KFC Analysis

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Kentucky Fried Chicken (KFC) is the world’s largest chicken restaurant chain and ranks as the sixth largest quick service restaurant (QSR). KFC is owned by Yum! Brands, formerly Tricon Global Restaurants, Inc., which also owns Taco Bell, Pizza Hut, Long John Silver’s, and A&W All American Food. KFC is one of the world’s most recognizable brands and has always been a leader in foreign expansion. However, KFC has seen a decline in its market share and has not yet penetrated the Latin American market. In this analysis, I intend to highlight the strengths and weaknesses of KFC and recommend a strategy to increase market share and expand into Latin America.


Industry Analysis


The QSR industry is a multibillion dollar industry that includes the Mexican, sandwich, pizza, burger, seafood, and chicken segments. KFC is in the chicken segment, which produced sales of over $8.48 billion. The QSR industry has an international scope of rivalry, with several competitors firmly established in foreign countries. The market growth rate of the QSR industry is very segmented, with the burger and pizza segment showing very little growth, while the chicken segment experienced moderate growth


Chain Change in system wide sales(000 - 001)


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KFC 6.8%


Chick-Fil-A 14.4%


Popeye’s .5%


Church’s .%


Boston Market -11.%


The distribution channels for the QSR industry are eat in restaurants, drive thrus, and stores. Services of rivals are weakly differentiated among the segments and the ease of entry into the industry is low. The profitability of the QSR industry is average to above average.


The competitive structure of the QSR industry is favorable, market position and strategy provide good defense against competitive forces and firms can earn above average profits. Rivalry is a highly competitive force, potential for new entry is relatively weak. There is high pressure from substitute products, but this is somewhat reduced by KFC’s possession of a secret recipe. There is little pressure from suppliers or buyers.


The industry’s competitive structure and business environment is changing due to changing social concerns, such as health and weight issues. International expansion is also changing the QSR industry, along with reduced trade barriers to several countries. These issues have led to the need for product innovation in the industry.


The companies that are in the strongest positions are the ones with high brand recognition and those that have been leaders in international growth, such as McDonald’s and KFC. KFC is also in a strong position because of the strength of its parent company, Yum! Brands, which controls 4 out of the 6 QSR segment leaders by sales volume. The weakest in the industry seem to be restaurants such as Boston Chicken and Checkers, which have shown negative growth in past years.


Rivals will continue to saturate the US market, but the hottest trend is toward global expansion. In the US, McDonald’s operated 46 restaurants for every 1 million residents; outside the US, it operated only 1 restaurant for every million restaurants. This presents a large opportunity for global expansion. QSRs also will continue to introduce new products in an effort to gain market share. Some will try to develop health conscious products, while others will attempt to cross segments.


Customers choose between competitors in the QSR industry based on quality, value, customer service, brand recognition, and amount of choices.


The keys to success in the QSR industry are product innovation, low cost production, accuracy, convenience, favorable image, and favorable service.


The QSR industry is attractive for a chain restaurant and has potential for above average profitability. While US growth is low due to saturation of the market, foreign growth is attractive. KFC is an industry leader in terms of market share and already has a strong foreign position. This will help KFC to be successful in further expansion, possibly into Latin America.


Company Analysis


The present strategy followed by KFC is working well. Although market share has slipped to 46%, KFC is still the leader in the chicken segment with Chick-Fil-A a distant second. The decline in market share is due to competitors with different products in the same market increasing sales as opposed to a decline in sales by KFC. The company saw revenues grow by 6.8% to $4.7 billion in 001.


The strengths of KFC include brand recognition, its secret recipe, leadership in global growth, and control of market share. KFC also benefits from being a subsidiary of Yum! Brands. This gives KFC a strong financial backbone and also allows for multibranding, which is where two or more chains share the same building. Weaknesses of KFC are speed of service, quality of product, employee turnover, and narrow product line. Opportunities that KFC sees are in global expansion, particularly in Latin America, product innovation, and in multibranding. Multibranding can save the company large amounts of money due to the high cost of real estate and offers the customer with more choices. Threats to KFC are the uncertainty or instability of foreign countries, loss of sales to rivals, and the public perception of QSRs.


The prices and costs at KFC are competitive. The value chain for KFC seems to be fairly simple, and some costs are being shared with other chains through multibranding. Compared to the industry, prices are average, but value has been a concern.


KFC’s position is very strong compared to competitors. They are the sixth largest QSR according to sales in the world and are to number one chicken restaurant. Their market share of 46% by far exceeds their nearest competitor. They are also far ahead in global expansion. KFC is also backed by a large conglomerate of chains, which further strengthens its position.


KFC faces several strategic issues. One is the saturation of the US market along with rising real estate costs. Another is the loss of market share over the last several years. A third strategic issue is how to expand into Latin America.


Recommendations


To deal with US market saturation and rising costs, KFC has already began implementation of a plan to multibrand. Customer service must also be a focus. This goes hand in hand with high employee turnover. KFC must redevelop its culture to promote employee retention. This will positively affect customer service. They must develop health conscious products, along with a major advertising campaign to battle the loss of market share.


Growth in Latin America is a risky proposition. Economic and political instability create an environment that can change very quickly. It is a region which requires development, but KFC must be cautious. KFC is already a leader in Mexico and the Caribbean, but they are not leading expansion into markets like Brazil, Venezuela, and Argentina. The uncertainty in these countries is to great for a fully company owned move there. KFC has a successful franchise program and should implement this in Latin America in conjunction with a small percentage of company owned restaurants. This strategy will take advantage of the Latin American market through franchise fees while being able to establish some control over the franchises through a small company presence.


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