SWOT Analysis of Kentucky Fried Chicken - Case Study Example

SWOT ANALYSIS OF KFC COVER PAGE Executive Summary The purpose of this report is to present a SWOT analysis of the Competitive Foods Australia or KFC. From this analysis, recommendations for future actions are made. The report is a culmination of lots of information ranging from data sources such as company reports, academic journals, internet and books. Findings from this report shows that the KFC’s performance has been declining as a result of various internal and external factors affecting its strategies in the wake up of varying food and beverage changes and demand for health menu. Nonetheless, KFC has some opportunities to leverage itself to a higher position once again by building new outlets, diversifying products and being environmentally responsible. Introduction KFC Company, also known as Kentucky Fried Chicken was formed by Colonel Harland Sanders in 1953. It is a fast food restaurant located in Kentucky, in the United States. The company is part of Yum Brands, Inc, the largest company with regard to restaurants system, consisting of 36,000 locations worldwide. Daily, KFC discharged its duties to more than 12 million customers in 109 countries around the globe. It has got more than 5,200 restaurants in the United States alone and 15000 restaurants worldwide. The KFC and Pizza Hut partnered in 1950s accounting for up to 96% of its international restaurants in 116 countries. These fast food chains were the first to be expanded internationally, making it more recognizable. In 1990s, it also expanded their restaurants to more countries It has got a long, successful history in chicken brand having 50% market share; this strength has tremendously prevented entry of new companies into the market. The success of the company is attributed to Colonel Sander’s management approach, which is characterized by; Job stability and security Improvement of employee loyalty Friendly and relaxed atmosphere Franchise friendly Less interference with the management KFC is under the umbrella of Competitive Foods Australia Pty Ltd, its head office is in Osborne Park, Western Australia, which manages all the fast food restaurant chains and the food products processing. In 2007, KFC faced a great hurdle when a US-base franchiser of KFC did not renew KFC franchise held by the Competitive Foods Australia when the license expired hence some KFC’s stores were closed. Table 1: Competitive analysis in fast food industry Table 2: Competitive Foods Australia revenue growth for the years 2009-2015 YEAR REVENUE GROWTH 2009-2010 803.0 -3.0 2010-2011 885.5 10.3 2011-2012 951.8 7.5 2012-2013 1021.7 7.3 2013-2014 957.5 -6.3 2014-2015 930.0 -2.9 In 1970’s and 1980’s KFC made a lot of sales leading to confusion deviating the company from its original strategy. Further weakness was realized again in 1990’s when it was not able to quickly introduce new products into the market and innovate new products ending up copying another company’s chain to remain competitive. Also in this period, KFC lost a big portion of the market because of a merger with the PepsiCo since the employees had been used to the KFC strategy where the environment was self-governing. PepsiCo strategy involved tight control over the operations. It took over the franchises making them company owned and operated taking away the focus from the chicken business. Table 3: Financial highlight of KFC YEAR GROWTH RATE VALUE BILLION 2008 2013 (Forecasted) 6.6% 29.3% $ 154.7 $ 200 Table 4: The competitor analysis for the year 2014. LEADING FIRST FOOD CHAIN, 2014 TOP CHICKEN RESTAURANT 2014 McDonald’s 15.4 KFC)(3rd in 1993) 36.8 KFC 3.7 Chick-fil-A 13 Berger King 3.5 Popeyes 10.2 Wendy’s 2.5 Church’s Chicken 5.6 Subway 2.4 Boston Market 4.9 Other 72.5 El Pollo Loco 3.2 Bojangles 3.1 Other 23.2 The SWOT analysis of the KFC Corporation is given below: Table 5: KFC SWOT analysis STRENGTHS 1. It is among the top fast food brand in the world in value ($6 billion) 2. It has original spice recipes and eleven herbs 3. Major supplier in China 4. Collaboration with other companies such as Taco Bell and Pizza Hut 5. KFC is the market leader in the world, among companies featuring chicken as their primary product offering WEAKNESS 1. Suppliers are untrustworthy 2. Publicity that is negative 3. The menu is unhealthy 4. The employee turnover is high 5. Ineffective marketing strategies OPPORTUNITY 1. Concentration of healthier food 2. Delivering food to homes 3. Diversify product range THREATS 1. Food industry market is saturated 2. Consumers prefer healthy eating 3. Local fast food restaurant chains 4. Local food industries are becoming more competitive 5. Legal issues This report illustrates KFCs strengths, opportunities, weaknesses and threats. The component below shows an overview of the SWOT analysis. In the discussion component, the major strengths, weaknesses, opportunities and threats explored in more details. Lastly, recommendations for KFC are made to address the weaknesses and threats. Discussion Strengths KFC has the best product in the fast food industry in regard to worth ($ 6B). KFC is popular among numerous customers, coupled with its trustworthy brand worldwide and its early international expansion. The original 11 herbs and spices have been a major secret and a means of acquiring competitive advantage against other industry competitors. The 11 herbs and spices have made KFC to be the leader in the poultry for the last 50 years. It sells three recipes such as Original, Extra Crispy, and Tender Roast recipes. This has brought difficulties for other companies trying to enter the market, enabling it to be in a pole position to dominate the fast food industry. In addition, its biggest market in China has boosted its revenue allocation. KFC collects 50% of its income from China since it has more than four thousand restaurants. Its operations in China are the biggest strength since the fast food industry is growing steadily in China. Another strength is the collaboration with Taco Bell and Pizza Hut. This partnership with other brands of Yum! Has yielded advantages since restaurants are able to provide other items from other partners it cannot produce itself, therefore satisfying the needs of customers. Lastly, KFC has positioned itself as a market leader in chicken as shown above. It is more competitive in the market than other fast food chains as a result of a popular slogan and trademark of its products. Weakness KFC also has a number of weaknesses in its operations. One weakness is the existence of some untrustworthy suppliers. In the past, KFC has been receiving their poultry supplies by contacting to suppliers through some contractors. Sometimes these suppliers supplies contaminated chicken leading to decrease in sales damaging the company’s reputation. The negative publicity is also disoriented the company in the wake of improving its strategic management. In the past, it has been highly criticized by PETA with the claims of the poor conditions of raising chickens. Besides, it has received negative publicity for selling poultry wing with kidney. Different assertion of bad news has rocked the KFC is damaging its reputation considerably. Furthermore, the KFC has received much protest from medical or civil organizations fighting obesity. Its menu has been described as unhealthy because it is composed of higher calorie, salt, fat meals and drinks. These organizations have prompted protests leading to decline in its popularity as customers opt out for healthier food. Another weakness characterized by KFC is the high turnover in employment. Usually, working has an employee in KFC does not require one to be more skillful. Thus, employees are lowly paid as a result of unskilled labor. This job has really resulted in low performance and subsequently high employee turnover, increasing training costs, hence adding the overall costs of KFC. Opportunities There are also a number of opportunities, which have placed KFC in a pole position to exploit market strategies to rise to a higher level of profitability. The most important opportunity is the increase in demand for healthier food. When the demand for the healthier food is on an increase, KFC can launch a healthier food choice in its menu hence reversing the unhealthy weakness into strength. Another opportunity is the adoption of the home meal delivery. This is a perfect opportunity to be tested to reach more customers. There are some customers who do not want to travel to the restaurant so making a call for the chicken delivery by KFC employees in a very short time can do. This door delivery will attract more customers as it eliminates the factor of transport. The introduction of new products to the chicken is another key opportunity. Other new meals such as pork, vegetables or beef can be introduced in KFC’s menu to target a wide range of consumers would result in more customers. Threats The fast food industry is experiencing saturation of fast foods in the markets of developed countries. These markets have been overcrowded by lots of food restaurant chains becoming a common threat to KFC while it proves hard to grow in the developed countries. The second threat is the shifting trends towards healthy eating. The government and civil society organization have been in forefront fighting diseases caused by unhealthy eating such as obesity. These efforts have increasingly become a threat to KFC as people become more conscious of the type of eating terming KFC’s menu as unhealthy. The third threat is the exploding number of local fast food restaurants. These local fast food chains can frequently offer a best local approach to serve food that exactly reflects the taste of the locals. In spite of the fact that KFC has done a great job in revamping its menu to local tastes, the growing number of local chains and their lower prices is proving a constant threat to KFC. A further threat is the fluctuation in the currency. KFC has a lot of foreign operations, where they receive nearly half of its revenues. The revenue has to be converted into dollar currency. Sometimes, the dollar appreciates or depreciates against other currencies thus affecting business profits. Lawsuits against KFC are a noticeable threat, which has affected its management for several years. It has been sued for several years and has lost entirely some lawsuits. Commonly, lawsuits are costly as they demand a lot of time and money. Albeit KFC is going to operate more or less the same way, there is a high likelihood for more costly lawsuits to come. Recommendations Based on the analysis of SWOT, it is recommended that KFC; 1. Build more small restaurants and expand to international markets. KFC is currently faced with an upsurge in fast food outlets and diversified menu. To check this it needs to build restaurants and non-traditional outlets such as hospitals, malls and airports. It can also expand to international untapped markets as the only strategy to grow sales. 2. Diversification of the menu. As a result of opposition from government and civil organizations on unhealthy eating, the KFC can diversify to other fast food meals. Since customers have become health conscious, the company can thus introduce new products. 3. Increase the demand for food outside the homes There has been high demand for food eaten outside homes; therefore, KFC should take advantage of this opportunity to diversify into new locations and menu. 4. Maintenance of good environment and cleanliness of products. It had been shown that, KFC contracted suppliers supplied contaminated or mistreated chickens taunting its image. This can be solved through putting measures on environmental responsibility to improve KFC’s public image leading to rise of revenue. REFERENCES http://www.kfc.com. Sanders, Harland (2012). The Autobiography of the Original Celebrity Chef. Louisville: KFC. p. 15. Kleber, John E. (May 18, 1992). The Kentucky Encyclopedia. University Press of Kentucky. p. 796. ISBN 978-0-8131-2883-2. Retrieved March 13, 2013. Ozersky, Josh (April 2012). Colonel Sanders and the American Dream. University of Texas Press. pp. 19–24. ISBN 978-0-292-74285-7. Retrieved September 27, 2013. Sanders, Harland (1974). The Incredible Colonel. Illinois: Creation House. pp. 98–131. ISBN 978-0-88419-053-0. Grimes, William (August 26, 2012). "In Kentucky, Fried Chicken History". New York Times. Retrieved September 27, 2013. and Appendices Students are required to use the LTU Harvard Referencing style 7 onwards Read More