFC are the face of the organization. The company should take due care in selecting the right kind of talent. A person who is well versed with the Chinese language and other Chinese customs and traditions will be in a better position to satisfy the customer. KFC should invest in the training and development of employees and provide them an opportunity to climb up the corporate ladder. Improve Physical Evidence Physical evidence plays a vital role in the service sector. KFC should improve the physical evidence of its outlets by gradually revamping the store design, introducing new product packaging, using contemporary staff uniform and incorporating best-in-class operations to minimize the queues at its outlets. Role of Public Relations KFC was battered due to an avian flu outbreak last year. There were doubts about KFC’s supply chain and the Chinese consumers turned away from the fast food giant (Advertising Age, 2013). While KFC has recovered from the crisis, there is an important lesson to be learnt. The public relations department should assume a more proactive role and alleviate the apprehensions and fears of the consumers when such episodes occur. Works Cited BBC News,. KFC Owners Profits Get China Boost. N. p., 2014. Web. 11 May. 2014. Cariaga, Vance. "Yum Brands Boosted as KFC, Tacos Look Tasty in China." Investors Business Daily Jan 07 2014. ProQuest. Web. 10 May 2014 . Cho, Karen. KFC Chinas Recipe for Success. Fountainebleau: INSEAD, 2009. ProQuest. Web. 10 May 2014. Euromonitor International. Country Report Fast Food In China. 2014. ProQuest. Web. 10 May 2014.  FlorCruz, Michelle. KFC China Promotional Disaster: Yum Brands Company Criticized For Ripping Chinese Customers Off. International Business Times 2013. Web. 11 May. 2014. IBIS World. Fast-Food Restaurants In China: Market Research Report. 2014. ProQuest. Web. 10 May 2014. KFC. 2014. Web. 10 May. 2014. < http://www.kfc.com/> "KFC China Launches New Menu and Marketing Strategy Nationwide." Business Wire Mar 27 2014. ProQuest. Web. 10 May 2014. "KFCs Ongoing Issues with Chinese Chicken Hurts Yum." Advertising Age 84.36 (2013): 5. ProQuest. Web. 11 May 2014. Shen, Qiaowei, and Ping Xiao. "McDonalds and KFC in China: Competitors Or Companions?" Marketing Science 33.2 (2014): 287,307,310. ProQuest. Web. 11 May 2014. Stuenkel, Oliver. "Emerging Powers and Status: The Case of the First BRICs Summit." Asian Perspective 38.1 (2014): 89-109.ProQuest. Web. 11 May 2014. Read More