Case Study - Kfc

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Case Study – Kentucky Fried Chicken and the Global Fast Foods Industry

Submitted in the requirements for Section 1, Question 1 in TMA 4 MBA5921 on 28 September 2009 with a word count of 1976

Masters in Business Administration

at the
University of South Africa

Table of Contents




3Value Creation in KFC4

4Strategic Issues Facing KFC6



1. Summary

Kentucky Fried Chicken (KFC) being one of the world’s largest chicken restaurant chains has many challenges. Two of these challenges being value creation through its corporate parent PepsiCo during the 1980’s and 1990’s as well as strategic issues they face in terms of their expansion internationally more specific to Latin America. The role of corporate parenting is used as a basis in commenting on the value creation provided to KFC under the ownership of PepsiCo. The strategic issues that KFC faces in its expansion internationally specifically Latin America is also commented on using the frameworks of international strategy. In conclusion, final comments are passed regarding these challenges.

2. Introduction

Kentucky Fried Chicken (KFC) is one of the world’s largest chicken restaurant chains and is operational in 85 countries with more than 10, 800 restaurants. KFC had grown its business within the United States through franchisees in the 1950’s and was sold to two businessmen named Jack Massey and John Brown Jr. Massey and Brown during the late 160’s turned towards international markets. After a joint venture with Mitsuoishi Shoji Kaisha who assisted franchising the business internationally, the business was later acquired by Heublin Inc in 1977. In 1982, R. J Reynolds Industries Inc. (RJR) acquired Heublin and merged. After RJR had acquired Nabisco, RJR had attempted to redefine itself as a world leader in the consumer foods industry which led to the divestment of non consumer food businesses and therefore sold KFC to PepsiCo a year later. PepsiCo had attempted in diversifying its business into three related markets which were soft drinks, snack foods and fast food restaurants. Due to the declining margins of the fast food chains within PepsiCo, the restaurant chains had absorbed 50% of PepsiCo’s annual capital spending and generated less than a third of its cash flows. This eventually influenced the business of PepsiCo and reduced its ability to compete against Coca Cola. In 1997, KFC and the rest of the restaurant businesses under PepsiCo were spun off to Tricon Global Restaurants. Through these movements of KFC through the years, the business faced different challenges. The one challenge was operating under the umbrella of PepsiCo. In this report, comments will be made in terms of PepsiCo and its operation as a corporate parent. Added to this, is the value creation that PepsiCo was able to provide to KFC as the corporate parent. Comments are made on these based on theory in the role of corporate parenting. The other challenge being commented on within this report is the strategic issues that face KFC and its approach to expansion into foreign markets more specific to Latin America. Comments on these issues within the report are based on frameworks of international strategy which will lead to a conclusion.

3. Value Creation in KFC

Pepsi co had the strategy of taking advantage of the synergies that existed between the three businesses but in terms of value creating strategies of diversification (5-82), where Pepsi co can be viewed as having low opportunities of sharing assets and high corporate relatedness indicates that economies of scope were not efficient. Pepsi co had transferred management skills from themselves to KFC and influenced the culture of the business where the encouragement and sharing of skills and capabilities did not occur. Pepsi co had a one sided approach where they had dominated the business....
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