Background of the Study
During the 1960s and 1970s, Kentucky Fried Chicken Corporation (KFC) pursued an aggressive strategy of restaurant expansion, quickly establishing itself as one of the first fast-food restaurant chains in the US. KFC was also one of the first U.S. -food restaurant chains to expand overseas. By 1990, restaurants located outside of the U.S. were generating over 50 percent of KFC’s total profits. By the end of 1993, KFC was operating in over 63 foreign countries and was one of the three largest fast-food restaurant chains operating outside of the United States.
Japan Australia and the United Kingdom accounted for the greatest share of KFC’s international expansion during the 1970s and 1980s. However, as KFC entered the 1990’s, a number of other international markets offered significant opportunities for growth. China, with a population of over one billion, and Europe, with a population roughly equal to the U.S., offered such opportunities. Latin America also offered a unique opportunity because of the size of its markets, its common language and culture, and its geographical proximity to the United States.
By 1994, KFC was operating successful subsidiaries in Mexico and Puerto Rico. A third subsidiary was established in Venezuela in 1993. The majority of KFC’s restaurants in Mexico and Puerto Rico were company-owned. However, KFC had established 21 new franchises in Mexico by the end of 1993, following enactment of Mexico’s new franchise law in 1990. KFC anticipated that much of its future growth in Mexico would be through franchises rather than company-owned restaurants. KFC was only one of many U.S. fast-food, retail and hotel chains to begin franchising in Mexico following the new franchise law. In addition to Mexico, KFC was operating franchises in 42 other countries throughout the Caribbean, and Central and South America by mid-1994.
Fast-food franchising was still in its infancy in 1952 when Harland Sanders began his travels across the United States to speak with prospective franchises about his “Colonel Sanders Recipe Kentucky Fried Chicken.” By 1960, “Colonel” Sanders had granted KFC franchises to over 200 take-home retail outlets and restaurants across the United States. He had also succeeded in establishing a number of franchise in Canada. By 1963, the number of KFC franchises had risen to over 300 and revenues had reached $500 million.
By 1964, at the age of 74, the Colonel had tired of running the day-to-day operations of his business and was eager to concentrate on public relation issues. Therefore, he sought out potential buyers, eventually deciding to sell the business to two Louisville businessmen – Jack Massey and John Young Brown Jr. – for $2 million. The Colonel stayed as a public relations man and goodwill ambassadors for the company.
During the next five years, Massey and Brown concentrated on growing KFC’s franchise system across the United States. In 1966, they took KFC public and the company was linked on the New York Stock Exchange. By the late 1960s, a strong foothold had been established in the United States, and Massey and Brown turned their attention to international markets. In 1996 they took KFC public and the company was listed on the New York Stock Exchange. By 1971, KFC had 2,450 franchises and 600 company-owned restaurants worldwide, and was operating in 48 countries.
In 1971, KFC entered negotiations with Heublein Inc. to discuss a possible merger. Several months later, Heublein acquired KFC. Heublein was in the business of producing, vodka, mixed cocktails, dry gin, cordials, beer and other alcoholic beverages. Because of his limited experience in the restaurant business, conflicts quickly erupted and new restaurant openings had slowed to about twenty per year. In 1977, Heublein sent a new management team to redirect KFC’s strategy. A “back-to-the-basics”...