STRATEGIC

MANAGEMENT
PROJECT ON KENTUCKY FRIED CHICKEN (KFC)

SUBMITTED TO: SUBMITTED BY:

Mr. Vivek Sinh Tomar Ripudaman

D-38

MBA (G)
ABOUT THE COMPANY

KFC, also known as Kentucky Fried Chicken, is an American fast food restaurant chain
headquartered in Louisville, Kentucky, that specializes in fried chicken. It is the world's
second-largest restaurant chain (as measured by sales) after McDonald's, with 22,621
locations globally in 136 countries as of December 2018. The chain is a subsidiary of Yum!
Brands, a restaurant company that also owns the Pizza Hut, Taco Bell, and WingStreet
chains.

KFC Corporation, based in Louisville, Kentucky, is one of the few brands in America that
can boast a rich, decades-long history of success and innovation. It all started with one cook
who created a soon-to-be world-famous recipe more than 70 years ago, a list of secret herbs
and spices scratched out on the back of the door to his kitchen. That cook was Colonel
Harland Sanders, of course, and now KFC is the world’s most popular chicken restaurant
chain, specializing in that same Original Recipe along with Extra Crispy chicken, home-style
sides and buttermilk biscuits. There are over 21,000 KFC outlets in more than 130 countries
and territories around the world. And you know what? There’s still a cook in a kitchen in
every last one of them, freshly preparing delicious, complete family meals at affordable
prices.

KFC was founded by Colonel Harland Sanders, an entrepreneur who began selling fried
chicken from his roadside restaurant in Corbin, Kentucky, during the Great Depression.
Sanders identified the potential of the restaurant franchising concept, and the first "Kentucky
Fried Chicken" franchise opened in Utah in 1952. KFC popularized chicken in the fast food
industry, diversifying the market by challenging the established dominance of the hamburger.
By branding himself as "Colonel Sanders", Harland became a prominent figure of American
cultural history, and his image remains widely used in KFC advertising to this day. However,
the company's rapid expansion overwhelmed the aging Sanders, and he sold it to a group of
investors led by John Y. Brown Jr. and Jack C. Massey in 1964.

KFC was one of the first American fast food chains to expand internationally, opening outlets
in Canada, the United Kingdom, Mexico, and Jamaica by the mid-1960s. Throughout the
1970s and 1980s, it experienced mixed fortunes domestically, as it went through a series of
changes in corporate ownership with little or no experience in the restaurant business. In the
early 1970s, KFC was sold to the spirits distributor Heublein, which was taken over by the
R.J. Reynolds food and tobacco conglomerate; that company sold the chain to PepsiCo. The
chain continued to expand overseas, however, and in 1987, it became the first Western
restaurant chain to open in China. It has since expanded rapidly in China, which is now the
company's single largest market. PepsiCo spun off its restaurants division as Tricon Global
Restaurants, which later changed its name to Yum! Brands.

KFC's original product is pressure-fried chicken pieces, seasoned with Sanders' recipe of 11
herbs and spices. The constituents of the recipe represent a notable trade secret. Larger
portions of fried chicken are served in a cardboard "bucket", which has become a well-known
feature of the chain since it was first introduced by franchisee Pete Harman in 1957. Since the
early 1990s, KFC has expanded its menu to offer other chicken products such as chicken
fillet sandwiches and wraps, as well as salads and side dishes such as French fries and
coleslaw, desserts, and soft drinks; the latter often supplied by PepsiCo. KFC is known for its
slogans "It's Finger Lickin' Good!", "Nobody does chicken like KFC", and "So good".

KFC’s Background
Since its foundation, KFC has passed through many different types of organizational changes.
These changes came into existence due to changes of ownership that happened since Sanders
first sold KFC in 1964. In 1964 KFC was then sold to a small group of investors that were
able to take the name KFC public.

Heublein Inc. took over KFC in 1971 and kept itself highly involved in the day to day
operations. Heublein Inc. was then taken over by R.J. Reynolds in 1982. After these drastic
changes at the ownership level it was finally taken over by Pepsi Co. Pepsi Co currently runs
Taco Bell, Pizza Hut, and KFC.

By the end of 1994, KFC was operating 4,258 restaurants in 68 foreign countries. KFC is the
largest chicken restaurant and the third largest quick service chain in the world. Due to
market saturation in the United States, international expansion will be critical to increased
profitability and growth.

PRODUCTS OFFERED BY KFC

 Streetwise: Veg Snacker, Chicken Snacker, Snack Box, Rizo Rice, Rizo Gravy, Mini
Krusher,
 Snacks: Popcorn Chicken, Hot Wings, Boneless chicken strips
  Veggie Selection : Veg Snacker, Veg Zinger, Veg Strip with Salsa
 Toasted Wraps
 Burger: Veg Zinger, Chicken Zinger, Tower Zinger
 Box Meal
 Chicken Delight : Fiery Grilled, Hot and Crispy, Original Recipe
 Bucket Chicken
 Signature sides: Corn on the cob, Coleslaw, Fries
 Krusher: Frappe, Iced Mochaccino, Iced Kappucino
 Desserts: Soft wirl, Choamor, Brownie Sundae

ORGANISATIONAL STRUCTURE

VISSION

To be leading integrated food service group in ASEAN region delivering consistent quality
products and excellent customer focused.
 MISSION

 To maximize profitability,improve shareholder value and deliver sustainable growth

year after year.
 To sell food in a fast, friendly environment that appeals to pride conscious,
health minded consumers.

AIM AND OBJECTIVES

 To increase its percentage share of the fast-food market.

 To improve profit margins year-on-year to fund the growth of the company.

 To return profit on investments to owners and franchisees.

 Consistently deliver superior quality and value in products and services.

 Maintain a commitment to innovation for continuous improvement and grow, always strive to
be the leader in the market place changes.

The way that KFC reaches these targets is decided by the company's internal strategy and
objectives.

PESTLE ANALYSIS
The PESTEL analysis is a tool devised by Harvard professor Francis Aguilar to conduct a
thorough external analysis of the business environment of any industry for which data is
available. This is an important step for eventually devising a strategy that can effectively
manoeuvre the competition to maximize a firm's chances of sustainability and profitability.
PESTEL is an amalgam of initials of various factors that not only affect KFC but the entire
industry as a whole- these factors are namely Political, Economic, Social, Technological,
Environmental and Legal.

PESTEL analysis provides valuable insight into the operating challenges that any company in
the industry appears to face, and so the company in question may face as well. An
understanding of the overall competitive landscape will prevent investors and entrepreneurs
from partaking in any risky ventures if the risk arises out of, say, an unstable political regime
or a sudden economic recession. This may be best exemplified by the recent exit of the
United Kingdom from the European Union. The sudden fallout was political and caused
many investors to pull out of new ventures and halt their expansions, as the future became
uncertain in the wake of this decision.

Political Factors that Impact KFC

The political factors that may impact the profitability or chances of survival of the company
are quite diverse. The political risks vary from sudden changes in existing political regimes to
civil unrest to major decisions taken by the government. In cases of possible multinationals,
one may also include political factors that take place/ affect not only the host country but also
all countries that contain business operations, or that may engage in trade with KFC

To properly appraise the extent of the overall systematic political risk that KFC may be
exposed to, the following factors should be considered before taking part in any investments:

 The level of political stability that the country has in recent years.

 The integrity of the politicians and their likelihood to take part in acts of corruption,
as the resulting repercussions may lead to possible impeachments or resignations of
high level government employees.

 The laws that the country enforces, especially with regards to business, such as
contract law, as they dictate what KFC is and is not allowed to do. Some countries,
for example, prohibit alcohol or have certain conditions that must be fulfilled, while
some government systems have inefficient amounts of red tape that discourage
business.

 Whether or not a company’s intellectual property (IP) is protected. For example, a

country that has no policies for IP protection would mean that entrepreneurs may find
it too risky to invest in KFC
  The trade barriers that the host country has would protect KFC; however, trade
barriers that countries with potential trade partners would harm companies by
preventing potential exports.

 A high level of taxation would demotivate companies like KFC from maximizing
their profits.

 The risk of military invasion by hostile countries may cause divestment from
ventures.

 A low minimum wage would mean higher profits and, thus, higher chances of
survival for KFC

Economic Factors that Impact KFC

Economic factors are all those that pertain to the economy of the country that KFC, such as
changes in the inflation rate, the foreign exchange rate, the interest rate, the gross domestic
product, and the current stage of the economic cycle. These factors, and their resulting impact
on aggregate demand, aggregate investment and the business climate, in general, have the
potential to make a company highly profitable, or extremely likely to incur a loss. The
economic factors in the PESTEL analysis are macroeconomic.

The economic factors that KFC may be sensitive to, and in turn should consider before
investing may include the following:

 The economic system that is currently operational in the sector in question- whether it
is a monopoly, an oligopoly, or something similar to a perfect competition economic
system.

 The rate of GDP growth in the country will affect how fast KFC is expected to grow
in the near future.

 The interest rates in the country would affect how much individuals are willing to
borrow and invest. Higher rates would result in greater investments that would mean
more growth for KFC

 However efficiently the financial markets operate also impact how well KFC can raise
capital at a fair price, keeping in mind the demand and supply.
  The exchange rate of the country KFC operates in would impact the profitability of
KFC, particularly if KFC engages in international trade. The stability of the currency
is also important- an unstable currency discourages international investors.

 A high level of unemployment in the country would mean there is a greater supply of
jobs than demand, meaning people would be willing to work for a lower wage, which
would lower the costs of KFC.

Social Factors that Impact KFC

The social factors that impact KFC are a direct reflection of the society that KFC operates in,
and encompasses culture, belief, attitudes and values that the majority of the population may
hold as a community. The impact of social factors is not only important for the operational
aspect of KFC, but also on the marketing aspect of the organization. A thorough
understanding of the customers, their lifestyle, level of education and beliefs in a society, or
segment of society, would help design both the products and marketing messages that would
lead to a venture becoming a success.

The social factors that affect KFC and should be included in the social aspect of the PESTEL
analysis include the following:

 The demographics of the population, meaning their respective ages and genders,
vastly impact whether or not a certain product may be marketed to them. Makeup is
mostly catered to women, so targeting a majority male population would be less
population than targeting a population that is mostly female.

 The class distribution among the population is of paramount importance: KFC would
be unable to promote a premium product to the general public if the majority of the
population was a lower class; rather, they would have to rely on very niche marketing.

 To some extent, the differences in educational background between the marketers and
the target market may make it difficult to relate to and draw in the target market
effectively. KFC should be very careful not to lose the connection to the target
market's interests and priorities.

 KFC needs to be fully aware of what level of health standards, reactions to

harassment claims and importance of environmental protection prevail in the industry
as a whole, and thus are expected from any company as they are seen as the norm.
Technological Factors that Impact KFC

Technology can rapidly dismantle the price structure and competitive landscape of an
industry in a very short amount of time. It thus becomes extremely important to constantly
and consistently innovate, not only for the sake of maximizing possible profits and becoming
a market leader, but also to prevent obsolescence in the near future. There are multiple
instances of innovative products completely redesigning the norm for an entire industry: Uber
and Lyft dominate the taxi cab industry; smartphones have left other phones an unviable
option for most et cetera.

The technological factors that may influence KFC may include the following:

 The recent technological developments and breakthroughs made by competitors, as

mentioned above. If KFC encounters a new technology that is gaining popularity in
the industry in question, it is important to monitor the level of popularity and how
quickly it is growing and disrupting its competitors’ revenues. This would translate to
the level of urgency required to adequately respond to the innovation, either by
matching the technology or finding an innovative alternative.

 How easy, and thus quickly, will the technology be diffused to other firms in the
industry, leading to other firms copying the technological processes/ features of KFC

 How much an improvement of technology would improve/ transform what the

product initially offers. If this improvement is drastic, then other firms in the industry
suffer more heavily.

 The impact of the technology on the costs that most companies in the industry are
subject to have the potential to increase or reduce the resulting profits greatly. If these
profits are great in number, they may be reinvested into the research and development
department, where future technological innovations would further raise the level of
profits, and so on, ensuring sustainable profits over a long period of time.

Environmental Factors that Impact KFC

Different industries hold different standards of environmental protection in their head as the
norm. This norm then dictates what every company should aim for, in the least, to prevent
becoming the target of pressure groups and boycotts due to a lack of environmental
conscientiousness. A company in the textile industry, for example, is not expected to incur
the same level of pollution and environmental degradation as an oil company. The new
consumer, armed with the interest and the knowledge it carries, prefers to give its business to
companies it views as more ethical, particularly about the environment in the wake of global
warming.

The environmental factors that may significantly impact KFC include:

 The current weather conditions may significantly impact the ability of KFC to manage
the transportation of both the resources and the finished product. This, in turn, would
affect the delivery dates of the final product in the case of, say, an unexpected
monsoon.

 Climate change would also render some products useless. For example, in the case of
textiles, in countries where the winter has become very mild due to Global Warming,
warm winter clothes have much less of a market.

 Those companies that produce extremely large amounts of waste may be required by
law to manage their environmental habits. This may include pollution fines and
quotas, which may place a financial strain on KFC

 If KFC should (knowingly or unknowingly) contribute to the further endangerment of

an already endangered species may face not only the consequences from the law but
also face a backlash from the general public who may then boycott KFC in retaliation.

 While relying, in any percentage, on renewable energy may be expensive, it often

receives support not only from the government but also from its customer base, who
may be willing to pay a premium price for the products that KFC may produce.

Legal Factors that Impact KFC

The government institutions and frameworks in a country, while technically also political and
thus subject to whichever political party holds the majority in a government body, are also
legal and thus should be considered in a PESTEL analysis. Often KFC policies on their own
are not enough to efficiently protect KFC and its workers, making KFC appear an undesirable
place of employment that may repel skilled, talented workers.

The legal factors that deserve consideration include the following:

  Intellectual property laws and other data protection laws are, as mentioned earlier, in
place to protect the ideas and patents of companies who are only profiting because of
that information. If there is a likelihood that the data is stolen, then KFC will lose its
competitive edge and have a high chance of failure.

 Discrimination laws are placed by the government to protect the employees and
ensure that everyone in KFC is treated fairly and given the same opportunities,
regardless of gender, age, disability, ethnicity, religion or sexual orientation.

 Health and safety laws were created after witnessing the horrible conditions that
employees were forced to work in during and directly after the industrial revolution.
Implementing the proper regulations may be expensive, but KFC has to engage in it,
not only due to the law but also out of KFC's personal feeling of ethical and social
responsibility to other human beings.

 Laws are also placed to ensure a certain level of quality or reasonable price for certain
products to keep the customer safe and prevent them for being provided. The
industries this applies to find often their costs elevated.

Porter’s Five Forces Analysis

A model was put forward by Michael. E. Porter in an article in the Harvard Business Review
in 1979. This model, known as Porter's Five Forces Model is a strategic management tool that
helps determine the competitive landscape of an industry. Each of the five forces mentioned
in the model and their strengths help strategic planners understand the inherent profit
potential within an industry. The strengths of these forces vary across the industry to industry,
which means that every industry is different regarding the profitability and attractiveness.
The structure of an industry, even though it is stable, can change over time. These Porter’s
five forces are as follows:

 Threat of New Entrants

 Bargaining Power of Suppliers
 Bargaining Power of Buyers
 Threat of Substitute Products or Services
  Rivalry Among Existing Firms

The Porter’s Five Forces model can be used to analyse the industry in which KFC operates,
in terms of attractiveness through inherent profit potential. The information analysed using
the model can be used by strategic planners for KFC to make strategic decisions.

KFC Porter’s Five Forces Analysis

This section analyses KFC using each of the five forces of Porter’s model.

Threat of New Entrants

 The economies of scale is fairly difficult to achieve in the industry in which KFC
operates. This makes it easier for those producing large capacitates to have a cost
advantage. It also makes production costlier for new entrants. This makes the threats
of new entrants a weaker force.
 The product differentiation is strong within the industry, where firms in the industry
sell differentiated products rather a standardised product. Customers also look for
differentiated products. There is a strong emphasis on advertising and customer
services as well. All of these factors make the threat of new entrants a weak force
within this industry.
 The capital requirements within the industry are high, therefore, making it difficult for
new entrants to set up businesses as high expenditures need to be incurred. Capital
expenditure is also high because of high Research and Development costs. All of
these factors make the threat of new entrants a weaker force within this industry.
 The access to distribution networks is easy for new entrants, which can easily set up
their distribution channels and come into the business. With only a few retail outlets
selling the product type, it is easy for any new entrant to get its product on the
shelves. All of these factors make the threat of new entrants a strong force within this
industry.
 The government policies within the industry require strict licensing and legal
requirements to be fulfilled before a company can start selling. This makes it difficult
for new entrants to join the industry, therefore, making the threat of new entrants a
weak force.

How KFC can tackle the Threat of New Entrants?

  KFC can take advantage of the economies of scale it has within the industry, fighting
off new entrants through its cost advantage.
 KFC can focus on innovation to differentiate its products from that of new entrants. It
can spend on marketing to build strong brand identification. This will help it retain its
customers rather than losing them to new entrants.

Bargaining Power of Suppliers

 The number of suppliers in the industry in which KFC operates is a lot compared to
the buyers. This means that the suppliers have less control over prices and this makes
the bargaining power of suppliers a weak force.
 The product that these suppliers provide are fairly standardised, less differentiated and
have low switching costs. This makes it easier for buyers like KFC to switch
suppliers. This makes the bargaining power of suppliers a weaker force.
 The suppliers do not contend with other products within this industry. This means that
there are no other substitutes for the product other than the ones that the suppliers
provide. This makes the bargaining power of suppliers a stronger force within the
industry.
 The suppliers do not provide a credible threat for forward integration into the industry
in which KFC operates. This makes the bargaining power of suppliers a weaker force
within the industry.
 The industry in which KFC operates is an important customer for its suppliers. This
means that the industry’s profits are closely tied to that of the suppliers. These
suppliers, therefore, have to provide reasonable pricing. This makes the bargaining
power of suppliers a weaker force within the industry.

How KFC can tackle the Bargaining Power of Suppliers?

 KFC can purchase raw materials from its suppliers at a low cost. If the costs or
products are not suitable for KFC, it can then switch its suppliers because switching
costs are low.
 It can have multiple suppliers within its supply chain. For example, KFC can have
different suppliers for its different geographic locations. This way it can ensure
efficiency within its supply chain.
  As the industry is an important customer for its suppliers, KFC can benefit from
developing close relationships with its suppliers where both of them benefit.

Bargaining Power of Buyers

 The number of suppliers in the industry in which KFC operates is a lot more than the
number of firms producing the products. This means that the buyers have a few firms
to choose from, and therefore, do not have much control over prices. This makes the
bargaining power of buyers a weaker force within the industry.
 The product differentiation within the industry is high, which means that the buyers
are not able to find alternative firms producing a particular product. This difficulty in
switching makes the bargaining power of buyers a weaker force within the industry.
 The income of the buyers within the industry is low. This means that there is pressure
to purchase at low prices, making the buyers more price sensitive. This makes the
buying power of buyers a weaker force within the industry.
 The quality of the products is important to the buyers, and these buyers make frequent
purchases. This means that the buyers in the industry are less price sensitive. This
makes the bargaining power of buyers a weaker force within the industry.
 There is no significant threat to the buyers to integrate backwards. This makes the
bargaining threat of buyers a weaker force within the industry.

How KFC can tackle the Bargaining Power of Buyers?

 KFC can focus on innovation and differentiation to attract more buyers. Product
differentiation and quality of products are important to buyers within the industry, and
KFC can attract a large number of customers by focusing on these.
 KFC needs to build a large customer base, as the bargaining power of buyers is weak.
It can do this through marketing efforts aimed at building brand loyalty.
 KFC can take advantage of its economies of scale to develop a cost advantage and sell
at low prices to the low-income buyers of the industry. This way it will be able to
attract a large number of buyers.

Threat of Substitute Products or Services

  There are very few substitutes available for the products that are produced in the
industry in which KFC operates. The very few substitutes that are available are also
produced by low profit earning industries. This means that there is no ceiling on the
maximum profit that firms can earn in the industry in which KFC operates. All of
these factors make the threat of substitute products a weaker force within the industry.
 The very few substitutes available are of high quality but are way more expensive.
Comparatively, firms producing within the industry in which KFC operates sell at a
lower price than substitutes, with adequate quality. This means that buyers are less
likely to switch to substitute products. This means that the threat of substitute
products is weak within the industry.

How KFC can tackle the Threat of Substitute Products?

 KFC can focus on providing greater quality in its products. As a result, buyers would
choose its products, which provide greater quality at a lower price as compared to
substitute products that provide greater quality but at a higher price.
 KFC can focus on differentiating its products. This will ensure that buyers see its
products as unique and do not shift easily to substitute products that do not provide
these unique benefits. It can provide such unique benefits to its customers by better
understanding their needs through market research, and providing what the customer
wants.

Rivalry Among Existing Firms

 The number of competitors in the industry in which KFC operates are very few. Most
of these are also large in size. This means that firms in the industry will not make
moves without being unnoticed. This makes the rivalry among existing firms a
weaker force within the industry.
 The very few competitors have a large market share. This means that these will
engage in competitive actions to gain position and become market leaders. This
makes the rivalry among existing firms a stronger force within the industry.
  The industry in which KFC is growing every year and is expected to continue to do
this for a few years ahead. A positive Industry growth means that competitors are less
likely to engage in completive actions because they do not need to capture market
share from each other. This makes the rivalry among existing firms a weaker force
within the industry.
 The fixed costs are high within the industry in which KFC operates. This makes the
companies within the industry to push to full capacity. This also means these
companies to reduce their prices when demand slackens. This makes the rivalry
among existing firms a stronger force within the industry.
 The products produced within the industry in which KFC operates are highly
differentiated. As a result, it is difficult for competing firms to win the customers of
each other because of each of their products in unique. This makes the rivalry among
existing firms a weaker force within the industry.
 The production of products within the industry requires an increase in capacity by
large increments. This makes the industry prone to disruptions in the supply-demand
balance, often leading to overproduction. Overproduction means that companies have
to cut down prices to ensure that its products sell. This makes the rivalry among
existing firms a stronger force within the industry.
 The exit barriers within the industry are particularly high due to high investment
required in capital and assets to operate. The exit barriers are also high due to
government regulations and restrictions. This makes firms within the industry
reluctant to leave the business, and these continue to produce even at low profits. This
makes the rivalry among existing firms a stronger force within the industry.
 The strategies of the firms within the industry are diverse, which means they are
unique to each other in terms of strategy. This results in them running head-on into
each other regarding strategy. This makes the rivalry among existing firms a strong
force within the industry.

How KFC can tackle the Rivalry Among Existing Firms?

 KFC needs to focus on differentiating its products so that the actions of competitors
will have less effect on its customers that seek its unique products.
 As the industry is growing, KFC can focus on new customers rather than winning the
ones from existing companies.
  KFC can conduct market research to understand the supply-demand situation within
the industry and prevent overproduction.

Implications of Porter Five Forces on KFC

By using the information in KFC five forces analysis, strategic planners will be able to
understand how different factors under each of the five forces affect the profitability of the
industry. A stronger force means lower profitability, and a weaker force means greater
profitability. Based on this a judgement of the industry's profitability can be made and used in
strategic planning.
SWOT ANALYSIS

Strengths

1. Second best global brand in fast food industry in terms of value ($ 6 billion). KFC is
known by many and is a trustworthy brand in many countries mainly due to its early
franchising and international expansion.
2. Original 11 herbs and spices recipe. KFC original chicken recipe is a trade secret and
a source of comparative advantage against firm’s competitors.
3. Strong position in emerging China. KFC receives half of its revenue from China,
where it operates more than 4,000 outlets. KFC position in China is one of its main
strengths as China’s fast food market is growing steadily.
4. Combination of KFC – Pizza Hut and KFC – Taco Bell. KFC partnership with other
Yum! Brands yields some advantage as the restaurant can offer items from its partners
it doesn’t have itself and satisfy more customers’ needs.
5. KFC is the market leader in the world among companies featuring chicken as their
primary product offering. KFC has positioned itself clearly among other fast food
chains bearing its famous slogan and trademark chicken products.

Weaknesses

1. Untrustworthy suppliers. Over the years, KFC has been contracting suppliers, which
supplied contaminated poultry to KFC or were mistreating chicken, thus resulting in
falling sales and damaged reputation.
2. Negative publicity. KFC receives much criticism from PETA over the conditions
chickens have been raised. Furthermore, it received bad publicity for selling chicken
wing with kidney. There are many more or less bad news from KFC, which damage
firm’s reputation significantly.
3. Unhealthy food menu. KFC menu is largely formed of high calorie, salt and fat meals
and drinks. Such menu offering prompts protests by organizations that fight obesity
and hence, decreases KFC popularity. Consumers also often opt out for healthier
choices.
 4. High employee turnover. Employment in KFC is a low paid and low skilled job. It
results in low performance and high employee turnover, which increases training
costs and add to overall costs of KFC.

Opportunities

1. Increasing demand for healthier food. While demand for healthier food increases,
KFC could introduce more healthy food choices in its menu and reverse its weakness
into strength.
2. Home meal delivery. KFC could fully exploit (it test deliver services now) this
opportunity and reach more customers.
3. Introducing new products to its only chicken range. KFC could introduce new meals
to its menu and offer pork, beef or only vegetarian meals, which would target wider
consumer group and would result in more costumers.

Threats

1. Saturated fast food markets in the developed economies. The fast food market in the
developed countries is already overcrowded by so many fast food restaurant chains
and this already proves to be a threat to KFC as it finds it hard to grow in the
developed economies.
2. Trend towards healthy eating. Due to government and various organizations attempts
to fight obesity, people are becoming more conscious of eating healthy food rather
than what KFC has mainly to offer in its menu.
3. Local fast food restaurant chains. Local fast food restaurants can often offer a more
local approach to serving food and menu that exactly represents local tastes. Although
KFC does a great job in adapting its own menu to local tastes, the rising number of
local fast food chains and their lower meal prices is a threat to KFC.
4. Currency fluctuations. KFC receives part of its income from foreign operations. That
income has to be converted into dollars and may affect the business' profits, especially
when the dollar is appreciating against other currencies.
5. Lawsuits against KFC. KFC has already been sued for many times and lost quite a
few lawsuits. Lawsuits are expensive as they require time and money. As KFC
 continues to operate more or less the same way, there is high probability for more
expensive lawsuits to come.

Value Chain Analysis

Value Chain Analysis of KFC can offer various advantages:

1. Identify competitive advantage sources

By conducting the Value Chain Analysis of KFC during the planning process, possible
sources of competitive advantage can be identified. The firm/company is a collection of
different activities that share relatedness to some extent. KFC cannot trade all activities in the
external market. The Value Chain approach suggests that a company can consider these
activities as economic rent sources. These activities can also act as barriers to new entrants or
cause cost disadvantages to competitors.

2. Identify complex inter-relationships and interdependencies

KFC can identify various internal and external linkages among activities through the value
chain lens. The internal linkages are- interrelationships between activities within same
organisational units and external linkages are between business units of same or different
firms. Studying these interrelationships can help a company take benefit from coordination
and joint optimisation.

3. Improved flow of materials, information and finances

The use of Value Chain Analysis can optimise the finances, products and information flow.

 The improved information flow can help the company identify and exploit new
opportunities and reduce external threats. The continuous Value Chain evaluation can
result in timely filling important gaps that may affect a firm's productivity.
 The effective implementation of the Value Chain Analysis of KFC can improve the
material and product flow due to improved demand and sales forecasting. The
inventory management also improves as KFC can minimise the delays by tracking
activities throughout the supply chain.
  Modern customers place high importance to the quick response and convenient access
to the important product related information. The unexpected interruption in the
information flow can affect the customer-supplier relationship. KFC Value Chain
Analysis and its implementation can highlight and remove the bottlenecks to the
information flow.

4. Formulate effective firm-specific strategies

KFC Value Chain Analysis can be used in the competitive strategic decision-making process.
However, choosing the right competitive strategy (cost leadership, differentiation or focus)
requires knowledge of own and rivals’ cost structure.

Value Chain Analysis of the KFC can be better understood with the help of some examples.

 By using Value Chain Analysis, KFC can select and source premium quality raw
material and develop customer loyalty on the basis of it. It can also use Value Chain
Analysis to develop brand identity.
o Starbucks provides a good Value Chain Analysis Example. The organisation
created a strong brand identity and set a strong competitive advantage basis
through aggressive marketing and strengthening coordination between
marketing and product development department.
 KFC can also achieve competitive differentiation by speeding up the delivery of
offered products to the final customers.
o Pizza Hut provides another successful Value Chain Analysis Example where
organisation outpaced competitors by re-configuring value chain activities to
ensure quick delivery.
 The Value Chain Analysis can also be used by KFC to improve its human resource
practices.
o FedEx is a good Value Chain Analysis Example to understand how KFC can
achieve competitive advantage through analysis of its human resource
activities.
o FedEx emphasised over its value chain support activities, invested heavily on
employee development, took excellent human resource initiatives and made
visible infrastructure improvements, resulting into visible increase in brand
loyalty and market share.
  KFC can analyse value chain activities to reduce the costs, find better deals with
suppliers and offer high quality products at affordable prices.
o A relevant Value Chain Analysis Example is provided by Walmart that
continuously analyses its value chain activities to remain innovative, minimise
operational costs and offer low-cost yet reliable services.
 KFC can analyse the support value chain activities to offer superior customer support.
It can also analyse the operational activities to expand the presence in geographically
dispersed areas.
o It can be understood with the help of another Value Chain Analysis Example.
Starbucks places high importance to analysing value chain activities and has
successfully opened direct stores in more than 50 countries.
 KFC can also use the Value Chain Analysis as a tool to do backward integration. It
can be done by merging or purchasing the suppliers to ensure timely raw material
availability.
o Apple provides a relevant Value Chain Analysis Example in this regard. The
company is known for its efficient value chain and successfully controls the
product and parts.
 The Value Chain Analysis can also be done by KFC to maximise the operational
efficiency, reduce waste and integrate sustainability in business operations.
o Intel is a good Value Chain Analysis Example that has reduced the waste and
negative impact on the environment by analysing its value chain operational
activities. The company has received appreciation for its waste reduction
efforts.
 KFC can learn from value chain practices of Dow AgroSciences. Dow has used Value
Chain Analysis to explore the unique marketing opportunities and extracted value
from generic commodity market. The company has also used Value Chain to manage
the risks at different product lifecycle phases.

The above-stated examples show how KFC can benefit from conducting a detailed Value
Chain Analysis. However, it is also important to note that the Porter Value Chain model
application depends on the unique contextual variables that must be considered when
assigning the weightage to primary and secondary value chain activities.
SCENARIO ANALYSIS

KFC (Kentucky Fried Chicken) was founded by Colonel Harland Sanders, an entrepreneur
who began selling fried chicken from his roadside restaurant in Corbin, Kentucky, during the
Great Depression. Sanders identified the potential of restaurant franchising, and the first
"Kentucky Fried Chicken" franchise opened in Salt Lake City, Utah in 1952. KFC
popularized chicken in the fast-food industry, diversifying the market by challenging the
established dominance of the hamburger. Branding himself "Colonel Sanders", the founder
became a prominent figure of American cultural history, and his image remains widely used
in KFC advertising. The company's rapid expansion made it too large for Sanders to manage,
so in 1964 he sold the company to a group of investors led by John Y. Brown, Jr. and Jack C.
Massey. KFC was one of the first fast-food chains to expand internationally, opening outlets
in England, Mexico and Jamaica by the mid-1960s. Throughout the 1970s and 80s, KFC
experienced mixed success domestically, as it went through a series of changes in corporate
ownership with little or no experience in the restaurant business. In the early 1970s, KFC was
sold to the spirits distributor Heublein, which was taken over by the R.J. Reynolds food and
tobacco conglomerate, which later sold the chain to PepsiCo. The chain continued to expand
overseas, and in 1987 KFC became the first Western restaurant chain to open in China.

In 1997, PepsiCo spun off its restaurants division as Tricon Global Restaurants, which
changed its name to Yum! Brands in 2002. Yum! has proven to be a more focused owner
than Pepsi, and although KFC's number of outlets has declined in the US, the company has
continued to grow in Asia, South America and Africa. The chain has expanded to 18,875
outlets across 118 countries and territories, with 4,563 outlets in China alone, KFC's largest
market.

Harland Sanders was born in 1890 and raised on a farm outside Henryville, Indiana. His
father died in 1895, and to make ends meet his mother took work at a canning plant. As the
eldest child at the age of five, Sanders was left to care for his two siblings. When he turned
seven his mother taught him how to cook. After leaving the family home at age 13, Sanders
pursued several professions including railroad worker and insurance salesman, with mixed
success. In 1930, he took over a Shell filling station on US Route 25 just outside North
Corbin, a small city on the edge of the Appalachian Mountains. By June, he had converted a
storeroom into a small eating area using his own dining table, serving meals such as steaks
and country ham to travelers.

In 1934, Sanders took over the lease of the Pure Oil filling station on the other side of the
road, due to its greater visibility for motorists. He then began to sell fried chicken. To
improve his skills, Sanders took an eight-week restaurant-management course at the Cornell
University School of Hotel Administration. By 1936, his business had proved successful
enough for him to be given the honorary title of Kentucky colonel by Governor Ruby
Laffoon. In 1937, Sanders expanded his restaurant to 140 seats, and in 1940 purchased a
motel across the street, the Sanders Court & Café.

Sanders was dissatisfied with the 35 minutes it took to prepare his chicken in an iron frying
pan, but he did not want to deep fry. Although a much faster process, in Sanders' opinion it
produced dry and crusty chicken that was unevenly cooked. On the other hand, if he prepared
the chicken in advance of an order, there was sometimes waste at the end of the day. In 1939,
the first commercial pressure cookers were released onto the market, predominantly designed
for steaming vegetables. Sanders bought one and modified it into a pressure fryer, which he
then used to prepare chicken. The new method reduced production time to be comparable
with deep frying, yet, in Sanders' opinion, retained the quality of pan-fried chicken. In July
1940, Sanders finalized what came to be known as his Original Recipe of 11 herbs and
spices. Although he never publicly revealed the recipe, he admitted to the use of salt and
pepper, and claimed that the ingredients "stand on everybody's shelf".

After being recommissioned as a Kentucky colonel in 1950 by Governor Lawrence Weather

by, Sanders began to dress the part, growing a goatee and wearing a black frock coat (later
switching to a white suit), a string tie, and referring to himself as "Colonel".His associates
went along with the title change, "jokingly at first and then in earnest", according to
biographer Josh Ozersky.

The Sanders Court & Café generally served travelers, so when the route planned in 1955 for
Interstate 75 bypassed Corbin, Sanders sold his properties and traveled the US to market his
chicken concept to restaurant owners. Independent restaurant owners would pay four cents on
each chicken sold as a franchise fee (later increased to five cents), in exchange for Sanders'
"secret blend of herbs and spices", his recipe and method, and the right to advertise using his
name and likeness. In 1952 he had already successfully franchised his chicken recipe to Pete
Harman of South Salt Lake, Utah, the operator of one of the largest restaurants in the city.
Don Anderson, a sign painter hired by Harman, coined the name "Kentucky Fried Chicken".
Sanders adopted the name because it distinguished his product from the deep-fried "Southern
fried chicken" product found in restaurants. Harman claimed that in his first year of selling
"Kentucky Fried Chicken", his restaurant sales more than tripled, with 75 percent of the
increase coming from the sale of fried chicken. In Utah, a product from Kentucky was exotic
and evoked imagery of Southern hospitality.

As a franchise-led operation, KFC's success depended on the work of the early franchisees,
and Harman has been described as the "virtual co-founder" of the chain by Sanders'
biographer. Harman trademarked the phrase "It's finger licking' good", which was eventually
adopted as a slogan across the entire chain. In 1957 Harman bundled 14 pieces of chicken,
five bread rolls and a pint of gravy into a cardboard bucket, and offered it to families as "a
complete meal" for US$3.50 (around US$30 in 2014). He first test-trialled the packaging as a
favour to Sanders, who had called on behalf of a Denver franchisee who did not know what
to do with 500 cardboard buckets he had bought from a traveling salesman.

By 1956, Sanders had six or eight franchisees, including Dave Thomas, who eventually
founded the Wendy's restaurant chain. Thomas developed the rotating red bucket sign, was an
early advocate of the take-out concept that Harman had pioneered, and introduced a
bookkeeping form that Sanders rolled out across the entire KFC chain. Thomas sold his
shares in 1968 for US$1 million (around US$7 million in 2013), and became regional
manager for all KFC restaurants east of the Mississippi before founding Wendy's in 1969. In
1956, Sanders moved the company headquarters from Corbin to Shelbyville, Kentucky,
which offered superior transport links through which he could distribute his spices, pressure
cookers, take-out cartons and advertising material to franchisees.

Sale by Sanders and rapid growth

KFC popularized chicken in the fast food industry, diversifying the market by challenging the
established dominance of the hamburger. In 1960 the company had around 200 franchised
restaurants; by 1963 this had grown to over 600, making it the largest fast food operation in
the United States. In 1963, Sanders met John Y. Brown, Jr, a young Kentucky encyclopaedia
salesman, who explained that he was keen to join the company. Sanders instead proposed the
sale of the company, as business skills did not come naturally to him, and he lacked an
obvious or willing heir among his relatives.
Lacking sufficient funds himself, Brown convinced the financier Jack C. Massey to provide
60 percent of the acquisition capital, and provided a major contribution himself, with smaller
contributions from franchise holder Pete Harman and company officials Lee Cummings and
Harlan Adams. Sanders then began to have doubts about selling the company, as some
members of his family were against it. The group acquired the company in 1964 for US$2
million (around US$15 million in 2013). The contract included a lifetime salary for Sanders
and the agreement that he would be the company's quality controller and trademark.

Massey and Brown introduced standardization to the fragmented company. After visiting
Pete Harman's operations in Utah, they began to implement the stand-alone take-out model
across the entire chain. Franchisees were ordered to delist their own menu items so that they
could concentrate on KFC products. The restaurants were re-branded with a distinctive red-
and-white striped color pattern and mansard roofs with cupolas. The roll-out of freestanding
stores accelerated the company's growth as outlets exclusively selling fried chicken proved to
be more appealing to potential franchisees.

Despite selling the company, Sanders retained significant moral authority over executives and
franchisees, and made his feelings clear when he disagreed with corporate decisions. When
Massey moved company headquarters from Kentucky to Nashville, Tennessee, Sanders was
quoted as saying, "This ain't no goddam Tennessee Fried Chicken, no matter what some
slick, silk-suited son-of-a-bitch says". He believed that the company had reneged on their
contract with him when they opened operations in Canada, arguing that the contract had
granted him the exclusive rights to operate there. KFC was forced to renegotiate with Sanders
regarding the Canadian activities, as he owned $1.5 million worth of stock and was using it to
prevent Massey from listing the company publicly until his points of issue were addressed.
Brown and Massey claimed that Sanders only had the rights to process chicken in Canada.
After they renegotiated the contract to guarantee Sanders exclusive rightsover Canada, he
sold his stock to them, and the company went public in 1966. After going public, the
company bought out its 600 franchisees, and directly operated them itself. Later that year,
Massey resigned from day-to-day management of the company (although he remained as
chairman), and Brown announced that headquarters would be moved to Louisville, Kentucky.

By 1967, KFC had become the sixth largest restaurant chain in the US by sales volume, and
30 percent of sales were take-out. Brown felt that the company had to expand quickly, or else
emerging rivals such as Church's Chicken would steal the company's lead; 863 outlets were
opened in 1968. The company's growth pushed its stock value to "stratospheric" levels,
according to Reuters, and in 1969 it was listed on the New York Stock Exchange.
Meanwhile, KFC entered into ventures with other companies. Brown believed that the
Colonel Sanders brand could be used to market anything, and launched the "Kentucky Roast
Beef" restaurant chain, and "Colonel Sanders Inns" motels. The two ventures quickly failed,
although the roast beef chain had 100 outlets by 1970. That same year, KFC entered a joint
venture with the California-based fish and chips chain H. Salt Esquire, which proved more
successful, but was sold off in 1980.

Massey resigned as chairman of the company in March 1970, and Brown took over his role.
The chain had reached 3,000 outlets in 48 different countries by 1970, but expansion was
often chaotic and poorly executed. When he was promoted to regional manager, Dave
Thomas complained that the company had become too "corporate", sent him "a lot of Mickey
Mouse memos" and that Brown lacked motivational skill. A member of KFC senior
management described the international strategy as "throwing some mud against the map on
the wall, and hoping some of it would stick”. The first outlet in Japan was opened after just
two weeks preparation, and it proved to be a costly failure, losing $400,000 during its
opening month and wasting more chicken than it sold. Operational problems became clear in
July 1971, after the company reported its first ever profit loss from the prior six-month
period.

Once too large for Sanders to manage, Kentucky Fried Chicken grew to overwhelm John Y.
Brown as well. In July 1971, Brown sold the company to the Connecticut-based Heublein, a
packaged food and drinks corporation, for US$285 million (around US$1.6 billion in 2013).
Brown personally gained around $35 million from the sale. Reuters opined that the takeover
probably saved the company from disaster. Heublein planned to increase KFC's volume with
its sales and marketing expertise.

Meanwhile, Church's Chicken began taking KFC's market share by offering indoor seating
and its "Crispy Chicken" product. KFC introduced its own "Extra Crispy Chicken" in 1972.
The introduction of barbecue spare ribs in 1973 caused "tremendous" operating problems.
After the product was launched there was a shortage of pork, which pushed prices beyond
what customers were willing to pay. When management withdrew the product, they realized
that fried chicken sales had been decreasing. Meanwhile, Sanders increasingly regretting
selling the company, and his relationship with the new owners had soured. He began to
complain of the company's declining food quality to the media:
My God, that gravy is horrible! They buy tap water for 15-20 cents a thousand gallons
and then they mix it with flour and starch and end up with pure wallpaper paste ...
And another thing. That new crispy recipe is nothing in the world but a damn fried
dough ball stuck on some chicken.

The outburst prompted a KFC franchisee in Bowling Green, Kentucky, to unsuccessfully

attempt to sue Sanders for libel. In 1973, Heublein attempted to sue Sanders after he
opened a restaurant in Shelbyville, Kentucky, under the name of "Claudia Sanders, the
Colonel's Lady Dinner House". In retaliation, Sanders attempted to sue Heublein for
US$122 million (around US$570 million in 2013) over the alleged misuse of his image in
promoting products he had not helped develop, and for hindering his ability to franchise
restaurants. A Heublein spokesman described it as a "nuisance suit". In 1975, Heublein
settled out of court with Sanders for US$1 million (around US$4 million in 2013), and
allowed his restaurant venture to go ahead under the reworked name: "Claudia Sanders
Dinner House".

Heublein had no previous experience in the operation of fast food outlets. Overconfidence led
KFC to fail in such overseas markets as Hong Kong, which the company abandoned in 1975
after two years in operation. Sanders continued to attack Heublein publicly, and in 1976
complained that the company "doesn't know what it's doing" and that it was "downright
embarrassing" to have his image associated with such a poor quality product. The 800
company-owned stores had become unprofitable by 1978.

Heublein promoted Michael A. Miles to run the chain in 1977 and Miles is credited with
saving the ailing company by instituting its back-to-basics formula. Miles refurbished the
stores, and introduced indoor seating and drive-thru windows. Electronic tills produced daily
customer counts, inventories and profit and loss statements, so that problems could be
identified quickly. KFC expanded internationally in the 1970s and 80s, particularly in Japan,
Australia and the United Kingdom. Miles also lured Sanders back, and listened to his
recommendations for the business. Subsequent changes resulted in 30 months of consecutive
per store sales increases by late 1980.

Sanders died in 1980 from pneumonia at the age of 90, having continued to travel 200,000–
250,000 miles a year up to this time, largely by car, promoting his product. By branding
himself as "Colonel Sanders", Harland became a prominent figure of American cultural
history, and his image remains widely used in KFC advertising.

There were 5,800 KFC outlets worldwide by 1983, located across 55 different countries. That
year, General Cinema Corporation acquired 18 percent of Heublein, who, fearing a hostile
takeover, approached R. J. Reynolds, the tobacco firm, to act as a white knight and acquire
the company for $1.3 billion. That year, Michael Miles resigned as chairman of KFC to take
the role of CEO at Kraft Foods, and Richard Mayer took over his role. Reynolds had to
contend with the introduction of Chicken McNuggets across the McDonald's chain in 1983;
KFC introduced its own brand of chicken nuggets, called "Kentucky Nuggets" in 1985. In
1984, Reynolds dedicated $168 million for capital expansion at KFC.

Acquisition by PepsiCo
In July 1986, Reynolds sold KFC to PepsiCo for a book value of $850 million (around
US$1.8 billion in 2013). At the time, PepsiCo had interests in soft drinks and snacks, and also
owned the restaurant chains Pizza Hut and Taco Bell. Reynolds divested KFC in order to pay
off debt related to its recent purchase of Nabisco and to concentrate on its tobacco and
packaged food business. It was anticipated that PepsiCo would bring their merchandising
expertise to the company. Dan Koeppel of Adweek believed that the chain had been suffering
from corporate neglect, menu stagnation and mixed marketing messages; Nancy Giges of
Advertising Age felt that the chain had been "smartly revived" by R. J. Reynolds. KFC
chairman Richard Mayer was of the opinion that Reynolds had treated their restaurants
division as a "hobby".

PepsiCo's acquisition was seen by some analysts as a means for the company to increase its
soft drinks sales. PepsiCo chairman D. Wayne Calloway denied that soft drink preference
was a factor in the KFC takeover. KFC management had previously given franchisees the
freedom to sell any soft drinks they wanted, but PepsiCo stated that it hoped it could
convince them to stock Pepsi products. Before the takeover, only 1,000 of the 6,500 KFC
outlets sold Pepsi Cola, and PepsiCo switched 1,800 company-owned stores to their own soft
drinks with immediate effect.The purchase of KFC by PepsiCo led to some fast food
competitors switching from Pepsi to Coca-Cola. One of the first to switch was Wendy's,
whose chairman, Robert Barney, stated, "[PepsiCo's] interests are now in conflict with
Wendy's and we will not support a company that is trying to make our customers its
customers."Burger King, which had switched from Coca-Cola to PepsiCo in 1983, returned
to Coca-Cola in 1990, citing the growth of the PepsiCo chains as a "large factor" in the
switch. By 1998, the majority of KFC franchisees had agreed to stock PepsiCo soft drink
products.

In November 1987, KFC became the first Western restaurant chain in China, with an outlet in
Beijing. In 1989, first quarter sales at KFC rose 30 percent to US$280 million. In July,
president and CEO Richard Meyer left KFC in order to become the CEO at Kraft Foods, and
was replaced by John Cranor III.

International growth and franchisee disputes under John Cranor III

In August 1989, Cranor proposed amendments to the existing 1976 contract for US
franchisees: PepsiCo could take over weak franchises, existing restaurants would not be
safeguarded against competition from new outlets, and PepsiCo would have the right to
increase royalty fees. The contract proved controversial amongst franchisees, who countered
with a lawsuit, and the issue was not resolved until 1996. PepsiCo was accused of behaving
in an imperious manner towards franchisees, who it believed were holding back the firm's
growth, while the franchisees believed they had been the backbone of the company during a
succession of indifferent corporate owners.

Cranor spent $42 million restructuring the company's operations worldwide. He invested an
additional $50 million to refurbish outlets and $20 million on a new computer system to link
outlet cash registers to the kitchen, drive-through window, manager's office and company
headquarters. Cranor also expanded the chain into non-traditional locations, beginning with a
150 sq ft limited menu kiosk at a General Motors assembly plant in Dayton, Ohio. Between
1986 and 1991, the chain built a further 2,000 outlets to bring its total number to 8,500, and
sales grew from $3.5 to $6.2 billion. The chain had to contend with the rise of grilled chicken
as Americans became increasingly health conscious. KFC found itself competing against the
growing El Pollo Loco restaurant chain, as well as with Burger King, which had just
introduced the BK Broiler, a grilled chicken burger.[86] Delays in product development,
cramped kitchens and the ongoing franchisee contract dispute prevented the chain from
rolling out a grilled product of its own.

In March 1991 the KFC name was officially adopted, although the chain was already widely
known by that initialism. The change was advised by the Schechter Group brand consultancy
agency. Research demonstrated that 80 percent of customers already associated the "KFC"
initials with Kentucky Fried Chicken. A spokesman for the chain said that it represented its
diversified menu, which was moving away from solely fried products. Kyle Craig, president
of KFC US, admitted the change was an attempt to distance the chain from the unhealthy
connotations of "fried". In 1994, Milford Prewitt praised the "crafty and well-timed
repositioning" in Nation's Restaurant News. On the other hand, a 2005 editorial in
Advertising Age stated, "the chain's jettisoning of a venerable name—and distancing from the
word fried—was ill-conceived and damaging. It made a clear brand fuzzy."

The early1990s saw successful major products launched throughout the chain, including
spicy "Hot Wings" (launched in 1990), popcorn chicken (1992), and, outside the US, the
"Zinger", a spicy chicken fillet burger (1993). In 1993, rotisserie style chicken, under the
name "Colonel's Rotisserie Gold", was introduced at over 30 percent of US outlets. However,
despite a $100 million investment in marketing, the product failed to gain sales traction. The
launch of skinless chicken, designed to appeal to health-conscious customers, failed;
customers disliked the unfamiliar texture, and the product resulted in increased overheads,
which contributed to a 37 percent decline in operating profits in 1991.

In June 1991, Singapore was chosen for the launch of the first ever KFC breakfast menu.
Products included chicken, omelettes and scrambled eggs, sold under the "Colonel's Country
Breakfast" banner. Singapore was chosen for the launch due to the growth of the breakfast
market in that country.

While the US division struggled, becoming the weakest part of PepsiCo's restaurants
division, elsewhere sales boomed, with particular success in Japan. By 1992, almost half of
company turnover came from outside the US. By 1993, KFC in the Asia Pacific region
accounted for 22 percent of all KFC sales. John Cranor announced, "We're looking at almost
unlimited opportunity for growth in Asia". By 1993, KFC was the leading Western fast food
chain in South Korea, China, Thailand, Malaysia and Indonesia, and was second to
McDonald's in most other Asian markets, including Japan and Singapore. Overseas
operations often flourished while local management ignored or even defied orders from
Louisville headquarters.

David Novak appointed President

By 1994, KFC had a total of 9,407 outlets worldwide, including 5,149 outlets in the US, and
over 100,000 employees. That year, the chain began to struggle after competitors such as
McDonald's introduced value menu offerings. After a disappointing set of quarterly earnings,
Cranor left the company in January 1994. In his wake, two executives with marketing
backgrounds were charged with reviving the company. Roger Enrico was appointed as the
CEO of PepsiCo Worldwide Restaurants, and David C. Novak was appointed President of
KFC in North America.

In 1995, Novak introduced two successful new products— Crispy Strips (breaded strips of
chicken) and the chicken pot pie— the chain's first major new product launches in almost two
years. Novak credits an improved, more "open" relationship with franchisees for the
introduction of the two new items: Crispy Strips were invented by an Arkansas franchisee,
and the pot pie was similarly developed alongside franchisees. Meanwhile, less popular
items, such as corn muffins, were removed from the menu. At the same time, Enrico scaled
back the increasing competition between KFC and its sister companies, Taco Bell and Pizza
Hut; Taco Bell had begun offering its own chicken products, and KFC had attacked Pizza Hut
in its marketing.

In 1996 the company repaired its relationship with its franchisees by immediately dropping
the most contentious of the contract terms that had been proposed by chairman John Cranor
five years previously. The 1976 contract was restored, including the 1.5 mile outlet
exclusivity zone, while the parent company gained greater control over national advertising.

Novak also axed the Colonel's Rotisserie Gold product and introduced a new non-fried item
called the Tender Roast. Tender Roast was served by piece, as with the fried chicken, in
contrast with the rotisserie product, which had been sold in quarter, half or whole chicken
portions. Afterwards, Novak oversaw ten fiscal quarters of consecutive growth at KFC North
America. As a result of his success at KFC North America, Novak became President and
CEO of the entire KFC organization in 1996.

Spin-off as Tricon (later Yum! Brands)

In August 1997, PepsiCo spun off its poorly performing restaurants division as a public
company valued at US$4.5 billion (around US$6.5 billion in 2013). Although KFC had been
doing well, Pizza Hut and Taco Bell had been under-performing. One PepsiCo executive
admitted, "restaurants weren't our schtick". The new company, named Tricon Global
Restaurants, had 30,000 outlets and annual sales of US$10 billion (around US$14 billion in
2013) at the time, making it second only to McDonald's in global sales.
Since the turn of the 21st century, fast food has been criticised for its animal welfare record,
its links to obesity and its environmental impact. Eric Schlosser's book Fast Food Nation
(2002) and Morgan Spurlock's film Super Size Me (2004) reflected these concerns. Since
2003, People for the Ethical Treatment of Animals (PETA) has protested KFC's choice of
poultry suppliers worldwide with the Kentucky Fried Cruelty campaign. PETA have held
thousands of demonstrations, sometimes in the home towns of KFC executives, and CEO
David Novak was soaked in fake blood by a protester. KFC President Gregg Dedrick said
PETA mischaracterized KFC as a poultry producer rather than a purchaser of chickens. In
2008, Yum! stated:As a major purchaser of food products, [Yum!] has the opportunity and
responsibility to influence the way animals supplied to us are treated. We take that
responsibility very seriously, and we are monitoring our suppliers on an ongoing basis."

Tricon was renamed Yum! Brands in May 2002. In that year, the chain had to contend with
Burger King's launch of the Chicken Whopper, as well as fried chicken offerings from the
Domino's and Papa John's pizza chains. Within three months, the Chicken Whopper became
Burger King's most successful launch of all time, with sales of 50 million. In September
2002, KFC sales were down 10 percent against the previous year. From 2002 to 2005, KFC
experienced three years of weak sales, when underinvestment in product development left the
brand looking "tired and poorly positioned", according to Restaurant Research, an
independent consultancy. A roast chicken product line introduced in 2004 proved
unsuccessful, and the worldwide avian flu scare of 2005 temporarily decreased sales by as
much as 40 percent. KFC responded in March 2005 by adding a cheap, small chicken burger
to the menu called the "Snacker". It proved to be one of the chain's most successful product
launches to date, with over 100 million in sales. In international markets, KFC introduced the
"Boxmaster", a meal-sized wrapin a box. KFC also began a makeover of the US brand image,
bringing back the full "Kentucky Fried Chicken" name at some outlets and returning portraits
of Colonel Sanders to prominence.

In 2009, KFC International launched the Krusher (Krushem in some markets) line of frozen
beverages. The product was an attempt to introduce a between-meals snack to KFC, and was
marketed towards teenagers. In April 2010, the Double Down sandwich was launched.
Criticised as an unhealthy product, it featured two pieces of fried chicken in lieu of a
conventional bread bun. It has proved to be a success for the company, with 15 million
Double Downs sold worldwide between March 2011 and March 2013. In September 2012,
the Chicken Little sandwich returned in the US.
By December 2013, there were 18,875 KFC outlets in 118 countries and territories around the
world. KFC is the second largest restaurant chain in the world by sales after McDonald's.

In April 2014, Yum! announced that first quarter KFC sales had risen by 11 percent in China,
following a 15 percent fall in 2013.

In July 2014, Chinese authorities closed down the Shanghai operations of the OSI Group,
amidst allegations that it had supplied KFC with expired meat. Yum! immediately terminated
its contract with the supplier, and stated that the revelation had led to a significant decline in
sales.

STRATEGY ADOPTED

World’s 2nd largest fast food chain and largest chicken restaurant on the basis of sales is KFC,
the successful brand of the parent company YUM! brand. It’s been more than 75 years since
its inception and still, KFC’s original recipe of fried chicken is satisfying the taste buds of
customers because it is finger licking good! KFC with its 750000 workforce, serves fresh
delicious fried chicken to customers in nearly 18000 restaurants across the world in 120+
countries.

KFC (Kentucky Fried chicken) uses demographic segmentation to serve the market as per the
customer needs & wants. The consumers of KFC are the young as well as young adults.It
used to serve the same menu all around the world which means that it was using
undifferentiated targeting strategy. However, in recent times, following McDonalds example,
KFC has started localising its menu, giving it better acceptability in the market. Moreover it
has transformed its positioning strategy from product based to value based in recent times.
KFC is strongly positioned in the minds of consumers for its Chicken menu. There are very
few outlets which serve anything in vegetarian. But when it comes to non vegetarian, KFC is
just superb. Its chicken wings, and chicken bucket is a favourite with everyone. This
excellent targeting technique is the reason that most non vegetarian lovers flock at KFC.
Competitive advantage in the Marketing strategy of KFC

Original recipe of fried chicken with secret blend of 11 herbs & spices have been the driving
force for KFC from last 75 years. KFC has a broad menu with many options for customers
and now even Vegetarian food items have been added by KFC which has helped KFC in
increasing its customer base and sales volume.

Presence in developed & developing nations is helping the company in strategizing its future
growth plans as it is giving them exposure & experience which is essential element in and
fast food industry’s success.

BCG Matrix in the Marketing strategy of KFC

Its Hot wings, Sandwiches and Grilled chicken are stars since majority of its sales comes
from these menu items. Other menu items those in veg, desserts & in chicken (even burgers)
are question marks since KFC is not able to differentiate itself on these menu items from
others like McDonalds or local fast food joints.

Distribution strategy in the Marketing strategy of KFC

With 18000 restaurants delivering finger licking delicious fast food across the world, KFC
has evolved itself through the years and having strong tie-ups or strategic partnership with the
supply chain partners is helping them in serving its customers in a better way.

KFC always believes in keeping its outlet in premium areas as well as in malls and shopping
complexes. These KFC outlets can also carry out delivery for online orders of KFC. As a
result, KFC covers both – online and offline deliveries.

Brand equity in the Marketing strategy of KFC

KFC is currently ranked 147 in the global brand ranking table. Sustained positive brand
positioning has helped the company in creating top of mind awareness (TOMA) . With its
introduction of Veg-menu and localisation strategy, it is now catering to the left-out segment
which will help in its brand building.
Another factor which strongly helps KFC is its continuous branding initiatives with above the
line as well as below the line marketing tactics.

Competitive analysis in the Marketing strategy of KFC

KFC is facing strong competition from McDonalds, kokoriko, kyochan and many other local
& national fast food companies. Also the local fast food joints are giving head on competition
to KFC in the developing nations. In developed nations the different fast food outlets are
eating up each other’s market share.

One of the major competitors of KFC is McDonalds and Subway. Both of them are in the
burger category and where McDonalds offers burgers, Subway offers sandwiches. Subway is
yet to reach its complete distribution potential but KFC and McDonalds are constantly at
loggerheads with their vast global presence.

Market analysis in the Marketing strategy of KFC

Although more than 50% of its sales come from Developed nations but those markets have
stagnant growth rate and developing nations like India, China and many others have big
potential for KFC.

The market is still growing but fast food chains have low acceptance in developed markets.
Developed nations are becoming more health conscious, it’s only developing nations which
will share the market dynamics.

Customer analysis in the Marketing strategy of KFC

Customer of KFC are the people from different age group, all who want to satisfy their taste
buds with the finger licking delicious chicken menu. Most of the customers can be defined as
youngsters or young adults who can shell out a minimum amount of money to have a
delicious meal.

Price in the Marketing mix of KFC

KFC follows both optional pricing and mixed bundling pricing. A consumer can buy dishes
from the basic menu and go for add-ons (Optional pricing) and there are combo offers which
comprise a mix of items. The pricing of products ranges approximately from 25 Rs. to ~675
Rs. KFC has variety of options in each category, For e.g.: In Bucket, there are menus with
8pcs, 12pcs and also 12pcs variety bucket(Hot & Crispy Original Recipe and Chicken Strips).

Place in the Marketing mix of KFC

KFC initially opened its outlets in metros and Tier I cities, now it has gradually moved to
Tier II cities where the buying power is one the rise due to rapid urbanization. KFC has its
outlets in all major cities and has overtaken Pizza Hut in Quick service restaurants. By the
year 2015, KFC is expected to have 500 outlets in India.

Promotions in the Marketing mix of KFC

KFC does promotional activities by offering add-ons to the existing menu, gift coupons, T-
shirts, Kids meal etc. KFC promotes its products through LCD displays kept inside its outlets
which promotes their products and kindles desires among consumer. India being the country
with largest youth population has favored the growth of KFC and it has become the fastest
growing fast food chain in India pushing aside McDonalds’ and Pizza Hut.

FUTURE PLANS

The new restaurant is one-of-a-kind and is part of the evolution of the brand which started
two years ago and is now moving in high gear. The holistic plan focuses on the whole KFC
concept -- a more contemporary design; back of the house, state-of-the art equipment set up
for growth; aggressive menu testing and customer experience -- southern inspired in both
hospitality and menu vision.

Some of the highlights of the new KFC(R) restaurant of the future include:

- A new look for Colonel Sanders (a younger Colonel, he is sporting an apron and rightfully
so, as the Colonel spent most of his time in the kitchen perfecting Kentucky Fried Chicken's
famous recipes)
- The words Kentucky Fried Chicken are proudly displayed on the exterior and interior of the
restaurant

- Digital Jukebox (free of charge for customers to play the kinds of music they want to hear
while dining in the restaurant)

- Low set tables with cushy ottomans

-- The outside of the building is adorned with paintings by famed African American artist
Charly (Carlos) Palmer, who took KFC's historical icons and gave them an updated, cool and
modern look. These paintings are also part of the interior.

- Graphics and pub signs also showcase the icons: "11 Secret Herbs and Spices", "Finger
Lickin' Good(R)" and "Sunday Dinner, 7 Days a Week"

- Southern-inspired brand new menu items slow-cooked and served fast to star alongside
KFC's core products. Everything from chicken mashed potato bowls, chicken rice bowls,
sausage bowls and Kentucky sides including seasoned collard greens and hot cinnamon
apples, as well as buttermilk popcorn shrimp, sweet and spicy candy apple wings and sweet
potato pie. The new menu items are unique to the QSR industry.

Last July, KFC opened a prototype restaurant in Washington, D.C., in an urban community.
The design and menu items were tested and refined after talking to customers in the
neighborhood and catering to their needs. The restaurant increased business by more than
20% and, most importantly, changed how KFC team members and customers felt about KFC.
KFC plans to marry the best of the best from both the new urban store and the new store of
the future as it moves forward with its concept evolution.

"This new Kentucky Fried Chicken restaurant is part of a plan to open another 50 restaurants
this year (corporate and franchisee), to see how to best serve our many different customer
bases. The groundwork phase is complete and the testing phase is in progress," said KFC
President and Chief Concept Officer Gregg Dedrick.
KFC's recent introduction of its 99-cent value sandwich (one of the most successful new
product introductions in the company's history) helped KFC end Period 3 up 10% U.S.
company same-store-sales growth.

KFC hosted a preview event for media last week to introduce its new fast casual concept,
KFC Eleven. The restaurant, located in the Highlands neighborhood of the brand's hometown
of Louisville, Ky., is set to officially open on Aug. 5 and will feature lunch and dinner, as
well as outdoor seating and a drive-thru.

The menu includes rice bowls, flatbreads, salads, Original Recipe boneless chicken, crispy
bites, sides, desserts and beverages. Sides include waffle fries, mac & cheese, garlic smashed
potatoes & gravy, crunchy coleslaw and a side salad.

Rice bowls retail from $5.99 to $6.69. Flatbread and salad options retail for $6.89 and include
BBQ bacon ranch, South western Baja, Sweet Orange Ginger, Kickin' Buffalo, Creamy
Garlic Pesto and Caribbean Tango.

BCG Matrix Analysis of KFC

Kentucky fried chicken, a renowned American chain of fast food restaurant; commonly
known by the masses, as KFC. It’s headquarter is located in Louisville. KFC is the subsidiary
of yum! Brands, which owns Pizza hut and Taco bell chains of fast food restaurants as well.
It has 20,000 franchises in 123 countries, which makes it, second largest chain of fast food
restaurant in the world, following McDonalds. This imminent fast food restaurant was
founded by, Harland sander; in 1936.
BCG matrix of KFC
BCG matrix is the representation of company different divisions, on a four quadrant graph.
Category of segments dimension can be identified with the help of market share and
industrial growth rate. It helps the companies to identify the suitable strategies for the
segments. Each profit center requires distinct strategies from other, according to the financial
standing of segment. Companies can identify that, where the company’s each segment stands
and which strategy should be adopted for each? With the help of four dimensional BCG
matrix. Following are the four dimensions of BCG matrix, Question mark, Cash cows, Dogs
and Stars. We will focus on, KFC four profit centers which are as follow; franchising and
licensing, KFC china, KFC India and KFC USA.
Question Mark
Question mark are those segments, which market share is low and competing in high growth
industry. KFC India comes into the category of Question Mark, India market has huge
potential it is one of the most populated countries in the word. Unfortunately its sales are
declining every year, KFC India should use the product development strategy like McDonald
adopted in India.

Stars
Those segment which have high market share in high industry sales growth rate, comes in to
the category of stars. KFC china fall in to the category of stars with high market share in high
industry sales growth rate. For such segments, market development, product development and
market penetration strategies should be formulated and executed. KFC China market
development strategy is very aggressive, is exploring new market segments and establishing
1 restaurant on average every day. In 2015; 743 restaurants were opened in China, and
planned to open 600 more in 2016. It has also used the strategy of product development by
offering traditional food items in menu. KFC china offer 50 food item to their costumer
which are twice, compare to US menu.

Cash Cows
Cash cows are those segments which have high market share in low industry growth rate.
KFC franchising and licensing comes into the grouping of cash cows segment. Franchising
and licensing have generated 16 billion of revenue in 2015. Total system growth rate was
11%, however, Russia system growth rate was impressive in 2015, it has generated 40 %
system growth rate. Such segment should formulate and execute divestiture strategy, which
KFC is currently executing, in US chains of KFC restaurants.
Dogs
Segments which have low market share in low industry growth rate. KFC target audience in
US are African American people and its menu contains only 26 food items and emphasis on
low price and take out. Such segment should use divesture strategy, which KFC US has
already executed and have mostly franchised and licensed KFC US.
The Ansoff Matrix, also called the Product/Market Expansion Grid, is a tool used
by firms to analyze and plan their strategies for growth. The matrix shows four
strategies that can be used to help a firm grow and also analyzes risk associated
with each strategy. Learn more about strategy in CFI’s Business Strategy Course.

Understanding the Ansoff Matrix

The matrix was developed by applied mathematician and business manager H. Igor
Ansoff and was published in the Harvard Business Review in 1957. The Ansoff
Matrix’s helped many marketers and leaders understand the risks of growing their
business.

The four strategies of the Ansoff Matrix are:

1. Market Penetration: It focuses on increasing sales of existing products to

an existing market.
 2. Product Development: It focuses on introducing new products to an
existing market.
3. Market Development: It strategy focuses on entering a new market using
existing products.
4. Diversification: It focuses on entering a new market with the introduction
of new products.

Of the four strategies, market penetration is the least risky while diversification is
the riskiest.

The Ansoff Matrix: Market Penetration

In a market penetration strategy, the firm uses its products in the existing market.
In other words, a firm is aiming to increase its market share with a market
penetration strategy.

The market penetration strategy can be done in a number of ways:

1. Decreasing prices to attract existing or new customers

2. Increasing promotion and distribution efforts
3. Acquiring a competitor in the same marketplace

For example, telecommunication companies all cater to the same market and
employ a market penetration strategy by offering introductory prices and
increasing their promotion and distribution efforts.

The Ansoff Matrix: Product Development

In a product development strategy, the firm develops a new product to cater to the
existing market. The move typically involves extensive research and development
and expansion of the product range. The product strategy development strategy is
employed when firms have a strong understanding of their current market and are
able to provide innovative solutions to meet the needs of the existing market.

The product development strategy can be done in a number of ways:

1. Investing in R&D to develop new products to cater to the existing market

2. Acquiring a competitor’s product and merging resources to create a new
product that better meets the need of the existing market
 3. Strategic partnerships with other firms to gain access to each partner’s
distribution channels or brand

For example, automotive companies are creating electric cars to meet the changing
needs of their existing market. Current market consumers in the automobile market
are becoming more environmentally conscious.

The Ansoff Matrix: Market Development

In a market development strategy, the firm enters a new market with their existing
product(s). In this context, expanding into new markets may mean expanding into
new geographies, customer segments, regions, etc. The market development
strategy is most successful if (1) the firm owns proprietary technology that it can
leverage into new markets, (2) consumers in the new market are profitable (i.e.,
they possess disposable income), and (3) consumer behavior in the new markets
does not deviate too far from the existing markets.

The market development strategy can be done in a number of ways:

1. Catering to a different customer segment

2. Entering into a new domestic market (expanding regionally)
3. Entering into a foreign market (expanding internationally)
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