Course: MGT 710
1. Executive Summary
This paper analyzes the market situation of the major U.S. fast-food firms in Latin America in 2004 from the perspective of the KFC Corporation. By analyzing political, economic, cultural, logistical, and competitive forces, a potential strategy for KFC to successfully establish a strong position in Central and South America is proposed. Through a thorough analysis, it was determined that KFC should establish wholly-owned subsidiaries in Mexico and Brazil to manage operations in Central and South America, respectively. After a strong position is established in these countries, KFC should then open franchises in Central America, Argentina, Colombia, Venezuela, and Chile.
1. Expanding into Latin America
From 1993 to 2002, KFC dominated the chicken segment of the U.S. fast-food market. Their market share, however, decreased by 13.4% over that 10 year period (Exhibit 4, 553). As the fast-food market matured, firms began to focus on globalization to continue growth. By early 2004, 56% of KFC’s restaurants were outside of the U.S. (558). Their initial focus was on Mexico, Puerto Rico, and the Caribbean, where they established dominance among competitors. Their struggle was in expanding beyond those markets.
In their attempt to expand into Central and South America, KFC was met with many challenges. Many Latin American markets had not adopted the fast-food concept and preferred a more leisurely dining experience. The intense competition with major U.S. fast-food chains made it very risky to enter a new market. The geographic distance from the corporate offices made it difficult to control standards and quality. To continue growth, KFC would have to develop a strategy to overcome these obstacles and expand into these markets.
2. Strengthening position in Central America
KFC initially expanded into Mexico, Puerto Rico, and the Caribbean due to geographic proximity and existing political and economic ties to the U.S. They were able to establish dominance in these markets because they had first-mover advantage and the local cultures accepted the fast-food concept. To further expand into Central America, KFC will have to develop a strategy to leverage their strong positions in Mexico and the Caribbean. They will have to consider factors such as the business model, global integration, national responsiveness, and mitigating risk.
3. Breaking into South America
KFC had attempted to enter Brazil, with limited success. Political, economic, and cultural challenges had prevented KFC from gaining a foothold, and subsequently forced them to pull out of the market. Other countries in South America had little competitive presence, but had significant barriers to entry. In addition, the farther away the countries are from the corporate offices, the more expensive and logistically difficult the operation becomes. To enter these markets, KFC would have to carefully weigh its options to establish a presence and mitigate risk.
1. Industry analysis
1. Basic economic characteristics
Latin America is home to more than 550 million people. It has an aggregate GDP of more than $4 trillion. Figure 1 shows that Brazil and Mexico have the highest GDP. However, Argentina, Chile, and Costa Rica have the highest GDP per capita. [pic]
Figure 1 - Latin America GDP
In general, Central America and Brazil are the markets most penetrated by the large U.S. fast-food chains. McDonald’s is the dominant competitor in Latin America, with 584 stores in Brazil, 261 stores in Mexico, and 203 stores in Argentina. KFC follows with 274 stores in Mexico and 134 stores in the Caribbean. Burger King operates 163 stores in Puerto Rico and 154 stores in Mexico. Wendy’s only operates 143 stores in all of Latin America (Exhibit 6, 559).