Kentucky Fried Chicken and the Global Fast-Food Industry

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Kentucky Fried Chicken and the Global Fast-Food Industry
Case Analysis
1.0Source Problem

The change in demographic trends in the past two decades has seen an overall increase in costs for KFC and other fast food chains. Due to immense price competition and saturation of the US market, KFC is unable to raise its prices to cover the increased costs. The slower US population growth rate, oversupply of fast food chains and the minuscule 1% growth in the US restaurant industry per year has resulted in KFC¡¦s focus on expansion of their international markets.

2.0Secondary Problems

2.1Short Term
ĆNew product introductions are slow.
ĆMarket research inefficiency. Eg. Germans were not accustomed to buying takeout or ordering over the counter. McDonalds performed better in this aspect. ĆCrispy strips and chicken sandwiches cannibalized the fried chicken sales.

2.2Long Term
ĆDifferences between the PepsiCo and KFC corporate strategy and culture. ĆPepsiCo/KFC poor relationship with franchisees.
ĆIncreased competition from direct and indirect competitors. ĆReduction in market share in the US market.
ĆRisks involved in international operations: long distances made it difficult to control quality and service, increased transportation and other resource costs, and time, culture and language differences increased communication and operational problems. ĆFast food sales grew at a slower rate (5%) in comparison to other sectors in the restaurant industry. ĆShortage in staff.

ĆHigher costs and poor availability of prime real estate. ĆIncreased labor costs. Intense competition made it difficult to increase prices to cover these increases in cost. Ć Other chicken chain competitors differentiate their products. For example Boston Market introduces new restaurant chain that emphasized roasted chicken rather than fried chicken.


The Five Forces Model
The five forces model of competition expands the arena for competitive analysis.

Industry rivalry - High
ƒÜRivalry is the main force or threat to current and future profitability. ƒÜWhen outsiders can acquire weak firms in the industry and launch aggressive, well-funded moves to transform themselves into major industry players. Eg. McDonalds buying Boston Market. ƒÜAs competitors become more diverse in terms of their visions, strategic intents, objectives, strategies, resources and countries of origin. Eg. Wendy¡¦s and other firms gaining momentum in the Latin American market. ƒÜCustomer switching costs are low. Exit barriers are high. ƒÜThe number of competitors has increased in recent decades, and competitors become more equal in size and capability. McDonalds, Wendy¡¦s, Burger King etc. are the major players in the fast food industry with similar capabilities.

Threat of new entrants ¡V Low
ƒÜEvidence suggests that KFC have always found it difficult to identify new competitors. This is unfortunate, in that new entrants often have the potential to be quite threatening to incumbents. One reason new entrants pose such a threat is that they bring additional production capacity. Unless the demand for a good or service is increasing which it is not in the fast-food industry, additional capacity holds consumers¡¦ costs down, resulting in less revenue and lower returns for industry firms. Often, new entrants have substantial resources and a keen interest in gaining a large market share. As a result, new competitors may force existing firms to be more effective and efficient and to learn how to compete on new dimensions ƒÜDirect competitors such as Boston Market, Popeye and Chick-fil-A pose significant threat to KFC¡¦s dominance in the near future. In the case of Boston Market, it differentiates it self from KFC by focusing on roast chicken meals, and gaining customers who do no frequent KFC.

Bargaining power of suppliers ¡V Medium
ĆIncreasing prices and reducing the quality of products sold are potential means...
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