I.

ISSUES

In 1996, KFC remained the world’s largest chicken restaurant chain and third
largest fast food chain. It held over 50 percent of the U.S market in terms of sales and
ended 1995 with over 9000 restaurants worldwide. KFC opened 234 new restaurants in
1995 and operated in the 68 countries. One of the first fast food chains to international
during the late 1960’s, KFC had developed one of the world’s most recognizable brands.

Despite of the KFC’s past success in the U.S market, much of the KFC’s growth
was driven by its international operations, which accounted for 94 percent of all KFC
restaurants built in 1994 and for 100 percent of the increase in 1995. Domestically the
restaurant count dropped by seven restaurants because of unit closures, intense
competition among the largest fast food competitors resulted in a number of obstacles to
further expansion in the U.S market. Expansion of free standing restaurants was
particularly difficult. Fewer sites were available for new construction and those sites,
because of their increase cost, were driving profit margins down.

However the most critical or major issue of this case in the future will be their
ability to handle changes. Their system is older, in terms of facilities and product form,
and their attitudes still don’t reflect the realities of their changing business environment.

One on the great challenges at KFC is that there is a lot that needs fixing and the
toughest challenge is that they have to stay focused. They also have a significant service
problem in a service driven industry. And they have to figure out a way to meet their
customer service expectations which they don’t meet today.

In 1996, the major problem was how to transition the old KFC into a new KFC the
appealed to consumer demands for more healthy food items ate lower price, greater
variety in food selection, and a higher level of service and cleanliness in a greater variety
of locations. In the effect, this entailed greater reflection over its entire business strategy
its new offerings, pricing, advertising and promotions, point of distribution. Restaurant
growth, and franchise relationship.
 II- A. INDUSTRY ANALYSIS

A. Demand for products and services of the industry

1. Long Run Growth/ Decline

Fast food franchising was still in its infancy in 1954 when Harland Sandlers
begun his travels across the United States to speak with prospective franchises about
his “colonel” sanders recipe Kentucky fried chicken”. By 1960 “colonel” Sandlers
had granted KFC franchise to over 200 take home retail outlets and restaurants across
the unite states. They had also succeeded in establishing a number of franchises in
Canada by 1963, the number of KFC franchises had risen to over 300 and revenues
had reached $500,000 per unit, on average.

By 1964, the colonel had tired of running the day to day operations of the
business and was eager to concentrate on public relations issue. He sold the business
to two Louisville business people Jack Massey and John Young Brown, Jr. for $2
million.
During the next five years, Massey and Brown concentrated on growing
KFC’s franchise system across the U.S. in 1966 they took KFC public, and the
company was listed on the New York Stock Exchange. By late1960’s a strong
foothold had been established in the United States, and Massey and Brown turned
their attention to international markets. In 1969, a joint venture was signed with
Initsubishi shoji kaisha, Ltd., in Japan, and the right to operate 14 existing KFC
franchises in England were acquired. Subsidiaries were also established in Hong
Kong, South Africa, Australia, New Zealand, and Mexico. By 1971, KFC had 2,450
franchises and 600 company owned restaurants worldwide, and was operating in 48
countries.

2. Stability of Demand for Products

Many KFC’s problems during the late 1980’s surrounded its limited menu and
its inability to quickly bring new products to market. As KFC entered 1996, it
grappled with a number of important issues. During the 1980’s, consumers began to
demand healthier foods, and KFC was faced with a limited menu consisting mainly of
fried foods. In order to reduce KFC’s image as a fried-chicken chain, it change its
logo from Kentucky Fried Chicken to KFC in 1991. It responded to consumer
demands for greater variety by introducing a variety of new products. The increased
popularity of healthier foods and consumers-increasing demand for better variety led
to a number of changes in KFC’s menu offerings.

3. Stage in Product Life Cycle

KFC is on its Maturity Stage; KFC’s products have survived the earlier stages.
KFC’s early entry into the fast-food industry in 1954 had allowed it to strong brand
name recognition and a strong foothold in the industry.
During the 1990’s and 1970’s, KFC pursued an aggressive strategy of
restaurant expansion quickly establishing itself as one of the largest fast-food
restaurant chains in the United States. By 1990, restaurants located outside of the
United States were generating over 50 percent of KFC’s total profits. By 1995, KFC
was one of the three largest fast-food restaurant chains operating outside of the United
States.

A. SUPPLY OF PRODUCTS AND SERVICES

1. Capacity of the Industry

KFC, being the world’s largest chicken restaurant chain and third largest fast-
food chain, with over 9,000 in both franchise and company-owned restaurants
worldwide and was operating in 68 countries, simply shows that KFC has the capacity
to address the needs of its customers no matter how old their facilities and product
form was. However KFC’s significant service problem will probably push their
customers away from them, thus KFC must have to imply ways on how to meet there
customers expectations. KFC ought to think that customer goes to their establishment
not just because of their product but also their service, because nothing bits a quality
service.
 The continuous opening of new restaurants in 1995, approximately two
restaurants in every three days is one way of proving their competence when it comes
to business expansion, thereby providing a wide market segment not just local but
worldwide.

2. Availability of Needed Resources

KFC has several problems when it comes to its resources, specially on the
needed materials, because there system is older when it comes to their facilities and
product forms and it’s one thing that needs an attention, since this is the key to
success in terms of production and it would be there competitive edge in the wide
array of fast food chain industry. KFC

Despite of the rivalries of employees and managers, KFC had surpassed this
incident. KFC’s culture was built largely as the employees enjoyed relatively good
employment stability and security. Over the years, a strong loyalty had been created
among KFC employees, because of the benefits and pensions and other non-income
needs. Thereby, KFC has the ability to retain and manage its manpower.

As to the company’s money, KFC has the enough profit on its recent
operations as of 1994, worldwide on both company-owned and franchised restaurants.
Whereby it reaches $1.7 million in this regard KFC has the capacity to innovate their
old system or how to transform the old KFC into new one.

3. Volatility of Technology

Basically KFC’s past technologies still existed at present, which means that their
families were durable enough because it works for years. However the main issue now is
how they could transform the existing facilities for them to be more competitive.

4. Social Constraints
 KFC encountered several factors constraining KFC’s international expansion
plans such as the social unrest, increasing trade and current account deficits and the
uncertainty surrounding the economic policy. Some incidents were directly attack of
nationalist against KFC and closure of the first restaurant in India by local authorities are
to protest of local farmers group allied with a campaign across India against foreign
investment which was occurring as part of the countries four year old program of
economic liberalization.

5. Inflation Vulnerability

As KFC entered business in Mexico. High tariff and other trades barriers
restricted imports in to Mexico, and foreign ownership of assets in Mexico was
largely prohibited or heavily restricted. After 1982, the Mexican government battled
high inflation, high interest rates, labor unrest, and lost consumers power. When
Carlos Salinas de Gortari seated as President, Mexico improved, top marginal tax
rates were lowered, and the new legislation eliminated many restriction for foreign
investment.

President Salinas institutes a policy of allowing the peso to depreciate against

the dollar by one peso per day, it result a grossly overvalued peso, and this lowered
price of imports & led to an increase in imports of over 23 percent in 1989.

KFC’s primary concern was the stability of Mexico labor markets. Labor was
really cheap in Mexico. While KFC benefits from lower labor costs, labor unrest, low
job absenteeism, & punctuality continued to be significant problems. These problems
with worker retention and labor unrest were mainly the result of workers frustration
over the loss of their purchasing power. Due to inflation & to past government
controls on wages increases. A slowdown in business activity brought about by higher
interest rates & lower government spending, lead many businesses to lay-off workers.

C. COMPETITIVE CONDITIONS IN THE INDUSTRY

1. Structure of the Industry

KFC remained the largest chicken restaurant chain and third largest fast-food chain. It
held over 50 percent of U.S. market in terms in sales and ended 1995 with over 9,000
restaurants worldwide. In 1995 KFC opened 234 new restaurants and operated in 68
countries. One of the first fast-food chains to go international during the late 1960s,
KFC had developed one of the world’s most recognizable brands.

2. Government Support and Regulation

The food industry does not get much support from government. However there are
laws regarding its operation on food sanitation and hygiene.

D.CONCLUSIONS

1. Prospects to Volume and Prospects

1960-1970 KFC pursued an aggressive strategy of restaurant expansion,

quickly establishing itself as one of the largest fast-food restaurant chains in the
world.
1990 Restaurants located outside of the United States were generating 50
percent of KFC’s total profits.
1995 KFC was one of the three largest fast-food restaurants chains operating
outside of the United States.
1971 KFC was sold to Hueblien, Inc was in the business of producing vodka,
mixed cocktails, and other alcoholic beverages.
1982 R. J. Reynolds Industries, INC. Merged Hueblein into subsidiary.
1986 PepsiCo acquired Kentucky Fried Chicken from RJR-Nabisco.
KFC held 49 percent of the &7.7 billion U.S. chicken segment.

2. Key Factors for Success in the Industry

 -Quality
-Service
-Cleanliness
-Satisfying the customers’ needs
-choose new location that will adopt the product of KFC

II- B. POSITION OF THE COMPANY IN THE INDUSTRY

A. MARKET POSITION OF THE COMPANY

1. Relation of the company Sales to total industry and to leading competitor

KFC was the first fast-food chains to conquer international market they
developed one of the world’s most recognizable brands. When PepsiCo acquired KFC
from RJR-Nabisco in 1986 for $841 million, KFC gave the leading market share in
the three of the four largest and fastest growing segments within the U.S quick-service
industry, and it held 49 percent of the $7.7 billion U.S chicken segment.

KFC continued to dominate the chicken segment, with 1995 sales of $3.7
billion. It held market shares of 12.3 and 10.2 percent. Between the year 1990 and
1995, KFC sales grew at 13.1 percent. KFC facing the world of competition, it also
contributed a market share of 58 percent in the chicken segment while its competitor
Boston Market (formerly Boston Chicken) which KFC’s nearest competitors and
Popeye’s held market share of 12.3 and 10.2 percent respectively. Other competitors
with in the chicken segment included Bojangles, El Pollo, Grandy’s and Pudgies, also
Mcdonalds begun to introduce its chicken.

2. Relative Appeal of the Company Products

KFC’s early entry into the fast-food industry in 1954 and it allowed to
developed strong brand-name recognition in the industry. They begun to introduce
chicken in the chicken segment, and they were trying to come-up with the products
 designed to the tastes of their customers. Because of the intense competition when it
comes in producing products, KFC introduced $14.99 “MEGA-MEAL” it is designed
to compete with the Boston Market as a home replacement alternatives. They also
come-up with the “COLONEL’s KITCHEN” in Dallas and was testing a full menu
home-meal replacement items. The company had introduced many products but
Rotisserie Gold did not maintain an initial high sales. KFC had the capacity to
innovate new products to fight other fast-food chains. As KFC entered 1980’s, they
faced some issues especially on fried foods because consumers begun to demand
healthier foods so they limit on fried foods. KFC responded to consumer demands for
greater variety by introducing a variety of new products. New products introduction
were never an important part of KFC strategy. However, the introduction of chicken
sandwiches and fried chicken by hamburger chains had changes the make-up of
KFC’s competitors. In addition an increased popularity of healthier foods and
consumers increasing demand for better variety led to a number of changes in KFC’s
menu offering.

3. Strength of the Company in Major Markets

KFC was the world’s largest chicken restaurant chain and the third largest
fast-food chain. It is one of the first fast-food chains to go international. KFC come-up
with the world’s most recognizable brands.

KFC’s growth was driven by its international operations, which accounted for
94 percent of all KFC restaurants built in 1994 and for 100 percent of the increase in
1995. KFC had long dominated the fast food industry outside of U.S. the company
remained the most internationalized of all fast-food chains, operating almost 47
percent of its total units outside of the states. In Latin-America, KFC was operating
205 company owned restaurants in Mexico, Puerto Rico, The Virgin Island and
Trinidad as of 1996. Additionally KFC had 173 franchisees in 21 countries
throughout Latin-America, have the total number of 378 KFC restaurants in operation
in Latin-America
.
B. Supply Position of the Company

1. Comparative Access to Resources

KFC is known to its main product which is chicken; they offer varieties of
chicken products to their customer as we all know chicken is widely available at any
time. Thereby the raw materials needed by this company can easily be acquired.

2. Unique Productivity Advantage

KFC has been unique on marketing its product by means of combining

PepsiCo product which is the beverage and the products of KFC itself, with these they
are both generating profits and it is KFC’s advantage since they no longer purchase
beverages from outside company, unlike other fast-food industry whereby they have
this kind of source.

3. R & D Strength

KFC has been operating for several years now, however the weakness of these
company is that they didn’t give importance to the research and development.

KFC must invest forcefully in research and developments for them to be at

edge on technology know- how. This could help the company transform technological
advances into innovative new products, and to remain close on the heels of whatever
advances and features are established by rivals, specially that we are now in the
industry whereby technology is the prime driver of change.

It is a necessity to have focus on the research and development especially in

the critical areas not only to avoid stretching the company’s resources too thin but
also to intensify the firm’s proficiency and to master the technology for them to
become the leader in a certain technology or product category.
 R & D is important in a company so whatever so whatever advances and features
will be pioneered by rivals you can come up with a better idea on how to defeat
whatever features or product they will make in case of KFC, KFC focused on
expanding their branches not studying first the culture of the country where they are
going to build their new branch.

C. Special Competitive Considerations

1. Relative Financial Strength

Kentucky Fried Chicken was sold for $2 million to two Louisville business
people – Jack Massey and John Young Brown until PepsiCo acquired Kentucky Fried
Chicken from RJR- Nabisco in 1986 for $841 million. The sale of the company in
1987 is $4.1 billion which reached up to $7.1 billion in a span of 8 years and that is in
1995.
Together with the fast-food industry, that sale exceeded on 289.7 billion for
the approximately 500,000 restaurants and other food outlets in the year 1995.

2. Community and Government Relationship

Kentucky Fried Chicken was created for a family who dine-out and those who
are also fund of chickens. Old KFC was transcend to new KFC that appealed to the
body conscious costumers wants for food items at lower prices, greater variety in food
selection, and higher level of service and cleanliness in a greater variety of locations.
These new chains focused on higher-income customers by offering a healthy diet food
items without the presence of chicken.

They also offer a unique opportunity because of the size of its markets, its
common language and culture, and its geographic proximity to the United States.
Costumers want more outlets of fast-food chains most likely the KFC.
 KFC invests to Mexico by introducing to the Mexico people the new fast-food
chain which has the main product of chicken but the entry of KFC to Mexico made
the country increased the number of competing investors like the ones from Asia,
Europe and United States. When the North American Free Trade Agreement enters
Mexico, the American people had the broke down the gap and this made them the
largest trading partner of Mexico.

3. Ability and Values of Company Managers

Harland Sanders sold the business to two Louisville businesspeople – Jack

Massey and John Young Brown. The Colonel stayed on as a public relations man and
goodwill ambassador for the company. Massey and Brown concentrated on growing
KFC’s franchise system across the United States.

Arguments promptly exploded between Colonel Sanders and Heublin’s

management. Sanders become increasingly troubled over quality control issues and
restaurant cleanliness.

Joining with Heublin represented part of RJR’s overall corporate strategy of

diversifying into unrelated businesses to reduce its independence on the tobacco
industry. RJR had no more experience in the restaurant business than did Heublin.

They have the ability to compete into other restaurant by restaurant segment;
PepsiCo acquired Kentucky Fried Chicken from RJR- Nabisco. The acquisition of
KFC gave PepsiCo the leading market share in three of the four largest and fastest
growing segments within the U.S. quick-service industry.

The corporate culture at KFC in 1986 contrasted sharply with that at PepsiCo.
KFC’s culture was built largely on Colonel Sanders’s laid-back approach to
management. When PepsiCo acquired KFC, it began to restructure the KFC
organization, replacing most of KFC’s top managers with its own.
D. CONCLUSION

S - Competent in key areas of operation

- Company reinvest by opening new branches
- Well thought of loyal customers
- They established a strong brand-name
- Most internationalized fast-food chain

W - Lack of research and development

- Strategic direction is not clear
- Plagued with internal operating problems
- Poor relationship with franchisees

O - Earn big profits as the population grows

- Big demands for foods
- Ability to increase the number of franchise to other countries

T - Entry of new competitors

- On going changes in taste preferences and dietary needs
- No support from government agencies

III.ACA’s (ALTERNATIVE COURSES OF ACTIONS)

One of the challenges of KFC Company was how they can handle changes.
When PepsiCo acquired Kentucky Fried Chicken, were how to join two distinct
corporate cultures and whether it had it had the management skills required to
successful operate KFC using PepsiCo managers. PepsiCo had already acquired an
experience in managing fast food business through its Pizza Hut and Taco Bell
operations. However, replacing KFC with PepsiCo’s managers could easily cause
conflicts between managers in both companies, who were accustomed to different
operating procedures and working conditions.
 The old managers must remain in the business because they are the one who
have the knowledge to operate the business. Since they acquire (50%) of market sales
in the United States and they are ranked as the third largest fast-food chain
worldwide.
Other challenges were on how they can transform to Old KFC to New KFC
like transforming the old strategy in term of service, facilities and the menu that they
offer. They should adopt today’s trends in the company operations by using
modernized facilities in the services.

IV. RECOMENDATIONS
We therefor, conclude that KFC should work on the management issue to
build good atmosphere for their employees to work in. They also make sure that they
offer quality food and excellent service.

Today’s generations, most of the people are becoming health conscious especially
the people in the United States. They are prone to hypertension, which is caused by
bad cholesterol not only Americans but all people around the world, most especially
this 21st century.

Nowadays, at early age, younger people are prone to hypertension. According

to the latest data, the youngest person who died was at the age of 16. Due to the fact
that most of the foods right now are ready-to-eat, most are processed foods.

What if KFC will offer and/or add fresh produced products such as fruits and
vegetables in their menu. In this case, they can increase their sales. Even vegetarians
can enter to their establishments.

They must also provide training to their employees and generate goods that are
in a low price.