Professional Documents
Culture Documents
Submitted To:: Muhammad Asim Awaan
Submitted To:: Muhammad Asim Awaan
Submitted To:: Muhammad Asim Awaan
Final Project
Submitted To:
Muhammad Asim Awaan
Developed By:
Madiha khalid
Hijab Ashraf
Rizwan Khalil
Sami Ullah
(07108118)
(07108124)
(07108125)
(07108140)
Date of Submission:
15 06 2011
Final Project
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Dedication
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Acknowledgement
We firstly thank ALLAH Almighty the most Beneficent and the Merciful, and the
Master of the Day of Judgment, who bestowed upon us the endurance to bring this
work to an end.
We deem it our utmost pleasure to avail this opportunity to express gratitude and
keep sense of obligation of our Sir Muhammad Afzaal for her valuable guidance,
scholarly criticism, untiring help, compassionate attitude and enlightened
supervision during the whole project and making of the report.
Last but not the least, we feel highly obliged and earnestly pay humble and
heartfelt thanks to most affectionate fathers and mothers for their moral and
financial support and encouragement and specially our mothers because they
always remember us in their prayers.
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Table of Contents
1.
Introduction of Company........................................................................................................1
1.1 KFC in Pakistan..................................................................................................................2
1.2 Nature of the Business........................................................................................................2
1.3 Current Products.................................................................................................................3
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2.
Introduction of Company
KFC is the world largest and most well known chicken restaurant. Every day, more than 12
million customers are served at KFC restaurants in 109 countries and territories around the
world. KFC operates more than 5,200 restaurants in the United States and more than 15,000
units around the world. KFC is world famous for its Original Recipe fried chicken -- made
with the same secret blend of 11 herbs and spices Colonel Harland Sanders perfected more than
a half-century ago. Customers around the globe also enjoy more than 300 other products -- from
Kentucky Grilled Chicken in the United States to a salmon sandwich in Japan.
John Y Brown and Jerry Messy purchased KFC for USA for $2 million in 1964 that time KFC
become a corporation. After five years, Colonel buys first 100 shares of KFC. In 1986, Pepsi
Company purchased KFC. Pepsi company changed the logo from Kentucky fried chicken to
KFC in 1991 and then in 1992 KFC 1000th restaurant opened in Japan and in 1994 9000th
restaurant in china. KFC is the part of Tricon global restaurant. Tricon global restaurant is the
world largest restaurant group, with in nearly 100 countries around the world, which in turn was
spun off in 1997, and has now been renamed to Yum! Brands.
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1.1
KFC in Pakistan
In 1997, KFC franchised with Gray Mecanza International and started work in Pakistan with its
first branch in Gulsha-e-Iqbal, Karachi, Rawalpindi branch started work in 1999 and in
Islamabad in August 2002 and now in Pakistan it currently has 69 branches operating in 19
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, HFC, 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, and Subway etc.
KFC occupies a major position in the fast food industry, being the largest seller of chicken
products in Pakistan. It captures 50 percent of the total fast food market in the country. KFC
wore the title of being the market leader in its industry. Serving delicious and hygienic food in a
relaxing environment made KFC everyones favorite. Since then, KFC has been constantly
introducing new products and opening new restaurants for its customers. In Pakistan totally
Chicken buy from Pakistani Poultry Forms, and also this Chicken is 100% Halal.
1.2
Kentucky Fried Chicken (KFC) - one of the most known fast food chains in the world. Quality
and cleanliness (QSC) represents the most critical success factors to KFC's global success. It is
the fast food franchise so its nature of business is providing the fast food services.
Its business type is Business to Consumers.
KFC has large chain of consumers. According to KFC, We are growing only with our
customer. KFC has great environment for their consumers and families. They are concerned
about the comfort and satisfaction of their customers. That is why 40 million is need to open a
single outlet. KFC is multinational company. They have outlets, almost in every country. So they
have international customers all over the world.
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1.3
Current Products
Mighty Zinger
Cola slaw
Zinger burger
Scope of wall
Fruit salad
Mineral /water
Salsa twister
Espresso
Machos burger
Cappuccino
Chicken burger
Cheese
Sub 60
twister
Nuggets
Hot wings
Fries Milo
Frothe
Corn on the cob
Arabian spice
Chicken mania
Dinner rolls
Crispy chicken chunks
Hot and crispy soup
Soft Drink
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Cleanliness
Hospitality
Accuracy
Maintenance of Facilities
Product Quality
Speed of Service
CHAMPS is the philosophy to ensure that the customer has the consistent quality experience in
every restaurant, everyday, on every occasions and you will be playing role in delivering
CHAMPS to our customers.
1.4
Size
KFC is part of Yum! Brands, Inc., the world's largest restaurant company in terms of system
restaurants, with more than 36,000 locations around the world. The company is ranked #239 on
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the Fortune 500 List; with revenues in excess of $11 billion. KFC specializes in Chicken Based
Products.
In Pakistan, It currently has 69 branches operating in 19 major cities. It has high sales volume as
they have great turnover. New outlets are being opened because they have greater sales volume
(as per day worth 4.5 million is being consumed). Presently KFC has provided employment to
over approximately 1200 Pakistanis, which adds up to 6000 individuals directly dependent on
KFC Pakistan.
1.
Strategic Issues
Through an analysis of the strengths, weaknesses, opportunities, and threats of KFC, the
following strategic issues are identified:
1. How would KFC maintain a market leadership in the Pakistan fast food industry?
Pakistans fast food franchise industry is still unsaturated and is in its growth phase.
There is a lot of room for firms to enter and be profitable. As barriers to entry to the
industry as a whole are low, more and more firms as well individuals are entering in this
business. For past few years the industry is growing at the rate of 10% annually. For
Instance, Subway successfully entered the industry a few years ago and now Hardees has
also followed suit. Although KFC enjoys a market leader position in the country but the
issue now is that how can it maintain its market leadership and how can it gain a
sustainable competitive advantage.
2. Consumer Health food trend
KFC faces a lot of threat from its substitutes, especially with growing health concerns
among its customers. Health and obesity issues associated with KFC food have diluted
the trust people once had in them. It now faces an issue of catering to the changing needs
of customer demands.
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marketing strategies. They may not be able to up sell the products as the corporate wants.
As a result, profit may be affected.
6. Fewer opportunities to expand its restaurants base (due to financial reasons)
KFC is not a listed company because they say that they dont need investors yet they say
that they are not opening up new franchises due to lack of resources and jut focus on
maintaining their current franchises. This can cause them harm because the market is still
unsaturated and there is market which is still not being entertained. They need to open up
franchises there to cater the demands of that market and gain market share which can be
taken by competitor if it makes the move before KFC.
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1.
SWOT Analysis
Strengths
50% Market share in Pakistan
Global presence in 109 countries
Extensive fast food franchise network with 68 outlets in Pakistan
Quality Assurance; KFC has a product excellence system to ensure quality raw materials,
packaging, equipment and new products that delight customers. In order to ensure
consistent quality, KFC also executes ingredient and equipment specifications. Food is
freshly cooked and fried chickens that are not sold for more than 45 minutes would be
withdrawn from sale to ensure the food quality. Fresh ingredients are provided to the
branches and hence it would ensure the quality of the food.
Vertical linkages with value chain of suppliers; suppliers of KFC chicken is K&Ns and
drinks are supplied by Pepsi, in Pakistan
KFC's secret Original Recipe fried chicken -- made with the same secret blend of 11
herbs and spices Colonel Harland Sanders perfected more than a half-century ago.
Brand Equity because of being oldest and finest in Business
Does not have any Core competitor In chicken serving
Ranks highest among all chicken restaurants
Chains for its convenience and menu variety
Loyal customers
Faces numerous advantages of being a Multinational Organization e.g. economies of
scale.
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Weaknesses
Lack of focus on Research & Development
Imported raw material rise their prime cost
Inflexibility of prices makes it unaffordable to middle class people.
High rates on the prices as compared to the other brands selling same items may cause
the customers shift.
Opportunities
Increase consumption of fast food has increased the market size
Consumer prefer All under one roof in order to increase their sales turnover they can
increase or add the served items
They can open more outlets to get maximum market.
They can capture more customers by decreasing the price of their products
Updating their restaurants, Balanced menu, customer focus and Increase delivery service
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Threats
Competition from other international outlets like Pizza Hut, McDonalds, Subway.
Entrance of New competitors into the market; as barriers to entry to the industry as a
whole are low, more and more firms as well individuals are entering in this business. For
past few years the industry is growing at the rate of 10% annually. For instance, Subway
successfully entered the industry a few years ago and now Hardees has also followed
suite.
High political instability/uncertainty. The deaths of political figures or any other such
incident are a threat in a way that angry public burns the outlets. Such incident happened
in Karachi.
Health Trend away from fried foods; KFC faces a lot of threat from its substitutes,
especially with growing health concerns among its customers. Health and obesity issues
associated with KFC food have diluted the trust people once had in them. It now faces an
issue of catering to the changing needs of customer demands.
Changing customer demands
Some international events badly affected the market of KFC in Pakistan like IRAQ and
AFGHAN war and we know KFC is American based. Therefore, it creates a great impact
on the performance of KFC.
Diseases like bird flu cause the decreases in sales because customers dont buy chicken
or chicken related products in fear of this disease.
Increasing inflation rates directly affect menu prices. Government has also increased the
sales tax from15% to 21% that has raised the prices of these products.
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3.1
Competitive Analysis
The major competition in Pakistan market faced by KFC is McDonalds. As KFC and
McDonalds offer similar type of products. A product offered by KFC is substitute a product
offered by McDonalds and vice versa.
Factors that contribute towards a competition are:
Price Value for money is a major factor; when one company changes its prices in any
product the other company has follow it to maintain its position.
Quality of Food As both KFC and McDonalds are following their international
standards, therefore its not a major concern
Flavors This is one major factor that contributes towards attracting customers.
Different customers have different preferences.
Outlets Number of outlets contribute towards market share which gives KFC an edge.
Market Share
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3.2
BCG Matrix
Star
According to BCG Matrix, Management says that KFC is a star. The reason for this is its
high market growth and high market share in the Pakistani market.
Question Mark
According to BCG Matrix, all small outlets like HFC, AFC falls in the question mark,
because of low market share in the fast food industry of Pakistan.
Cash Cows
On the other hand McDonalds and Pizza Hut are the cash cows because of their low
growth rate and high market share. During past some years McDonalds and Pizza Hut
have lost their market growth because of the fact that they could not provide the taste
according to the Pakistani culture.
Dog
Another direct competitor of KFC is Subway. According to BCG Matrix it is a dog.
Some of the reasons that are responsible for its low market share and low market growth
are the less expansion strategies being followed by the company. Secondly they are not
focusing at all on all the major cities.
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3.3
Competitive Advantage
The competitive advantage of KFC is its position as the as the dominant firm. It currently enjoys
50% market share in Pakistan.
Firms competitive advantage can be divided into two categories:
Advantages based on the firms position and Advantages based on the firms
capabilities.
KFC has positional advantage from heterogeneity within the industry.
Other positional advantage includes KFCs brand name.
KFC has a largest number of outlets in Pakistan and they also enjoy economies of scale
that is why they are able to generate more profits.
It also enjoys tacit nature of capability based knowledge because of its secret original
recipe of fried chicken of seven herbs by Colonel.
It enjoys some advantages in defending itself such as reputation, economies of scale,
cumulative learning, and preferred access to suppliers and channels.
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3.4
Sales Analysis
In Rupees
2010
2009
2008
1.914 Billion
1.825 Billion
1.729 Billion
5.89 Billion
5.61 Billion
5.31 Billion
8.9 Billion
8.49 Billion
8.04 Billion
Above table shows that the total chicken served in KFC Restaurant Annually in 2008 was Rs/1.729 billion, and in 2009 it increases from Rs/- 1.825 Billion. The increasing ratio was 5.35%.
And in 2010 it jumps up to Rs/- 1.914 Billion with the increase of 4.65%. The total KFC chicken
Pieces Sold Annually in 2008 was Rs/- 5.31 Billion, Rs/-5.61 Billion in 2009 and Rs/- 5.89
Billion in 2010 with the increase of 5.35%.
Thus, the total Retail Sales of KFC in 2008 was Rs/- 8.04 Billion, 8.49 Billion in 2009 and in
2010 it increases from 8.49 to Rs/- 8.9 Billion with the increasing percentage of 5.35%.
According to the management of KFC, their profit margin increases year by year.
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3.5
PEST Analysis
The Pest Analysis includes the political, economical, socio-culture and technological factors.
These are described in detail as under.
Political Factors
The political factors include the government policies as KFC being a foreign company, but they
have to obey the policies of the Government laid by the government of Pakistan, the country
where the business activities are being carried out. KFC has handled this situation very tactfully
and has obeyed the policies of the Government as prescribe by the government in order to run
this kind of business. And the most important factor is the political instability. As in Pakistan,
there are political crises faced by the government, these greatly affect the business of KFC.
There are certain government regulations pertaining to the fast food franchise industry in
Pakistan. Some of the requirements include Halal food production and selling, Corporate Social
Responsibility, standardization checks, a test to prove quality before entering the market,
renovation after every 8 to 10 years as mentioned per contract, tax duty and numerous other
certifications, especially if operating on a large scale. . KFC complies with both of the
requirements and provides Halal food and contributes to the local sales up to 95%.
Economical Factors
The economic factors includes the income of the people, KFC is going to target. Income is an
important economical factor of the KFC. This factor decides which class KFC is going to target.
In the early time of KFC, they were focusing on the upper class but they after some time
changed their strategies and started to target the mass market by introducing some different kinds
of meals and offers through which we can say that they target the upper middle & the upper level
as well. In Pakistan there is a mixed economy so private organization easily perform their tasks
within any given economic system of course, organization are influenced by a variety of
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economic features over which they have little independent control, such as inflation, interest
rates and recession.
Another important input to the enterprise is the nature of government fiscal and policies. KFC
pays tax properly. Moreover, the Government of Pakistan receives over Rs.10 million per month
from KFC Pakistan as direct taxes, and 95% of all food and packing material used in KFC
Pakistan is procured locally, which sums up to a purchase of over Rs.35 million per month. So
KFC plays an integral role in developing the economy of Pakistan.
Technological Factors
The technological factors include the Pace of change at a fast level. Pace of change means rate of
change. KFC has strategy to introduce new technology whenever they think that it is a time to
introduce new technology. Research & Development is also an important factor in the
Technological factor. KFC always support the work of research & development in order to
introduce the new technology. Capital formation means stock of machinery. KFC has a stock of
machinery in order to run its business activities. In other words KFC has a good amount of
Capital Formation. New techniques affect the quality of products and services in better way.
Technology is very important in order to compete with the competitors. Organizations have an
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eye on their competitors and also new techniques which their competitors used. Today the world
going fast and market is globalize, new techniques comes in production and services
departments.
Although KFC and McDonalds has same cooking machinery but KFC has efficient delivery
system; they provide home delivery so quickly. KFC purchase machinery from Hanney Penny
company, they are main suppliers of machinery throughout the world.
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3.6
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.
3.6.1 Rivalry
Numerous competitors operating as fast food franchises exist in the market. Some of them are
Nandos, McDonalds, Pizza Hut, HFC, 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. However, few large players that compete against each other
have resources for vigorous retaliation when some close competitor makes an important
move. Hence, KFCs competition is restricted to the size of the competitor. KFC will
usually not consider what Cock n Bull or AFC is doing as important as to what
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McDonalds or Pizza Hut is doing. Fierce competition might result in the form of various
deals and price cuts offered specially in burgers between McDonalds and KFC, but on
the whole rivalry in the industry remains moderate due to the existence of numerous
players operating in various sizes.
Industry growth
Pakistans fast food franchise industry is still unsaturated and is in its growth phase.
There is a lot of room for firms to enter and be profitable. As barriers to entry to the
industry as a whole are low, more and more firms as well individuals are entering in this
business. For past few years the industry is growing at the rate of 10% annually. For
instance, Subway successfully entered the industry a few years ago and now Hardees has
also followed suit. Due to industrys absorbent and unsaturated nature competition for
gaining market share is not bitter. Also, existing firms are increasing their number of
outlets quite fast. Moreover, firms continue to introduce products and expand their
product lines, hence, entering the new markets and targeting the new set of buyers.
Hence, because the overall profitability from the industry is high, the rivalry is not very
bitter and everyone gets its share of profits without diverging into severe price-wars and
advertising battles. However, major players in the market, mostly equal in size, do get
influenced by each others strategies and imitate quickly but that usually does not result
in price wars. The rivalry thus remains moderate.
High fixed and storage costs
For the fast food franchise industries the fixed costs are usually high due to the royalty
charges they have to pay to operate as a franchise. As for KFC, it takes the cooperation
approximately 40 million to open a new outlet. Similarly, for its close competitors the
costs are similar, as they are about equal in scale, size and operations. High sales,
however, help these firms to earn sustainable profits. Storage costs are also high due to
expiry and quality issues. This also places pressure to increase sales hence increasing
marketing efforts and cutting prices which can drive profits low. Therefore, with the
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fixed and storage costs being high, the firms compete against each other vigorously when
storage and expiry issues arise. In these cases they might even indulge in severe
advertising battles. Therefore, the rivalry increases. However, this is only the case with
small franchise businesses. The firms following quality standardize do not usually face
the problem of over capacity and hence do not have to incur costs of wastage of storage
materials. The rivalry overall remains moderate.
Differentiation and switching costs
Product differentiation in the fast food industry exists but is not quite high and generally
the products are perceived as commodities so their choice largely depends on price and
service so the pressure to ensure competitive price and service escalate. Also, switching
costs are quite low, as customers do not have to incur any cost for not buying from a
firm. This industrys customers are characterized as highly price sensitive so they can
easily switch to a product that is like in quality and service but offered at lower price.
Therefore, rivalry can become high. Competitors have to enter into price and advertising
wars to attract customers. However, this usually happens in small franchises who are
unable to differentiate their products either on price or quality or the by increasing the
product line. Larger firms including KFC, McDonalds, Hardees, do get influenced by
each others techniques to attract customers but always try to differentiate rather engage
into bitter rivalry for a higher share, but, since competition is there, rivalry does exist. On
the whole, the industry operates in conditions where rivalry is moderate.
Increasing capacity in large increments
In the mentioned industry, there are expiry issues so raw material is not purchased in
bulk. KFC never purchases in large quantity that would result in overcapacity, because it
has set quality standards and KFC never compromises on that. Overcapacity can result in
huge wastage of raw materials because most of the raw materials are perishable. Hence,
KFC do not face this issue so price cutting or chronic overcapacity is not a problem.
Small firms like HFC might increase capacity, but in the long run they may suffer due to
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quality, health and accountability issues. Firms following strict quality standards which
the multinationals in particular do, usually do not face the problem, thus the rivalry in the
industry resulting from overcapacity remains moderate to low.
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KFC does not have highly specialized assets and the nature of assets are such that they
can easily be sold in the market. Therefore, it can easily sell its assets, as it purchases its
fixed assets from Hanny Penny from outside Pakistan, and a buyer will easily pay the
price to get these. Same is the case with other firms; assets usually do not create an exit
barrier.
Strategic interrelationships
It has high strategic importance as apart from fulfilling commitment of serving delicious,
fresh and hygienic food and at the same time provides customer with the ultimate
entertainment; KFC also plays in the economics development of Pakistan. Also, it has
relationships with other companies like K&Ns and Cupola. For K&Ns, as K&Ns claims,
KFC makes its products more acceptable to people because of KFCs brand name and
image. Cupola runs KFCs franchises in Pakistan. Therefore, these strategic relationships
might make it difficult for KFC to leave the industry. Firms in the franchise industry,
hence, do face an exit barrier as per strategic inter relationships are concerned.
Emotional Barriers
KFC has high emotional barriers as presently it has provided employment to
approximately 7000 individuals who will lose jobs in the case of KFCs exit from the
industry. So, management of KFC, or any other firm for that matter, might show
unwillingness to make economically justified decisions due to loyalty to employees and
fear for their own careers. KFC Pakistan is helping the people suffering from impaired
hearing. It is helping them accelerate their career development, personal and professional
growth. Cupola does it by empowering the special persons creating role models for the
rest. KFC is providing a platform for the disabled youngsters of Pakistan. It strives to
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give equal training and promotion opportunities to the disabled based on merit and work
performance. So, all these emotional ties can make it difficult for KFC to leave.
Government and Social Restrictions
This is a foreign country so government cannot impose any kind of exit restrictions on
KFC and most of the multi nationals in business. However, economic effects will be
negative and people will lose jobs. Moreover, the Government of Pakistan receives over
Rs.10 million per month from KFC Pakistan as direct taxes, and 95% of all food and
packing material used in KFC Pakistan is procured locally, which sums up to a purchase
of over Rs.35 million per month. So, it might be discouraged to leave. However, there are
no restrictions as such for KFC or any other franchise to exit the industry as far as it does
not have any loans it needs to pay back.
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products that are produced to earn incremental revenues that means new entrant would
not have to face a cost disadvantage on this account. However, patents and established
brand names provide large economies of scale as these can be shared across all company
products. That means that new entry will only have to face disadvantage, if it wants to
enter in direct competition with the established firms which are quite few in Pakistan.
There exists no vertical integration across the industry but only few established firms like
KFC itself. However, this would not keep the entrants away as the industry allows a lot
of flexibility for size and scale with which new entries can set up business. In conclusion,
economies of scale in fast food industry for established franchise business exists and may
serve as an entry barrier, and so contribute towards building a threat to potential entrants.
Product Differentiation
Product differentiation means that established firms have brand identification and
customer loyalty. In Pakistans fast-food franchise industry, product differentiation does
play a role in the growth of a business. Potential entrants will have to differentiate
slightly to capture the attention of the customers. It is hence not very easy to enter and
operate profitably. KFC has differentiated its products on the basis of Food, fun &
Festivity, providing numerous variants of its special recipe in the form of chicken meals.
It also offers various deals to differentiate its products from its competitors. Apart from
the products it offers, KFC differentiates itself on the basis of the experience it provides:
the right chicken, the right place and the right celebration! Hence the emphasis on we do
chicken right. Seasonal discounts (Ramadan deals), sales promotions (Ufone, Standard
Chartered, and Bareeze), birthday parties, chicky area and events organized for social
responsibility (donations for SOS and FARYAD) are all ways of differentiating what it
offers. KFC also differentiates service in the form of the dine-in experience, take away
and KFC on Wheels. Thus product differentiation is a tool utilized by most businesses
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but not to an extent to enter a blue ocean. The core products offered by all remain more
or less the same; hence do not pose a high barrier to entry. Therefore, there is not a high
threat to entry into the industry. Firms come in, differentiate slightly and run businesses
without competing on product differentiation.
Capital Requirements
Capital requirements are the financial resources needed for investment to set-up the
business and to compete. It may also include R&D, human resource and marketing costs
to differentiate and overcome brand loyalty of competitors. In this industry, capital
requirements for entry are high because franchises usually require a lot of set up cost,
specially the royalty they have to pay on land. Furthermore, for penetration in the market,
it might have to incur some amount on marketing and advertisement for not only
awareness but differentiation. Thus, the capital requirements are huge: setup, plant and
equipment, management and employees, suppliers, production, marketing and promotion
etc. Therefore, the capital for entering the industry is a barrier to entry and poses a threat
to new comers.
Access to distribution channels
Distribution channels include retail and wholesale firms that would help distribute
products to end users. In the franchise industry finding an appropriate place for the
restaurant, sometimes becomes an issue, but mostly it remains at a low scale. All new
entrants if they have the required capital and resources do find a place to set their
business up. So, access to distribution channels cost for new entrants is low, however,
established firms go to an extent of building their strategy on their distribution network.
To come and grow as large as them is surely impossible, but to find a place in the market
as a newcomer is not very hard. Hence, the barrier remains low ad the threat high.
Cost disadvantages independent of Scale
Competitors might have cost advantage based on several other factors independent of
their size and economies of scale:
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Proprietary product technology: On the whole, the industry has got no product
technology that would make a real difference in products offered or the way they
offer. However, there exist some established firms that have patents for some recipes.
For instance, KFC has a secret recipe.
Favorable Access to raw materials: Raw materials for this industry include buns,
bread, chicken, oil, flour, spices, vegetables etc. These materials are easily available
locally. Their procurement is not a hard task.
Favorable Locations: Fast food franchise market in Pakistan is still much
unsaturated and room for finding favorable locations is high. A glance at urban areas
of Pakistan and fast food restaurants located there shows that a lot of markets are still
not served. In other words there are enough people in urban Pakistan for any
restaurant to survive. New entrants can easily secure for them a favorable location as
shopping malls and markets continue to expand. Therefore, this barrier does not
necessarily serve as shield against new entrants. Entrants can easily enter the market
and find a favorable location for them.
Learning or Experience Curve: Because this is food-based industry, the more you
cook the more you master it. Moreover, those who are serving in the industry for so
long have more experience about customers taste, buying behavior, switching options
etc. than new entrants. For them, efficient production is easy; hence, unit cost also
decreases. KFC has experience of 13 years of serving in Pakistan and more than
seven decades in business. Moreover, it is the most experienced firm in chicken
production. Therefore, experience curve might provide some barrier to entry and
decrease threat of entrants.
Government Policy
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There are certain government regulations pertaining to the fast food franchise industry in
Pakistan. Some of the requirements include Halal food production and selling, Corporate
Social Responsibility, standardization checks, a test to prove quality before entering the
market, renovation after every 8 to 10 years as mentioned per contract, tax duty and
numerous other certifications, especially if operating on a large scale. In general, this
barrier is moderate, since nearly all the companies in Pakistan produce Halal food and
contribute to some extent to the local sales; they also fulfill other requirements since
entering the franchise industry. Therefore, entry is not highly difficult, and new firms can
enter the industry making the competition fierce and increasing the threat of entry. KFC
complies with both of the requirements and provides Halal food and contributes to the
local sales up to 95%. Food and packing material used in KFC Pakistan is procured
locally, which sums up to a purchase of over Rs.35 million per month.
Expected retaliation
In past, retaliation shown by established firm has been quite low. For instance, recent
entries like HFC, AFC, Subway and Hardees show the ease with which they entered.
Also, no major moves against them have been observed from existing firms, because they
are already well established or reaping profits. No doubt, all firms will compete against
each other to grab the better share in the market, but sever retaliation has not been usually
observed. Hence, expected retaliation is low and threat of entry is high.
Entry-deterring price
The prevailing price structure of huge companies like KFC is a balance of the value
provided with the associated cost. Entrants will either have to come up with a similar
structure, which suggests providing quality product for a high price. However, most
products already exist in the market and so anything provided by the entrant would have
to be well differentiated to motivate customers to pay the high price. Since KFC had in
house baking facility and an efficient value chain network, it can afford to offer products
at a reasonable price; now targeting the middle class as well. In contrast a developing
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business cannot afford to offer similar prices for equally good products, hence will suffer
a loss. The entry deterring price is thus high and imposes a major barrier to entry. The
threat of entry hence becomes low.
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lock up with the firm as they can find similar products elsewhere. There are some firms
offering a different range of products, like Subway, who have managed to differentiate
their products from the rest of the industry, targeting the health conscious people.
However, if we talk only about KFC and other chicken specialists, the products remain
more or less the same. Taste, in the Pakistani market does matter, but the prospect is not
strong enough to stop people from switching. Everyone is willing to go and try food from
a new comer. Therefore, as the differentiation itself, the bargaining power also remains
moderate.
Switching costs or substitution costs
There is no monetary cost associated with switching from KFC. As discussed earlier,
switching costs depend upon buyer behavior: their extent of price sensitivity or
inclination towards preferred taste etc. Those emotionally connected with it might suffer
switching cost of psychological nature concerning their emotional attachment with the
brand. However, that does not necessarily decrease their bargaining power as they still
can switch to other brand at their discretion.
Therefore, the bargaining power of a single buyer is not much, but on the whole they have got
bargaining power based on their buying behavior, price sensitivity and low switching cost
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by its competitors. So, it can increasingly lose its customers due to above mentioned
factors. The pressure from substitutes hence rises.
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Size of supplier
In industry there are suppliers of different sizes. Smaller the size of certain supplier
lowers the bargaining power of the supplier. Pepsi is huge and wont be affected if KFC
stopped buying. KFC on the other hand cannot afford to let go of Pepsi, especially when
Coke is already serving McDonalds and various other competitors. Not that Coke will
refuse to supply to KFC, the firm itself will prefer to be different from its major
competition. KFC is major buyer of K&Ns which would not want to lose partnership
with KFC, especially when new chains like Zenith and Menu are coming up. Also,
affiliation with KFC makes it more acceptable to people. On the other hand, KFC does
not have an option to buy from a well known and certified chicken supplier. Zenith is
new and Menu is also not as large and popular as K n Ns. Thus, suppliers overall do
possess bargaining power.
Uniqueness of service/Product
The products and services offered by the suppliers are alike as the products they supply
are naturally produced that they do not produce artificially. So, the uniqueness of the
products and services is not there. However, KFC have choice to buy from big chicken
suppliers like Zenith, Menu and Knorr, they are not perfect alternatives for KFC
suppliers, because K&Ns have better standard and it is HACCP, it helps build KFCs
image as Halal, and it also got brand of the year award in 2009. All these factors make it
best for KFCs brand image. These factors can make K&Ns stand apart and give it some
bargaining power. Pepsi too, of course, is unique in what it offers. Halal on the other
hand has no uniqueness in service. KFC could easily shift it for Knorr or National.
Hence, the suppliers providing some uniqueness have more right to bargain than the
others.
Switching costs to KFC
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KFC faced the issue of not providing halal chicken some years back, which deteriorated
its image. But due to its present supplier, K & Ns, which is largest Pakistan-based
company and known for best practices for slaughtering but also follow stringent quality
standards has regained the trust of public. Indirectly KFC has based its halal chicken on
K & Ns brand name. So, switching cost for KFC can be higher if it switches from K&Ns
and even Pepsi, for both brands complement each other. These factors raise bargaining
power of its suppliers.
Threat of forward integration
Forward integration by suppliers can pose a major threat to the company to which it is
supplying, especially when not many alternatives are available. K & Ns can start their
own restaurant and fast food chain. This may pose a threat to KFCs supply of chicken in
Pakistan and thus gives some bargaining power to the supplier.
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3.7
Primary activities are the sequence of activities through which raw materials are transferred into
benefits enjoyed by customers. While support activities provide inputs that allow the primary
activities to take place which in turn improve coordination across and achieve efficiency within
the firm (Hill and Jones, 1998).
C.H.A.M.P.S. stands for cleanliness, hospitality, accuracy, maintenance, product quality and
speed of service. It is found that KFC has its core competence in its C.H.A.M.P.S. operating
system to ensure food quality, service standard to earn customers smile with more value,
improved service and better facilities. In addition, by using Colonel Harland Sanders to build up
its distinctive brand image makes KFC be one of the well-recognized brands in fast food
industry.
Primary activities
Inbound Logistics
In Pakistan to ensure the quality of products, most of ingredients of KFC are imported from
other countries instead of Pakistan. When the chickens have been seasoned, they would be
transported to the branches in a daily basis. Fresh ingredients are provided to the branches
and hence it would ensure the quality of the food. However, outsourcing of logistic service, it
may increase the transportation cost and in turn would be added into the cost of food. It leads
to an increase of the food cost.
Operation
The foundation of KFC relationship with franchisees is built up by the partnership pact. It
states that it gets franchisee inputs and involvement before decisions are made. It is
always mindful of franchisee economics in all it recommend by establishing clear,
customer-based system performance standard and providing opportunities first and
foremost to its current partners. In order to ensure the consistent food quality and service
standard, it also builds a one system mentality at its restaurant support centers.
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KFC has a product excellence system to ensure quality raw materials, packaging,
equipment and new products that delight customers. In order to ensure consistent quality,
KFC also executes ingredient and equipment specifications. Food is freshly cooked and
fried chickens that are not sold for more than 45 minutes would be withdrawn from sale
to ensure the food quality. It also has its brand standard product designs, such as
distinctive packaging of the Bucket of chicken. The system with clear instructed
procedures would effectively guide the staff to do operational work, hence it ensure
quality consistence in each KFCs branches.
Marketing and Sales
Brand excellence system of KFC helps to ensure continuing high Yum! Brands monitors
and promotes the value of its brand in the market by clearly communicating the
personality of KFC. By using animated Colonel Sanders to market the brand, it builds up
a brand image of American style chicken expert in Hong Kong and adheres to its primary
concept with friend chicken as core products. The slogan used is now We do chicken
right and appears on poster advertising in newspapers and magazines. The website
provides KFC with an additional marketing avenue to promote KFCs extensive products
and specials on offer. The site will allow KFC to further strengthen its icon and continue
Colonel Sanders and the companys spirit and heritage. KFC also creates a disciplined
positioning strategy. It positions itself as an up-scale, eat-in and quick service restaurant
that targets customers from 16 to 39 years old with emphasis on young age group
including office workers and young executives. KFC usually advertise specific products
with consistent campaign to pull those products together. Integrated marketing strategies
would enhance effectiveness of promotion.
Service
KFC commits to delight every customer on every visit in every restaurant. For its
customers, it is obsessed to go the extra miles to make them happy. In order to develop
restaurant excellence system, Yum! Brands provide supporting programmes needed to
run a restaurant and satisfy customers. KFC has to follow global operating standards,
C.H.A.M.P.S. to define the restaurant excellence.
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Support activities
Procurement
The franchise agreement provides for buying approved equipment, service ware and the
cooking spices from KFC approved suppliers. With Centralized distribution of food
purchasing and ware provider, this gives KFC great strength as quality could be ensured.
Cost control could also be achieved as KFC purchases their supplies in bulk directly.
Human resources management
Although human resources management is carried out on a decentralized basis for
recruitment and hiring operational staff, KFC does provide training for the management
team. They would be hired in a centralized basis by the Head Office in Karachi and
Lahore. KFC trains management for people planning process to identify and plan staffing
and development needs. Restaurant human resources tool kit assists managers for human
resources issues at restaurant level. The training program would provide practical
practices and useful information to staff. It could ensure quality staff to provide quality
services. In its mission, KFC believes in people, trust in positive intentions, encourage
ideas from everyone and actively develop a workforce that is diverse in style and
background. It celebrates the achievements of others, coach and support employees. It
also executes with positive energy and intensity within the company and stay away from
bureaucracy. Team together, team apart indicates that it practices teamwork after
collaborative debate. In each branch, there is a C.H.A.M.P.S board to recognize
employees who are able to perform up-to-standard services.
Infrastructure
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In order to assist the restaurant planning and management practices, KFC starts with a
strategic analysis of the opportunity by market development strategic plan. KFC maps
demographics to determine where to develop and identify restaurant locations and
provides asset management to determine the optimum concept mix and number of
locations. Construction and project management by Yum! Brand helps to design and
build individual restaurants. With market development system of Yum! Brand, that KFC
would try to locate in convenient location (Steele, 1996).
1.
Stakeholder Analysis
1.1
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must want the company to succeed to get more orders for them and more success for their
business, as KFC is the suppliers main buyer of their chickens in huge mass.
services and they always introduce innovative products to attract their customers. Thats
why customers of KFC are loyal. KFC has high emotional barriers as presently it has
provided employment to approximately 7000 individuals who will lose jobs in the case of
KFCs exit from the industry.
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Government
Government is the external stakeholder of the KFC i.e. when a KFC business succeeds;
the more profit the business makes the more taxes it pays. The Government of Pakistan
receives over Rs.10 to 11 million per month from KFC Pakistan as direct taxes. But if the
business of KFC drop off then workers are made unemployed. Presently KFC has
provided employment to over 1200 Pakistanis, which adds up to approximately 6000
individuals directly dependent on KFC Pakistan.
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1.
Recommendations
Product Differentiation
KFC faces a lot of threat from its substitutes, especially with growing health concerns
among its customers. Health and obesity issues associated with KFC food have diluted
the trust people once had in them. Hence, the reason, substitute pressure is there. KFC
has tried launching salads and promoted production using vegetable oil in the past in
foreign companies. It should expand its product line and add variety into its served items
to cater the demands of this market in Pakistan.
KFC chooses differentiation strategy by emphasizing the preparation of food with high
quality ingredients as well as unique recipes and special seasonings to provide appealing,
tasty and attractive food at competitive prices. As the diversity of products of its
competitors, it is suggested that KFC should provide more innovative food products in
order to gain its competitiveness in the fast food industry. It may increase the variety of
menu products and give customers more choices. Different packaging of its menu may
also increase the variety of menu.
So, KFC should try and differentiate its products on other lines than only chicken to
capture other segments in the fast food industry. Product differentiation in the fast food
industry exists but is not quite high and generally the products are perceived as
commodities so their choice largely depends on price and service so the pressure to
ensure competitive price and service escalate. Also, switching costs are quite low, as
customers do not have to incur any cost for not buying from a firm. This industrys
customers are characterized as highly price sensitive so they can easily switch to a
product that is like in quality and service but offered at lower price. Product
differentiation means that established firms have brand identification and customer
loyalty. In Pakistans fast-food franchise industry, product differentiation does play a role
in the growth of a business. Potential entrants will have to differentiate slightly to capture
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the attention of the customers. It is hence not very easy to enter and operate profitably.
KFC has differentiated its products on the basis of Food, fun & Festivity, providing
numerous variants of its special recipe in the form of chicken meals. It also offers various
deals to differentiate its products from its competitors. Apart from the products it offers,
KFC differentiates itself on the basis of the experience it provides: the right chicken, the
right place and the right celebration! Hence the emphasis on we do chicken right.
However, the entire positioning is based upon one single secret recipe which if eluded by
one of the competitors can cause serious damage to the brand. Therefore, the business
though profitable is risky.
Products in the fast food remain undifferentiated, as discussed before. Marketing efforts
help differentiate the products a bit and build brand awareness; it does not help customers
lock up with the firm as they can find similar products elsewhere. There are some firms
offering a different range of products, like Subway, who have managed to differentiate
their products from the rest of the industry, targeting the health conscious people.
However, if we talk only about KFC and other chicken specialists, the products remain
more or less the same. Taste, in the Pakistani market does matter, but the prospect is not
strong enough to stop people from switching. Everyone is willing to go and try food from
a new comer. So KFC should do differentiation. They should also try the local desi taste
addressing the desi food lovers, thus it will help to increase their market share.
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products for employees may also help to gather opinion on how to promote the products
as crewmembers directly contact with customers. They may be the direct source to gather
customers opinion about products. It therefore may save marketing budget to promote
on unpopular menu items and concentrate on public accepted food products and in turn
enhance sales.
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Environment friendliness
It can develop a competitive advantage for itself by introducing environment friendliness
concept as it has been introduced in Northampton USA. The restaurant is designed to
environmental goals that include cutting energy and water consumption by 30% and
reducing CO2 emission. Other than this is an effort to reduce its packaging by 1400 tons,
KFC is now switching from cardboard to recyclable and biodegradable paper wrapping
for some its products. It can start producing its own biodegradable paper and reduce cost
due to economies of scale.
Geographic Incumbency
As far as placement of the products is concerned, it is an important factor, for a company
to increase its market share, by targeting the right customer. KFC needs to have more
outlets, at commercial areas. It will help to target the actual as well as the potential
customers. Mobile outlets may be an effective addition as well. Geographic incumbency
can be another strategy by which it can gain advantage. Pakistani fast food market is still
unsaturated and there are some urban an most of rural areas where there is no outlet to
serve this need so KFC can use geographic incumbency advantage here and open up
outlets in these areas, fulfill the demands of this market and increase its market share.
Promotional Campaigns
KFC has large customer equity, but being a market symbol, a company should strive for
having more actual customers. KFC should work for having more solid marketing
departments. They should organize and run the proper advertisement campaign. It would
definitely be an incremental factor for their sales. They can also use the brand
promotions. They can set up the promotional campaigns. All they need is an effective
marketing department to facilitate t he promotional activities.
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Defensive Tactics
Like every company KFC is also vulnerable to competitors so it can adopt the three types
of defensive tactics:
Raising structural Barrier
Increasing expected retaliation
Lowering the inducement to attack
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1.
Exhibits
Exhibit 1
SWOT Analysis
Opportunities
Weaknesses
Strengths
Threats
Competition
Lack
Cheap
ofand
focus
easy
from
onavailability
Research
other international
&ofDevelopment
labor outlets
KFC's secret recipe
Importedconsumption
Increase
Entrance
of
raw
New
material
competitors
of fast food
Brand Equity
Inflexibility
Consumer
High
political
prefer
ofinstability/uncertainty
prices
All under
makes
oneitroof
unaffordable to
Oldest and finest in Business
middle class
Expand
Increasing
their
inflation
people.
sweet products
rates
High Goodwill
High rates
Open
Health
more
Trend
on
outlets
away
the prices
from fried
as compared
foods to the other
Does not have any Core competitor In chicken
brands more
Capture
Changing
customer
customers
demands
by decreasing the price of
serving
their productsevents badly affected
International
Ranks highest among all chicken restaurants
Updatingliketheir
Diseases
bird flu
restaurants, Balanced menu,
Chains for its convenience and menu variety
customer focus and Increase delivery service
Loyal customers
Interactive relationship marketing
Advantages of being a Multinational Organization
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Exhibit 2
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Exhibit 3
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1.
References
http://www.planetfeedback.com/kentucky+fried+chicken/menu+choices/infuriated+by+c
ommunication+problems+at+kfc/316329
http://www.austrade.gov.au/Food-to-Pakistan/default.aspx
http://thefinancialdaily.com/NewsSearchResult/NewsSearchDetail.aspx?NewsId=92048
http://paknet.net/expending-in-pakistani-food-sector/
http://www.kfc.com/menu/salads.asp
http://www.kfcpakistan.com/
http://www.jang.com.pk/thenews/investors/feb2003/if.htm
http://www.psopk.com/media/news_detail.php?nid=96
http://www.onepakistan.com/news/local/karachi/33848-KFC-Teachers-Convention.html
Interview with the Marketing Manager: Muhammad Kaleem
www.kfc.com
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Competing on the Edge, Strategy as the Structured Chaos by Shona L. Brown and
Kathleen M. Eisenhardt
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