Kentucky Fried Chicken (KFC) is a franchising fast food brand that was founded by Harland Sanders in 1956 and bases its core business in a secret seasoning mix of eleven herbs and spices recipe to fry chicken. The KFC through the last decades became one of the most famous fast food brands in the world with subsidiaries and franchising in different region of the world. One of the purposes of KFC is to stabilize and strengthen its presence in the North Asia, with particular attention to Japan. In this country KFC is already present with more than 400 stores between Company and Franchise. Analyzing the situation through the Porter’s 5 forces we can consider the competitiveness of the market: high competitive to enter and to be into the market for the presence in it of strong multinational competitors such as McDonalds that introduce different kind of substitute product, but no one like the KFC secret recipe. All this competitors create high barrier and push away the possibility of new entries in game: it costs too much to try to enter both in terms of cash then in efforts.
On the other hand raw materials are easily recoverable and KFC can switch from one supplier to the other without any problem, totally different for the customers that have a wide choice of products of similar category. Through the 5 forces analysis it is possible to say that competitiveness of the market is medium/high level. In order to identify and to evaluate KFC strengths and weaknesses we are going to analyze KFC strengths and weaknesses and how are them related with possible opportunities and threats. Main important aspects of this brand are the uniqueness of the fry chicken recipe (so the product) and the strong franchising net they had that make KFC a well know brand but on the other hand this strength hide weakness inside because create a low differentiation of product in portfolio with low level of chance to create innovative product. More than that they are selling junk food that is in contrast with the past few years healthy trend but it creates a big opportunity to create a new healthy chicken recipe.
The KFC entered in Japan with a partner that created a link between them and the local culture and trends: culture that start to change little by little under the pressure of the youngest that look at U.S.A. as a model to imitate and replicate, but it also create contrast between local and U.S.A. HQ that brought a lack in the control of the system due to a poor short term strategy and a lack in the franchising net development in the Asia district. This elements reflect in negative way on demand that is really sensible to price and quality. There are a few possible strategies that KFC can do in order to fix its problems and re-lunch the brand not just in Japan but also in those markets where KFC is not present yet: First Strategy can be characterized by a high ratio of standardization of the protocol and the procedures to acquire a strong routine: enter in a KFC store in Dubai has to be equal to enter in one in Japan or in USA. This can bring to develop and empowering a strong economy of scope.
The main product lines have to be the same for each store in the world. As expansion strategy KFC has to look for the growing country with the higher Compound Annual Growth Rate (CAGR), following step by step the development of the brand in that area with a rigid control system. Periodical report has to be sent to the central HQ in order to see the trend of the market and take the decision of invest more or disinvest according to the data. The control has to be done at regional level that has also the duty to indicate and identify new potential profitable market. Locally every store have to follow routine and habits of the brand with the chance to made up few new product in order to get closer to the local habits and needs. Stores, also, have to report periodically their trend for a strict control of the KFC standard. A Second Strategy can be developed with the decentralization of the “power” by the KFC in order to create several regional HQ completely autonomous from the U.S.A.
Company that has just the power to take the decision to invest or not in a new potential market or country. The target should be a growing country with higher CAGR and KFC has to finance, give the first input to enter in the new market, and then create a regional HQ and leave all the issue to it. The regional HQ in case of negative trend can be evaluated in order to take the decision if produce more effort and try to save that market with new investment or disinvest and close that branch. As we said the regional HQ are total independent and it is their duty to identify regional behavior and local habits in order to “manipulate” the product, merchandising, advertising of the brand to suit regional population needs increasing awareness and willingness to purchase.
At regional level it is also important to evaluate constantly the trend and the performance of local product in order to take quick decision and continue investing or close the product line (same for subsidiary and franchising store). Locally stores have to report periodically their trend to the regional HQ for evaluation, they have to ensure minimum standard revenue level, positive feedback from client, and follow the procedures. Every store have to be closer and closer to customer needs and habit, clients have to have the feeling to be at home when they are in a KFC store. In the Third Strategy KFC has to set up the main rules and protocols that have to be followed. With a strong standardization of the main core product create a large economy of scope, but it has to let free the regional and local organization to decide autonomously for size and quantity of product sold in order to follow local needs. The KFC administration has to export the brand aiming to the developing country as new potential market with a strong financial investment plan in market research (to know and understand local needs and habits), advertising (to increase awareness) and joint venture with local partnership.
Periodically it has to review the performance of the markets in which it is present. In case of a negative profile, analyze the causes and, in the absence of advantageous solutions, not be reluctant to disinvest in that particular market. The regional administration has to be the link between the central HQ and every single store. It has to control and report periodically the right application of the procedures, quality standard, routine and the correct application of rules and protocol. It also has the issue to make research on population area behavior, attitude and habit in order to discover the lever that can improve the brand in that particular region in terms of awareness, willingness to purchase, and customers satisfaction: the aim is to discover a product that can both fulfill the taste and the desire of population and, at the same time, be in line with the company policy.
Not less important task at regional level is to discover, identify and evaluate potential new market areas where the company can invest. Locally stores have to follow rules and protocols settled by the Central HQ and periodically report the operation trends to regional level. Local stores have to help to study in deep population needs and report the result to regional level. Not less important is that stores have to guarantee minimum standard revenues The 3rd strategy is the one I choose because it allows a control by the central HQ that standardize routine and protocols, but also it let local adjustments to meet population needs and habit. At the same time it aims to a strong expansion plan in developing market and try to cut out waste closing the not profitable market. Moreover it builds a strong cooperation between the three levels both in market research and in brand development.
Courtney from Study Moose
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