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.
ÜNew product introductions are slow.
ÜMarket research inefficiency. Eg. Germans were not accustomed to buying takeout or ordering over the counter. McDonalds performed better in this aspect. ÜCrispy strips and chicken sandwiches cannibalized the fried chicken sales.
ÜDifferences between the PepsiCo and KFC corporate strategy and culture. ÜPepsiCo/KFC poor relationship with franchisees.
ÜIncreased competition from direct and indirect competitors. ÜReduction in market share in the US market.
ÜRisks 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. ÜFast food sales grew at a slower rate (5%) in comparison to other sectors in the restaurant industry. ÜShortage in staff.
ÜHigher costs and poor availability of prime real estate. ÜIncreased labor costs. Intense competition made it difficult to increase prices to cover these increases in cost. Ü 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
ÜRivalry is the main force or threat to current and future profitability. ÜWhen 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. ÜAs 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. ÜCustomer switching costs are low. Exit barriers are high. ÜThe 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
ÜEvidence 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 ÜDirect 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
ÜIncreasing prices and reducing the quality of products sold are potential means...