Structural Analysis KFC

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Text of Structural Analysis KFC

COMPANY ANALYSIS KENTUCKY FRIED CHICKEN (KFC)

Submitted to: Mannan Amin

Submitted by: Joel Peter Zary Aftab Ebadullah Bhalli Samia Cornelius

Date: 06-04-2010

CONTENTSExecutive Summary

Introduction

Structural Analysis

Blue ocean strategy and competing on resources

Using game theory to shape strategy

Playing the improvisational edge

Capturing cross business synergies

Gaining advantage of the past

EXECUTIVE SUMMARYOne of the major models of analyzing a companys competitor position in the market is given by Porter. Porters five forces comprising of threats of new entrants, bargaining power of buyers and suppliers, threats of substitutes and the rivalry among existing competition determine the degree to which investment in a particular industry will drive rates of return to the free market level. In short, porters five forces determine a companys profitability and opportunities in the industry. KFC, one of the largest chains of fast food restaurants faces all these forces and tends to eliminate them to strengthen market position. KFC has been in the fast food industry since the 1930s. It entered Pakistan in 1907 and has carried out successful business. It is a well established multinational offering a premium experience of value added chicken meals and other fast food to its customers. KFC has put up moderate barriers to entry for potential entrants. Hence, although it is not very difficult to enter the fast food industry, it is extremely difficult to enter as KFCs competitor. Well established brand name, high economies of scale, a moderate level of product differentiation, high capital requirements and access to distribution channels make it a successful business altogether and thus makes it difficult for a new entrant to enter the industry and compete with it. Rivalry among existing competitors is moderate, since all major players have a prominent position in the market. Price competition exists, but KFC focuses more on differentiating and marketing efforts to raise sales than bitter price wars and advertising battles. Exit barriers for the firm are high due to accountability to not only its loyal customers but its suppliers, employees and the band name itself. High exit and entry barriers promise high returns but make the firm risky at the same time. A new entrant promising KFCs special recipe at a lower price will definitely hurt the company. Substitute products for KFC have gained power due to renewed health and obesity concerns. In Pakistan, issues like not using Halal chicken have seriously damaged the brand, but KFC has overcome this by effective marketing and branding efforts. However, during the process it lost some of the trust people placed upon it and has given space to substitutes like made to order and ready made recipes. KFC loyal customers will however not shift to substitutes due to high switching costs which can be both monetary and emotional.

Customers usually are given great importance and their feedback is deemed to be critical for the companys performance. However, they do not have the power to bargain with the company unless major issues arise which affect a group of customer for example issues of halal meat and opera coupons. KFCs customer base is huge and although it wants to fulfill most of its customers demands it is not inclined to fulfill each and every demand they impose. Suppliers are a major part of KFCs value chain. Both KFC and its suppliers bring benefit to each others brand names. Among all the suppliers, the maximum bargaining power can be said to be with Pepsi and K n Ns. Although, both will not want to loose partnership with KFC, they have the power to bargain to a certain extent, being as big and as successful. The analysis, in conclusion, suggests KFCs strong position in the competitive environmental, partly because of its differentiated marketing and operational strategies. It can work upon decreasing exit barriers and be less liable to the stake holders and so acquire the best position in the market. Although not operating in the blue ocean, KFC competed majorly on its valuable resources. These include both tangible and intangible resources. Furthermore, it keeps leveraging and investing in them to stay ahead in the game. Also, it can use the same strategy to enter a blue ocean by combining for instance food with amusement. KFC also utilizes game theory to change the game to its advantage. It is also involved in creating win-win situations for the industry. Although, most strategies are employed to be ahead than competition, they imitated and so benefit the industry on the whole. Furthermore, the chain focuses on competing on the edge. This is evident from its rich and successful operational history. The organizational hierarchy is neither too structures nor chaotic. Team play is efficient but answerable and accountable for actions. A critical mass of people is always kept within the firm which includes both experienced and new employees. The firm also builds upon its past concepts utilizing the concepts of modularity to gain advantage from them.

KFCKFC Corporation is a chain of fast food restaurants based in Louisville, Kentucky in the United States. KFC has been a brand and operating segment, termed a concept of Yum! Brands since 1997. KFC boosts upon having a special recipe which has not yet been imitated. This is the recipe which the colonel used and is still used to build many products. KFC primarily sells chicken pieces, wraps, salads and sandwiches. While its primary focus is fried chicken, KFC also offers a line of roasted chicken products, side dishes and desserts. Outside North America, KFC offers beef based products such as hamburgers or kebabs, pork based products such as ribs and other regional fare. It modifies its recipes according to the local taste, while some like the 11 herbs and spices and the zinger recipe remain universal. In Pakistan the menu consists of mainly chicken products, including chicken pieces, burgers, sandwiches, nuggets, hot shots, chicken wings etc. They also provide rice and some salad variants in their product line. In 1930, Sanders opened the first ever KFC, by the name Sanders court and caf, at a gas station in Corby, Kentucky. In 1937, the court was expanded to a motel with 142 seats. With the introduction of the pressure cooker in 1939,

colonel grew as a delicious chicken provider by providing fresh chicken much faster. In 1952, franchising of the business started, firstly by moving into towns by collaborating with restaurants and cooking batches of chicken for them. By 1960, there were 140 franchisees and 400 franchise units in the United States and Canada. In 1966, the business went public as the Kentucky Fried Chicken Cooperation. In 1971, with 3500 franchisees and company owned restaurants Heublein Inc. acquires KFC. In 1980, after giving the chain the publicity and trust it demanded to carry on business the colonel died and the business became a subsidy of R. J. Reynolds Industries Inc. (now Nabisco Inc.) as a result of the acquisition of Heublin Inc. In 1986, PepsiCo acquires KFC from Nabisco Inc. In 1997, PepsiCo announced the spin-off of its quick service restaurants into Tricon Global Restaurants Inc., whose name, in 2002, changed to YUM! Brands Inc. KFC came to Pakistan in 1997 with its first branch in Gulsha-e-Iqbal, Karachi. It currently has 68 branches operating in 18 major cities. It is operated by a Dubai based company, Cupola, which took it over in 1999 with 4 major outlets. Major competitors include McDonalds, Nandos, Hardees, AFC (Al-baik fried chicken), Fri chicks, Go chicks and Dixy Chicks when talking about similar products. As in industry, however, KFCs competitors will include all fast food chains: McDonalds, Pizza Hut, Genos, Hardees, Cock n Bull, Subway etc. KFC occupies a major position in the fast food industry, being the largest seller of chicken products in Pakistan. It captures 30 percent of the total fast food market in the country. Porters five forces analysis of KFC will further help to clarify its competitive position in the fast food industry.

STRUCTURAL ANALYSISINDUSTRY KFC operates in the fast food industry. However, for convenience of understanding and application the group has carried out the analysis by considering KFC to be in two major industries, the first being fast food and the second being franchise. Hence, industry analysis is carried out by taking the industry to be fast food franchise. PORTERS FIVE FORCES Porters five forces help to identify the key structural factors determining an industrys competitive position in the market and its profitability. They highlight the strengths, weaknesses opportunities and threats along with their significance of the industry. Analysis helps to understand the current competitive position the industry occupies, animates positioning and clarifies

areas of improvement. It will also help determine intensity of industry competition and the forces impacting strategy formulation. RIVALRY Numerous competitors operating as fast food franchises exist in the market. Some of them are Nandos, McDonalds, Pizza Hut, AFC, Go Chicks, Dixy Chicks, Cock n Bull, Hardees, Salt and Pepper and Subway. These continuously fight against each other for a better position in the market. Rivalry among competitors takes place in the form of price competitions, advertising battles, product differentiation and increased customer services. Rivalry in fast food industry can be measured by analyzing the following. Number of competitors and size

Fast food franchise industry in Pakistan consists of large number of firms having large variance in size and scale. Also, they differ a lot in prices, quality and service. So, they do not have to monitor all the firms for their actions and they can make moves without the risk of severe retaliation